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by Karen Abrams, MBA
Investing in a startup company can be a lucrative opportunity for many investors. However, being an investor does not necessarily mean that one should also be a board member. In fact, it is often wise for investors to not take on a board role in a startup. In this article, we will explore the reasons why investors should not necessarily be board members, and why choosing the right board members for a startup is crucial.
Before that discussion, it is important to note that in Guyana, board members are expected to be involved in the administration of the company on many levels — from opening a bank account, to signing paperwork for even the most mundane tasks requires a resolution from the company signed by board members. These laws set out in the companies act may require a review in the near future as they tend to add layers of bureaucracy to business transactions, slows down rollout time and makes Guyanese companies less competitive with their foreign counterparts.
Being a board member requires a significant time commitment. Startups are notoriously fast-paced, and board members are required to be actively involved in the company’s decision-making process. This can be difficult for investors who have other commitments or lack the necessary expertise to make informed decisions. It is important to note that not all investors are experienced businesspeople or have the skills required to effectively guide a startup.
Being a board member sometimes creates a potential conflict of interest for investors. Board members have a fiduciary duty to act in the best interests of the company, which may not always align with the interests of investors. This can create tension and compromise the effectiveness of the board. For example, a board member who is also a major investor may be more focused on maximizing their return on investment, rather than making decisions that are in the best interests of the company as a whole.
Choosing the right board members for a startup is crucial for its success. Board members should bring diverse skill sets and experience to the table, and be able to offer valuable insights and advice to the company. They should also be aligned with the company’s vision and values. A board that is made up of individuals who lack the necessary expertise or do not share the company’s vision can be detrimental to its success.
Finally, board members have a significant influence on a startup’s culture and direction. The wrong board members can lead to poor decision-making and a toxic work environment. Therefore, it is important for startups to choose board members who are not only qualified but also align with the company’s culture and values. The wrong board members will destroy your business, choose wisely.