This is post is the third in a five part series on Capital, and You.
Previously, I defined capital as potential power, and argued that the primary optimization objective of the venture capitalist is to acquire more capital.
This third post explains the relationship between the Board and the Venture Capitalist.
The Board is the embodiment of the corporation. Put a bit more strongly, the board is the corporation.
It’s the Board that discharges the power of capital. It exercises oversight. It is the body that all the employees are accountable to. It can fire anybody it wants – including the CEO. It can hire anybody it wants, including the CEO. They approve or disallow compensation plans. They approve or disallow budgets. They audit. They question. They allow. They disallow.
The board is the nexus between the Venture Capitalist, which has a key activity in managing the risk they’ve taken, and risk itself. The Venture Capitalist has an interest in managing that risk as much as possible, and one of its key levers is by way of the board itself.
The Venture Capitalist will approach people in their network, or in the partnership itself, to sit on the board, and assert the interests of their capital. Those board members exert influence by way of their voting power.
A common convention in early rounds is that the founder gets two seats, the Venture Capitalist gets two seats, and there’s a (supposedly) neutral fifth seat.
At the core, the board represents the interests of Capital, and its duty to accumulate more of it.
The board is the embodiment of the Corporation, it is made up of people who represent the Venture Capitalist, the Founder(s), other shareholders, and by proxy, Capital, and it is obligated to behave in a manner that increases capital accumulation.