Several months ago close to 700 venture industry professionals, evenly divided between CEO’s and VC’s, participated in the first ever board survey conducted by the NVCA. The survey results were published April 10, and I encourage anyone interested in understanding the difference in perspectives between the CEO and the VC director to read the results (click to link).
I was asked to comment on aspects of the report and have recently given a couple of interviews about the report to publications including Inc. Magazine (look for a story in the June issue). An excerpt from the NVCA press release:
The Value of the VC Board Member
Venture capitalists spend an average of 12 hours per month per board while CEOs average 15 hours per month according to the survey. CEOs and VCs both cite the audit and compensation committees as the most common committees on which they sit. While 73% of the CEOs surveyed were comfortable with the amount of time their VCs are spending on board activities, 24% wanted more time. When queried about additional experience the ideal VC board member would bring to the table, 45% of CEOs cited more sales strategy and industry sector experience. As for the primary benefits venture capitalists provide to a company board, both parties agree that VC expertise in raising new rounds of financing is most important followed by the ability to help recruit top talent to the company. Both parties also cited VC counsel on governance issues as beneficial.
"Venture capitalists add value to boards through the rich experience they gain by working with multiple companies and the pattern recognition that comes from this experience," observes Pascal Levensohn, founder and managing director of Levensohn Venture Partners. "VC’s can normally see the strategic opportunities and obstacles more readily because they go to numerous board meetings monthly and see hundreds of situations first-hand every year through their partnerships’ portfolios. This depth of exposure makes the context of what is happening more obvious to the VC than to the CEO in many cases. Strong communication between the VC and the CEO can maximize the positive contribution from this complementary relationship," Levensohn added.
One of the most interesting findings of the report to me was the broad agreement by both CEO’s and VC’s that venture-backed companies lack metrics to measure board effectiveness. Accountability is a big deal in our business, and we VCs certainly hold CEO’s and their teams accountable for lack of performance.
Just because most VC directors can buy a board seat through their ownership of Preferred stock does not absolve them of their obligation to be accountable to their peers. My white paper "Rites of Passage" recommends that annual director self evaluations be implemented in venture-backed companies as a best practice. The NVCA survey results only make this need more compelling, and the fact is that annual director self evaluations are required by the NYSE and are recommended as a best practice by the NASD. An increasing number of public technology companies are adopting this practice, including Extreme Networks and Interwoven.
Venture-backed companies have different issues than public companies, and it would be a mistake to simply require self evaluations to be done in private companies using the public company model.
I am currently working with a group of VC’s, independent venture-backed company directors, CEO’s, general counsels, and CFO’s to analyze how best to adapt public company director self evaluations to the diferrent needs of venture-backed companies.
More to come on this subject.
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