SAN FRANCISCO–(BUSINESS WIRE)–Nov. 6, 2003–Board members who are complacent, over-committed or unwilling to confront difficult issues can create major problems for the technology start-upcompanies they are supposed to be governing, a new white paper asserts.
The white paper entitled, “After the Term Sheet: How Venture Boards Influence the Success or Failure of Technology Companies,” is co-written by venture capitalist Pascal N. Levensohn, Founder and Managing Director of Levensohn Venture Partners, and Dennis T. Jaffe, an expert in organizational change management and a professor of organizational systems at the Saybrook Graduate School. It is available at www.levp.com under the news section.
In their paper, the authors analyze the pitfalls that frequently affect the Boards of Directors of venture capital-backed companies. Among the problematic issues are leadership vacuums, loss of trust in the company’s CEO, Board divisiveness and a misalignment of interests between directors.
If these problems are not solved, venture-backed companies run the risk of failing to grow into profitable, competitive and more valuable enterprises, undermining the entire premise of early-stage venture capital investing.
The white paper argues that venture capitalists must provide much more than financial backing to assure the success of their investments. “Venture capitalists’ experience, social network and mentoring abilities are of at least as much value as their financial capital in nurturing new ventures,” said Levensohn, Founder and Managing Director of Levensohn Venture Partners. He added, “The quality of the interpersonal relationships between the venture capitalists and company management can play a determining factor in the success of a venture-backed enterprise.”
To research the white paper, the authors drew on their own experience and also interviewed venture capitalists, corporate attorneys, and company CEOs — all involved in technology start-up companies or companies in turn-around situations. Through this approach, “we identified several common attributes of successful Board members of venture-backed companies,” said Jaffe. “These skills included emotional stability, pattern-recognition abilities and strong interpersonal skills, in addition to the requisite investment and operating experience,” he added.
The authors provide a set of strong recommendations designed to help venture-backed companies deal with Board problems that can hamper company growth. Among the recommendations are:
— Developing self-assessment and performance tools to track how
the Board is performing as a team;
— Creating an open information-sharing system between the Board
and top management;
— Facing emotional flare-ups as they arise through direct and
timely confrontation of the issues;
— Holding a Board retreat to deal with critical issues or create
necessary strategic plans.
In addition to detailing the difficulties faced by venture-backed companies and their Boards, the authors provide a broad array of insight into the workings of technology start-up Boards.
An interactive, candid relationship between the Board and the CEO is paramount to the success of a startup, the authors assert. Two aspects of the Board/CEO relationship are essential: that the CEO keep the Board informed, and that the VC Board Members mentor and support the CEO. In the best companies, the authors suggest, CEOs encourage Board Members to communicate directly with company management, both formally and informally.
“While the new corporate governance rules were designed to apply to publicly traded enterprises, entrepreneurs and venture capitalists are well advised to begin to implement good governance practices early in the lifecycle of the private company,” said Steve Bochner, a partner at the Silicon Valley law firm of Wilson Sonsini Goodrich & Rosati and a member of the NASDAQ Listing and Hearing Review Council, where he has had substantial involvement in the development of NASDAQ’s corporate governance reforms. “As this white paper indicates, good governance practices can provide substantial benefits to emerging companies, including more effective shareholder representation, the attraction of sophisticated board members and investors, better handling of conflicts, and the reduced risk of liability,” he added.
About Pascal Levensohn and Levensohn Venture Partners
Pascal Levensohn has been a professional investor for more than twenty years. He has personally advised and served as a director of numerous public and private companies, and he has made investments in twenty technology ventures through Levensohn Venture Partners since 1996. Pascal has published two articles on corporate governance in Directors and Boards magazine: “The Problem of Emotion in the Boardroom” in 1999 and “Tyco’s Betrayal of Corporate Governance” in 2002. Pascal is a graduate of Harvard College.
Levensohn Venture Partners (LVP) is an early stage venture capital investor. We focus on building companies as they transition from research and development through initial revenues to a more complete commercial entity. LVP invests in emerging leaders in the enterprise software, communications and semiconductor sectors. Founded in 1996, LVP is based in San Francisco with $135 million in two venture funds. LVP has selectively invested in 20 companies including Atheros, BigFix, CommerceOne, KnowNow, Interwoven, Rapt, Teralogic, Velosel, Veraz Networks, and Vertical Networks.
About Dennis Jaffe and Saybrook Graduate School
Dennis Jaffe is a world-recognized leader in management and organizational change. As Professor at Saybrook Graduate School in San Francisco, he created their doctoral program in Organizational Systems. As a visionary for programs on corporate governance, executive development, mastering change, organizational values, career building, innovation and succession planning he has helped scores of companies all over the world realize the potential of their workforce. His current work concerns the governance and leadership of start-up, family and closely-held businesses. He received his BA in Philosophy, MA in Management, and Ph.D. in sociology, all from Yale University.
Founded in 1969 and based in San Francisco, Saybrook Graduate School offers innovative, individualized and rigorous dispersed residency M.A. and Ph.D. programs in Psychology, Human Science and Organizational Systems. Dennis Jaffe is one of the school’s renowned authorities on the topic of corporate governance and organizational behavior. It was one of the first independent schools to offer distance education for mid-career adult learners, who wish to pursue an advanced degree while they work. Saybrook’s curriculum is a unique blend of leadership for organizational and societal change, humanistic and transpersonal psychology, consciousness and spirituality, and leadership in health care and education. For more information, visit www.saybrook.edu.
