At some point in your fundraising journey, it will likely be necessary to appoint a non-executive director (NED) to advise the board and to provide commercial independent advice and guidance to the executive directors on the board.
Below are five things to consider when appointing and working with a NED.
1 - Follow a process
Whether the NED appointment is a requirement of an investment round or because you have determined that adding a NED to your board will benefit the business and the executive directors’ ability to formulate and execute the right strategy, the following process can be helpful. First, can the relevant individual undertake the role required. Second, does that person want to undertake the role required having regard to your expectations, the time commitments the role requires and the evolution of those time requirements in line with the business roadmap. Third, do you and your fellow executive directors want the relevant person to undertake the role required. Following this process enables you to remove the emotion that can arise when you meet someone because generally NEDs present well and are likeable so it is important to remove the component until requirements one and two have been met. If the appointment is a requirement of an investment round, have your own person in mind, who you have identified using this process so you can suggest who you think would fit rather than your investor choosing for you.
2 - Communicate clearly
In all relationships, effective communication is key, as is the requirement that the relevant context around a particular communication be made available so that the recipient of the communication can understand its importance in the wider context. As such, it is important to ensure you and your prospective NED establish and follow agreed communication guidelines so that the business knows what information the NED needs to be able to maximise his or her impact in the business. Remember that the NED may have other commitments and therefore they need timely updates and as much notice as possible to contribute meaningfully. Connected to this, ensure that your NED is kept abreast of developments whether good or bad so that they can contribute to the discussion as soon as practicable.
3 - Appoint for the present
A NED should be appointed with regard to the immediate needs of the business and the short and medium terms objectives of the business. Whilst a NED can bring valuable connections which can be helpful in the long term, it is more important that that individual have a strong reputation and sufficient gravitas that their appointment bolsters the business’ immediate impact in its market and with prospective customers and investors and that they can get the phone answered for you with the people you want to speak with. Once appointed, make sure that you engage that person’s reputation and gravitas to open the doors you want to be opened and present to the market your business including the presence of that NED on your board.
4 - Prepare to be challenged
Amongst other things, your NED should be a valued contributor to setting the business plan and challenging some of the assumptions about your business that you and your fellow executives have developed. However, they can be a valuable ally in managing challenging shareholders and investors because their independence means they can speak for the business in a way that the executive board can find more difficult in those situations. We recently spoke to a CEO of a leading FinTech who noted that he chose deliberately a NED who he knew less well and would challenge his assumptions more for this very reason.
5 - Every NED has their day
A NED appointment is not a permanent appointment. The appointment should be for the present (see 3 above) so be clear in your conversations with your NED what the plan is for the business as it evolves, what the requirements should be for their role and be willing to engage with your NED periodically on the direction of the business and their ability, willingness and your desire (in that order, see 1 above) for them to contribute in that role in each phase of growth and development.
We hope you find this short guide helpful. If you would like to discuss anything mentioned above, please contact me or a member of our Technology sector team to discuss.
If you haven’t seen our North West Tech Funding report, this is available for download on our dedicated page on the Brabners website. We have also prepared a video around the report’s findings which is available on our video hub.
