Why Startups Should Start With a Good Board of Directors?

An equity crowdfunding perspective.

boardroom

There is the myth of the “lonely wolf” entrepreneur who goes on by himself to accomplish his great vision. While this might work, recent research focusing on the initial phases of company development and early-stage survival shows that  that founding and early-stage directors can bring human capital (education, business, and functional experience), social capital (reputation and networks), and diversity to early-stage boards that make a difference to the likelihood of survival. The study found that new firms are less likely to face the hazard of insolvency when they have (Wilson et al., 2013):

  1. Boards with more experienced directors
  2. Directors with greater networking relationships
  3. More local directors
  4. More female directors
  5. Directors with low levels of recent insolvency experiences and low levels of recent director turnover.

The authors of the research concluded:

  1. The survival of start-ups may be improved if the local networking level within the board is enhanced, especially when social capital is at low levels
  2. There may be benefits from improving local director networks (clubs) and mentoring schemes, particularly for directors who have had recent failure experiences
  3. Heterogeneity in terms of gender balance appears to be an important start-up consideration for owners and lenders.

It seems that to increase the chances for success for a start-up, the entrepreneur should add one more task in the already complicated and long laundry list of tasks needed to be accomplished: assemble a Board of Directors, as the U.K. (Leeds University) researchers recommend in this article. Also, a board of directors will influence your financing efforts positively via equity crowdfunding, or otherwise. We know because at truCrowd.com we will ask the issuer if a board is ready before launching their equity crowdfunding offering. How to be efficient and effective in doing this? Stay tuned and I’ll post a summary as soon I find the best article in the field.

References: Wilson, N., Wright, M., & Altanlar, A. (2013). “The survival of newly-incorporated companies and founding director characteristics.” International Small Business Journal26(1).

Posted in Capital Formation, Equity Crowdfunding, Investors, Start-ups

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