Key Elements of Success: Board Powers
In 2010, Yogome was founded in Mexico, the company was an educational startup whose objective was to use games to encourage learning in young people through mobile devices. The startup raised approximately USD$37mm of funds from VC such as Exceed Capital, Seaya Ventures, Cometa (formerly Variv), Endeavor Catalyst and 500 Startups. Only USD$27mm in its Series B in March 2018. However, in September 2018 a fraud was revealed within the company that resulted in its liquidation. It would be interesting to understand the responsibilities and evaluations that the Yogome board of directors had for not wanting to see or find out what was actually happening in the company.
Yogome’s story exemplifies the importance of having a strong, involved board of directors with the ability to detect and correct mistakes throughout the life of a startup. For this reason, it is advisable to carry out periodic evaluations of the board of directors of startups considering 3 levels: the organization, the board of directors and each director individually, as suggested by PWC.
The first benefit of evaluation is leadership. At the organizational level, it demonstrates the culture of the organization and the role played by the CEO and senior management. At the Board of Directors’ level, it demonstrates leadership and long-term vision along with the promoted leadership principles. At the executive level, he demonstrates the commitment to improve and each director performance as a leader.
The second benefit is the culture where the behaviors that are expected within the organization are established in addition to measuring the metrics of the desired results. The board ensures the approach to culture with openness and responsibility in a framework of trust and respect. Each of the directors contributes to the construction of the organizational culture.
The next element is role clarity. The organization distinguishes between the roles of the CEO, the management and the board. The latter clarifies the roles and establishes norms for each of them. Each director must clarify their responsibilities and expectations.
Another element is teamwork. An ongoing relationship is created between the board, the CEO, and the management. The board should foster trust, active participation, the development of responsibilities and a sense of belonging. Each executive must be involved in this process.
Responsibility is another key element to consider within the organization and with each one of the parties involved, improving corporate governance standards and the delegation of responsibilities. In addition, the board must properly monitor the organization and each director must understand their tasks and responsibilities in the company and as part of the board.
Decision making should be clarified by the board regarding corporate focus and goals for an understanding of the entire organization. In addition, the board must support the identification of gaps and solve them with the support of each of the directors.
Communication is another element that is vital to improve the relationship between the board, the CEO, the management, and other stakeholders. In addition, the board should promote psychological safety standards and each director build trust between the parties.
All the operations of the organization must respond to policies that guide the proper performance of each unit. In addition, the board should promote more efficient meetings and manage time in a better way in which the participation of each director is effective and contributes to the fulfillment of the goals.
Among the elements to be evaluated are the following:
- Board structure and committees, including skills, experiences, knowledge, diversity and independence of the members among others.
- Work as a unit and a close relationship between the chairman of the board and the CEO.
- Efficiency and effectiveness, including purpose, conduct, values and leadership of the organization.
- Risk management and corporate governance.
- Strategy and resources.
- Human talent and ethics.
- Business performance.
The board of directors is an essential part for the right development of a startup. We must remember that 90% of the success of a startup relies on the execution which cannot be carried out without a good team that leads and manages it properly.
From the 95% of startups that fail, how many could have survived and be successful today if they had a proper board of directors? We will be left with the question of what would have happened in Yogome if it had had a proper board of directors.
The failures of startups in a Venture Capital fund’s portfolio speak louder about them than their successes.
“Evaluation is creation: hear it, you creators! Evaluating is itself the most valuable treasure of all that we value. It is only through evaluation that value exists: and without evaluation the nut of existence would be hollow. Hear it, you creators!” — Friedrich Nietzsche
Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.
Ricardo Latournerie. VC Investor at ACV.
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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