Building and Compensating Your Board
For frequent readers of this blog, you know I’ve written a lot about startup boards including the importance of diversity and being deliberate about how many investors you have on your board (hint: likely too many). Last month I joined Bolster and compensation consulting firm J.Thelander for a conversation on building and compensating boards in the most effective way possible. This is an important topic, and I wanted to share and emphasize a few insights from the conversation. If you’re interested in watching the full session you can do that here. Much of the data shared by Bolster can also be found in their Board Benchmark report that I wrote about earlier this year. …
October 4, 2021· 4 min read
What’s a Fair 409A Discount?
Quick note: I’m not your lawyer. I’m not giving legal advice in this post. Back in the olden days of venture capital, company boards had wide discretion in pricing company options. As is true today, there was a requirement that options be priced at or above the “fair market value” of the underlying stock (otherwise there would be tax consequences to the optionee and sometimes to the company as well). However the board could determine what that fair market value was and, generally speaking, there wasn’t a practical way that these valuations could be challenged. Most boards did some level of work to determine the FMV of a company’s stock but generally options were priced between 10% and 15% of a company’s then preferred price (because common equity sits behind preferred equity there is typically a discount applied to the FMV of common stock to account for this “overhang”). It was and is imprecise science but – at least in the case of venture backed startups – there wasn’t much harm in an option being priced low. It was a benefit to employees and a slight value transfer from equity holders to option holders (generally speaking in M&A transactions the value of the aggregate option exercise ends up allocated across the rest of the cap table). In a funny way it also benefitted the IRS in terms of tax collections as employees were taxed on the spread between the option and the value of the stock on exit and since these shares were typically exercised at the time of an exit were subject to short term capital gains. Higher strike prices distributes proceeds away from short term gain tax to equity holders who more typically are paying long term gains on the value that was shifted (I’m skipping a huge amount of nuance and detail here but the above is a general representation of how things work). …
August 15, 2018· 4 min read
2012 Planning / Working Together
It’s been way too long since my last post. I was going to jump in with a post on not blogging, but thought better of it. Better to actually do than write about whether to do or not do. So much for my resolution to write/blog more this year… Hopefully this was just a January hiccup with too much travel and work to fit in regular blogging. If you’ve read this blog you know I’m a pretty deliberate guy. I like to know where I’m headed and I like to be explicit about where that is, what’s working and what’s not. To that end, towards the end of last year I went through an exercise with each of the companies I work with to lay out both top level goals for this year as well as get some feedback on the interaction pattern between the company and me. I’ve always done some version of this, but this was the first year I was this explicit about it (and the first time I included a request for specific feedback on my working relationship with the CEOs that I work with). The email looked like this: …
February 9, 2012· 3 min read
"The Board"
I’ve written before on effective board communication, how to run effective board meetings and other “governance” topics related to companies and their boards of directors. Today’s post is a little more ethereal. I’ve noticed a real difference in how various CEO’s I work with refer to their boards – particularly when talking internally to the rest of their management teams and employees. On the one hand are the CEO’s that consistently refer to their board of directors as “The Board” (capital “T”, capital “B”) and often use them as some kind of foil (as in “The Board has said that we really need to do XYZ”) – almost separating themselves from whatever decision or direction it is that they wish to convey and treating the board as some kind of amorphous entity like the borg in Star Trek. On the other had are CEO’s that more often refer to the board by their individual names, including themselves in the list as well. It’s obviously much harder to absolve yourself of responsibility for a decision if you speak in this fashion. It’s also much more difficult to use the board as the foil (since “Seth, John, Jamie and Susan” sounds a lot less threatening than “The Board”). …
August 26, 2008· 2 min read
Serial vs. collective board communication
Board communication has been the topic of a handful of conversations over the past few weeks as several of the companies I work with have grappled with both the right level of communication as well as the correct forum for certain board level discussions and decisions. Although there are a handful venues in which boards communicate, fundamentally they fall into one of two categories: conversations between a subset of the board (often just the CEO and an individual board member) and those that involve the full board. While there are some decisions that must clearly be made by the full board at properly noticed board meetings (and documented as such) there are many more day-to-day decisions that either do not, or fall into a gray area where gaining board ‘consensus’ might be accomplished in different ways (or may not even be required at all). …
March 21, 2008· 4 min read