Great boards are more about chemistry than control

Inc.com has advice for early-stage companies: the partners with whom you choose to work are more important than the need for control.

By now everybody has a big stake in your success and would like to feel consulted on the major decisions you’re making with their money.  It surprises me that this is even controversial but in this day-and-age it sometimes is.  I know there are bad investors who do bad things. There are just as many bad entrepreneurs who do bad things.  As with most of life, it’s more about whom you choose to work with, what their reputation is from others and how well you’ve vetted them more than an absolute need for control.

Or as we once put it:  the fate of control is that always seems too little or too much.

Getting this piece right isn’t so much about control as it is about chemistry.  If VC-CEO partnerships are like marriages (as is often said), then the issue of control needs to mirror that of a healthy marriage.  It’s not about 100% control, or even 51% control – it’s about playing to each others’ strengths and making the concessions and adjustments that a given situation demands…  It’s hopefully a long term relationship, and so over time you each learn when to take your shot and when to pass the ball…

Once the honeymoon is over, will you collectively put forth the constant effort required to sustain the relationship?  How will you resolve conflict?  Are communications open and largely free of clashing egos?  Does the quality of the arguments make the outcomes better?  U2 credits their longevity to a “group ego” that trumps everything else.  Can you develop what Fred Wilson of Union Square Ventures calls “shtick tolerance?”  You don’t have to accept everything about your partner – outside of integrity/honesty – but you must be able to more or less tune some things out over the long haul.  You’re patient with their shtick because they’re patient with yours.  It’s hard work.

Predicting interpersonal chemistry isn’t always easy.  Most venture firms will have a good “rap”, but it’s absolutely essential for entrepreneurs to verify that through their own rigorous due diligence:

Entrepreneurs who are raising growth capital (i.e. bringing on a long term partner) as opposed to selling their businesses (i.e. get the best valuation) should invest a lot of time conducting due diligence on their prospective financial partner.  A credible partner will let you (indeed, encourage you) to talk to as many of their previous entrepreneur partners as you want to get a feel for what they are like to work with.  Entrepreneurs should ask for references from successful investments, unsuccessful investments and current investments.  Ask for the venture firm’s entire list of previous and current investments and randomly call a number of them.  Find some independent sources on your own who weren’t provided as references but know the venture firm…

The chemistry between entrepreneur and venture partner in private companies is more cooperative, longer-term, and (mercifully) not subject to the quarterly reporting pressures of public companies.  Both will have real “skin in the game” and the same incentive to understand the nuances of the business and focus on long term value creation.