A Practical Guide to Angel Investing (2nd Edition)

5.1 Governance and Coaching/Mentoring Corporate governance refers to the formal methods required of the board of directors, whereas coaching/mentoring refers to the informal mechanisms whereby individuals interact with the management team, and usually the CEO in particular. A company must have a board of directors, and may also have an advisory board composed of industry experts and Angels who provide additional non-fiduciary advice, usually associated with sales, market and product development. The Angel Resource Institute (ARI) summarizes the board’s three main tasks as: 1. Never, ever, run out of cash! 2. Mentor, fire and replace the CEO. 3. Sell the company. It recommends that the board’s focus remain at the strategic level regarding these three tasks. At each board meeting, the board should formally review metrics tied to these issues. In addition, there are certain regulatory, duty of care, and duty of loyalty obligations. These duties and regulatory requirements become increasingly important as the company grows, raises additional rounds of financing, and generates more public information. (Huston, et al.) Nose In, Fingers Out The board is not management! They are nose in, fingers out. If there is no board, why not? Is the CEO/founder really coachable? How about the quality of the board? Do they have the moxie to do the three main tasks ARI identified? To me, quarterly reporting is inadequate, monthly is required for a startup. The board is there to look after all stakeholders. First, they need to mentor/ coach the CEO but also may need to replace if he/she is incapable, for whatever reason, to build the company (i.e., stewardship). The board has the fiduciary responsibility to ensure the CEO and management team are looking after the interests of investors, not just themselves. In my view, far too few startups have boards, let alone effective ones. The evidence is pretty clear that companies with well-functioning boards do better – a key criterion that I look at when investing. — Kirk Hamilton , Angel Investor & Principal, Élan Tactical Management Inc.

NACO Workshop Module 304: Best Practices for Angel-Backed Companies also includes the six major elements of principles-based governance: • Leadership & stewardship

• Empowerment & accountability • Communication & transparency • Service & fairness • Accomplishment & measurement • Continuous learning & growth

How to Achieve Good Returns

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