When you buy equity in an early-stage startup, you are quite literally buying a piece of that company. That makes you a part owner.
But what does being a “part owner” of a startup really mean? Will you be able to call up the CEO on his cellphone, ask for personal favors, or make recommendations for key hires?
Can you dictate that company’s marketing strategy? Will you be heard when you have concerns to share? Do you even get a vote?
Unless you’re on the board of directors, the answer is probably “no.”
The board of directors is a panel of experts and investors that help manage a startup’s business affairs. The board helps out with everything from appointing chief executives to writing company bylaws and more.
In short, the board of directors comes up with long-term strategies, which the startup’s officers are then obligated to fulfill.
Normally, only the biggest investor in each round ends up with a seat on the board. So, if you invest the minimum amount in a startup alongside someone who throws in a cool million bucks, you aren’t going to be the one sitting at the table when it’s time to pick a CFO or decide whether to offer dividends to shareholders.
If you watch Shark Tank, you may recall that many of the entrepreneurs who pitch to the Sharks actively request that the ones who invest take a seat at the board of directors. That’s because the legendary Shark Tank investors are coveted experts in their field, each with dozens (if not hundreds) of deals under their belts.
That expertise is exactly why I sat down with Shark Tank’s own Robert Herjavec this summer to discuss his winning strategies.
To watch the video with Robert Herjavec, click here.