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Boards are dangerous to founder/CEOs

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Re: Boards are dangerous to founder/CEOs

#131

Post by thethimble »

fezzez wrote: post #119
system16 wrote: post #103

Reading things like this and how common it is for investors to take over, I just wonder how it is possible that a young - and presumably naive - Mark Zuckerberg avoided the typical VC pitfalls and board guillotine / "CEO replaces themselves to help transition company to the next level" path? Was it just because Facebook's growth was so unprecedented they had no need to replace him? Or did he have a very good mentor o…

He had leverage. Facebook's massive growth meant that he could command the terms of the investment, and he ensured that he would always continue to control the board even as he was being diluted with later rounds.

See the “dual class” structure he managed to set up early on to preserve control.

https://www.vox.com/technology/2018/11/19/18099011/mark-zuck...

This was made popular by Larry and Sergey in 2012: https://www.sec.gov/Archives/edgar/data/1288776/000119312512...

It’s really only possible if the company/investment is so compelling that investors will invest with virtually no control.

Re: Boards are dangerous to founder/CEOs

#132

Post by vimy »

doktorhladnjak wrote: post #126
gonehome wrote: post #101

Earlier quoted context omitted.

Can’t you structure things like Zuckerberg or Palantir and just have the founder retain unilateral company control?

In theory, yes. But even that is no guarantee. Travis Kalanick had control through supervoting shares at Uber, but the investors forced him to resign and passed governance changes that made all shares equal in voting power. Even with founders having voting power, it's possible for the board or investors to exert other leverage.

How did they force him if he had control?

Re: Boards are dangerous to founder/CEOs

#133

Post by breischl »

rsweeney21 wrote: post #48

I always thought stuff like this happened to OTHER founders, but would never happen to me. But my board fired me six months after closing our series A. The advice in this article is 100% spot on. I didn't know any of this. I was totally focused on building my company. But if you raise money you can't do that anymore. 50% of your time will always be occupied with working on your next round of funding or managing your…

Had this happen on a much smaller scale as an employee. I (foolishly) bought out some of my options when I left the company. Years later they sold it, but structured the deal such that the major investors got paid out all the proceeds, leaving zero for the common shares. Yes, I realize preferred shares and payout preferences and so forth. The really galling part is that the exec team (who had themselves acquired, not built, the company) paid themselves massive bonuses. The employees mostly got a token amount and a kick out the door. Common shares got zero. Thanks guys.

tl;dr, shares in a non-public company are a lottery ticket at best. Just like options, but more expensive.

Re: Boards are dangerous to founder/CEOs

#134

Post by Waterluvian »

“ They will each feel like your special confidant. They will also see the other board members reacting calmly to the news and start to think that perhaps you actually have it under control. This will calm them down in the future.”

This seems like obviously good advice. But also begins bordering on what feels like manipulation. And that makes me uncomfortable.

In fact, this whole thing feels like manipulation. If nothing happens in a board meeting because it’s scripted, why do they exist? It seems like the solution to not getting fired as CEO is to control the whole thing and manipulate everyone.

Re: Boards are dangerous to founder/CEOs

#136

Post by wpietri »

Ooh, this is spot on.

> The fact that early-stage founders continue to take their money has to be some sort of delusional grandiosity, in my humble opinion. “Well yes, they fire half the CEOs they back, but surely not me.”

Having started companies, delusional grandiosity is almost a requirement, especially if you're going to take venture capital. I mean, just look at the odds. So it makes perfect sense to me that the VCs happily take advantage of it.

Re: Boards are dangerous to founder/CEOs

#137

Post by repomies69 »

jasode wrote: post #129
gonehome wrote: post #101

Earlier quoted context omitted.

Can’t you structure things like Zuckerberg or Palantir and just have the founder retain unilateral company control?

>Can’t you structure things like Zuckerberg or Palantir and just have the founder retain unilateral company control? Fyi... Zuckerberg didn't "retain" unilateral control. He lost his 65% majority ownership control because it was reduced (diluted) to 40% when Peter Thiel invested in 2004.[1] What eventually happened was that Zuckerberg later consolidated voting power from other shareholders like Sean Parker and Accel…

If the company makes bucketlots of money, the board isn't going to change the CEO, even if he would be a total arse in board meetings. I think it has to be repeated that investors want returns for their investments. Also, if the company happens to make money despite of lousy CEO, the board will highly probably keep the lousy CEO.

All these founder-centric stories makes it looks like board will fire the CEO just for fun, or just because they happen to get the idea out of the blue. Actually it is a lot of pain and work for the board to try to find a new (better) CEO and they probably realize that they will fail (statistically speaking). So, the board will fire the CEO only in a situation where they genuinely believe that average replacement from the market will do a better job running the company. They don't fire on a whim.

Re: Boards are dangerous to founder/CEOs

#138

Post by munificent »

anthropodie wrote: post #26
ChuckMcM wrote: post #10

This is something you should really understand if you're starting a company. The board isn't your "friend" while individual board members may be, as an entity it probably isn't. The understanding that individuals can be "good" and the composite can be "bad" is usually encountered by most people when some government is doing something "bad" but the people who live where that government is in power are known to be "goo…

“A group experience takes place on a lower level of consciousness than the experience of an individual. This is due to the fact that, when many people gather together to share one common emotion, the total psyche emerging from the group is below the level of the individual psyche. If it is a very large group, the collective psyche will be more like the psyche of an animal, which is the reason why the ethical attitude…

I intensely dislike the cynicism of this and other similar statements.

It's a truism of American culture that any group of people is somehow stupider, meaner, and more hurtful than any of its individual members. Yet our lived daily experience is that often our most rewarding, beneficial, and joyful experiences come when being a member of a group.

I mean, we are a group right here and right now in this thread and I assume everyone participating still feels it is a net positive for them to do so. The idea that all groups become bureaucracies, mobs, or totalitarian regimes is this weird extreme perversion of American values. Call it toxic individuality.

I think a value-free and more accurate observation is that emergent properties exist: a group can have observed properties that are counter to the intentions of any of its individual members. The aggregation process itself can be dynamic, iterative, and complex in ways that break a simple coupling between invidual intent and total outcome.

This can be bad, when otherwise sane reasonable people get riled up in a mob. Or it can be good, when a choir's tone sounds more in key than any of its individual singers. It's highly dependent on both the individual members and the communication structure of the group.

Re: Boards are dangerous to founder/CEOs

#139

Post by wpietri »

vimy wrote: post #132
doktorhladnjak wrote: post #126

Earlier quoted context omitted.

In theory, yes. But even that is no guarantee. Travis Kalanick had control through supervoting shares at Uber, but the investors forced him to resign and passed governance changes that made all shares equal in voting power. Even with founders having voting power, it's possible for the board or investors to exert other leverage.

How did they force him if he had control?

If you still need investors to put in more money, you're never really in control.

Re: Boards are dangerous to founder/CEOs

#140

Post by nostrademons »

hobbyjogger wrote: post #89
tptacek wrote: post #80

Earlier quoted context omitted.

I'm not the most informed person on HN who can respond to this but as a general rule it's within the bounds of normality to raise single-digit millions in unpriced rounds ("seeds") that don't generally have board seats attached, but your first significant priced round (your "A" round) will essentially always give up board seats. Formal boards are not required for private companies.

Delaware (and all or at least most other states) requires at least one member on the board of directors for any corporation, whether it's private or public.

The incorporator, board member, investor, CEO (President), Treasurer, Secretary, and sole employee can all be the same person.
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