Why is sometimes good to get a board seat when you invest in startups?

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In some cases an investor may request a presence on a company’s board of directors, if it has one. This can take the form of a representative or the investor themselves. While not every startup will have a board of directors, in places such as Europe a board can be created as part of the investment agreement. This is a good option for investors who want to maintain an influence on the running of a company and be more hands on. A board of directors typically has to approve spending strategies and so an investor with representation on a board will have more control over how money is spent within the company. It should be noted that this does not mean complete control unless an investor has influence over the majority of board members.

Startup founders tend to want to maintain majority control as without it they could find themselves locked out of the decision making process. A good compromise in terms of influence is normally agreed upon in advance.

acr30 Expert Answered on September 7, 2015.
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