
Why I Don’t Like Board Observers - wheels
http://www.bothsidesofthetable.com/2009/10/14/when-the-board-of-a-startup-votes-theres-a-problem/?awesm=grp.vc_Ae&utm_campaign=GRP&utm_medium=grp.vc-twitter&utm_source=&utm_content=site-basic
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sachinag
The VC firm I used to work at only took Board Observer spots, even in
situations when we'd lead deals. The reason for this was essentially cultural
(it was a captive arm of a much larger company), but I still think Observer
roles are OK even without external considerations. To me, the argument is that
every new person you put in that room introduces this element - this is
essentially an argument for smaller Boards, not that Observers are bad.

Lookit, I refuse to believe that a Board Observer can really wheedle three
other high-ego VC Partners to a terrible decision that they would otherwise
have avoided. And if it can happen, then what's to say that the opposite can't
happen - that the Observer doesn't save the company from a disastrous outcome?

Selfishly, the opportunity to go to a few board meetings - both alone and with
the partner - was great for me personally. I got a much better understanding
of how to run a meeting, what's discussed, what materials, and what does and
does not come up for a vote. I think that information had made me a better
entrepreneur, because I get a much better sense for what's really important.

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grellas
A good discussion of the downside of having board observers but, bottom line,
this _is_ a valuable tool for effecting compromises when negotiating among
investors and is therefore very often just a necessary (and manageable) price
to pay for closing your funding round effectively or otherwise breaking
sometimes tricky roadblocks among different people seeking a say in the
startup's business.

Once a startup has been VC-funded, control issues are inevitably a delicate
proposition and this is just one more (and comparatively minor) piece of the
normal balancing act.

Essential point of the piece (and a good one): as an entrepreneur, when
considering the board-observer role, don't forget the human element of how
someone can sway others even without formal authority and thereby affect the
dynamic of your board.

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tptacek
Short summary: because board votes are usually unanimous (board dissent can
have legal implications), the ability to attend and address the board is
almost as powerful as the ability to vote on a board; observers may end up
getting de facto board seats.

