Entrepreneurs Seek Board Members Who Can Add Perspective

The timing and needs may vary, but every entrepreneurial organization comes to the point when it needs board members.

By:
Virginia Baldwin Gilbert
St. Louis Post Dispatch in NASVF.org

"It gets awfully lonely being in charge," said Alan Richter, regional director of Small Business Development Centers. "I’ve been involved with people in major organizations or small ones, and they all have the same challenge of getting a perspective that is honest."

Finding that perspective often is a matter of connections.

"You get your first director and ask, ‘Who do you know? Who should we try to get and why?’" said Thomas N. Urban, former chairman of Pioneer Hi-Bred International Inc., and a former board member of Sigma-Aldrich Corp. "This is not what you would do in a public company, but in a startup, it’s a good idea to get people you know and trust and can talk to quickly."

Urban recently agreed to join the board of Divergence Inc., a startup at the Nidus Center for Scientific Enterprise in Creve Coeur.

Divergence, which has had a corporate board since its founding in 1999, also added Stanford J. Goldblatt, head of the private equity practice of Winston & Strawn LLP, a 900-member law firm based in Chicago.

The Divergence board’s decision to expand to six from four board members "signals a continued maturation" of the company, said Derek Rapp, chief executive. "Over time, the company starts to see the commercial possibilities
becoming more attainable, and the ownership becomes more diffuse."

Divergence is a biotech startup, developing solutions to control parasitic infections in plants, animals and people.

The company’s principals wanted out-of-town directors who are familiar with the industry, and who also have experience outside large corporations.

Urban, for instance, left several corporate directorships of large companies four or five years ago to work with some startup companies, including one headed by his daughter, Nina Sawczuk.

"In huge public companies with billions of dollars in sales, especially a company with momentum, there’s not much you can do to screw it up, and not much you can do to help it," Urban said.

"Your views are taken into account, but management runs it. But with startups, -with two, three, five people on the board, with no money and the technology is unproven – it’s more fun … Every decision is very important."

Finding a board member is "very much like courting an investor or recruiting a senior employee," Rapp said, "The type of presentations we gave, the types of questions they asked were familiar."

In fact, many people involved in entrepreneurial companies may be investors, board members and employees combined, Rapp said. Urban and Goldblatt have invested in Divergence, but they were brought on more for their expertise than their money, Rapp said.

While it’s customary to put investors on the board or allow them to name someone to the board, company principals should be careful about an investor-dominated board, said Robert Calcaterra, chief executive of Nidus.

"If the board is all investment people, it leads to everybody thinking about one thing: money and the next investment," Calcaterra said. "They tend to get so bogged down in that, they don’t think about some of the more strategic issues … such as what will you do with partnership relationships or do you want to go further with clinical work."

Asking critical questions

Calcaterra recommends that science- and technology-oriented companies have scientific advisory boards as well as corporate boards.

On either board, "I like to see people who have a reputation for questioning the critical strategic decisions" a company is making, he said. "They’ll question whether the model you are following is the right model. They will want evidence, and will want to understand whether there is a better approach to take, or a quicker way to get from point A to point B faster."

Orion Genomics LLC, based in the Center for Emerging Technologies in St. Louis, wants to expand its scientific board.

"We founded the company on genomics and the application of genomics to agriculture," said Nathan Lakey, president. With its primary technology, called "gene threshing," Orion’s technology can sort out the "junk genes" of an organism and identify those that are important in development, function or disease. It allows gene discovery in one-half to one-tenth the time and cost of conventional methods, Lakey says.

The technology "has a fantastic role in gene discovery in plants," Lakey said. "But also a big role in understanding cancer in humans."

So now Orion is seeking expertise in human health.

"To grow out of your space (of expertise) to related technology, you have to have people who also see the big picture," Lakey said.

Orion already is supporting itself by providing its technology in partnerships with other companies. So it is not looking for investor-directors.

"It’s rare to find an investor willing to invest and not want a say on the board," Lakey said. "It’s critical that you don’t take money from just anyone, but from investors who add value at the board level."

Board members shouldn’t just take up space, says Marcia Mellitz, president of the Center for Emerging Technologies.

The Center’s companies have limited board seats, she said. "They want people who bring real value, who can augment the people who are running the company on a daily basis and can provide good strategic direction."