So your VC wants a board seat?

In "No Board Seat for You" I make the case why a VC taking a seat on your company's board is not good for the VC or for you as the entrepreneur -- or for the company and its shareholders -- but I recognize it is hard sometimes to have that conversation with your investors.

To help entrepreneurs explain to the VCs why it is better for everyone for an independent industry expert to join the board and help guide management, I put together the following objections handler for VCs:

O1: I need the board seat to be able to protect the value of my investment.

A1:?Sure, we absolutely understand that you need to protect the value of your investment. From our experience, after you invest, there are two ways you can protect the value of your investment: first, by helping increase the value of the company by actively involving yourself in sales, marketing, or R&D. Second, by defensively deciding to replace management when you believe management is no longer able to grow the value of your investment. Wouldn’t you prefer someone who has a deeper understanding of the operational side of building a company in this space be the person to do both?

O2: I need the board seat because I need to have updated financial information to present to my own investors.

A2:?Right, reporting financial metrics are very important and we completely understand that you have a weighty responsibility to your investors. A company board composed of independent subject matter experts will ensure that the company reports meet industry standard, and come regularly. From our experience, even if you were on the board you would need to have those reports, and your leverage to have those reports presented is no greater as a board member then as a major shareholder with strong information rights.

O3: I need the board seat because I need to be able to prepare my own investment committee before the company needs to raise money, so we can decide whether to come in or not.

A3. We totally understand you want to have an inside view of the company. We believe in a free market for valuation, however, and we think that it is in everyone’s best interest to trust the market in setting the price the next time we need to raise capital.

O4. I need the board seat because there are times I need to pressure management and other board members to accept my narrative of the company’s trajectory so that I can affect the price of the company’s equities to meet my own targets for my LPs.

A4. Yeah, well, that’s called insider trading in the public markets, and not the sort of thing a fiduciary is legally allowed to do…so bye! Don’t call us we’ll call you.

None of this help? And you still want them as your investors? Send them the article and let me know if I can help.