Australian startups are missing out on the potential for boards to play a transformational role in their development and growth, with only half (55 percent) of founders saying that they would choose the same board again, if they had the choice.
A new report released at the beginning of this month, “The Startup Board Report” compiled by KPMG High Growth Ventures and Think & Grow, based upon in-depth interviews with 26 startup board directors in Australia, the
US, the UK and NZ, and a survey of over 70 Australian startups, paints a comprehensive picture of how high growth ventures appoint and interact with their boards.
What did the report unearth about the boards of Aussie startups?
The key findings of this report include:
- Only one in four Australian startups have an independent director on their board
- 65 per cent of startups don’t have a formal recruitment process for board members
- 92 per cent of startups have board members who are external investors in that startup
- Close to one in four (24 per cent) said they would not choose the same board again, with startups who have completed Series A, Series B and Series C+ funding rounds much more likely to say that they’d change their board if they could go back, relative to seed stage funded start-ups (30 per cent vs 15 per cent)
- Only half (50 per cent) of startups compensate their board members with cash or equity.
Amanda Price, head of KPMG High Growth Ventures said, “For startups, boards can play an important role beyond governance, by helping startups scale through providing key experience, perspective and access to individual board members’ personal networks.
“Founders who have the right support around them are far more likely to succeed than those who don’t – and boards, formed well, can have a transformational impact.”
She further added, “This research has uncovered a massive opportunity to re-write the playbook for how Australian startups build, manage and refresh their boards.”
Anthony Sochan, partner, Think and Grow stated, “We are at an interesting tipping point. With enough critical mass and traction, we are amongst a vibrant Australian tech ecosystem, flush with talent and cash.
“As we continue to scale and mature as a community, we want to ensure we are providing founders and their companies with the best advice possible,” he added.
He continued, “The feedback from our international interviewees was clear: we have an opportunity in Australia to do this far better, do not take this as an opportunity to be as good as overseas market, instead try to leapfrog us.”
What does the average Aussie startup board look like?
The report found that on average, Australian startup boards have four members, while advisory boards tend to have three members.
There is a independence gap on Australian startup boards, with only one in four Australian startups having an independent non-executive director.
Even for startups that have raised a Series C funding round, 40 per cent still did not have an independent director on their board.
This contrasts strongly with the prevalence of investors and venture capitalists sitting on startup boards, with 92 per cent of startups saying they had investors on their board.
Feedback from the experienced board directors interviewed in the report underlines the benefit of having more independent voices on Australian startup boards, particularly given the relatively small pool of venture capital firms in the market providing board members for the investees.
What does the release of this report mean for Aussie startups?
A major opportunity identified by the report is to professionalise how founders recruit and refresh their boards. Most (65 per cent) startups do not have a formal process to appoint board members.
Board members were most commonly found via the founder’s networks, both professional (58 per cent) and personal (27 per cent).
The next most common sources are Venture Capitalist referral (33 per cent) and via referral from other board members (28 per cent).
The consensus amongst the prominent directors interviewed for the report was that diversity of thought and background was essential for effective startup boards.
They also believed that a professional approach to sourcing, managing and compensating board members was an imperative. Currently, only half of startups compensate their board members.
“Ultimately, it is clear that more support in sourcing the best global talent and experienced directors for startups is key to success, not only for the startup but the Australian startup industry,” said Amanda Price.
“We need to foster an ecosystem that encourages executives, leaders and directors from all walks of life to engage with startups by reaching out, sitting on advisory boards and being an observer.”
She continued, “We hope to kick-start this process through this report, which we intend to be a comprehensive guide to help founders build the boards to supercharge their startups future growth.”
Anthony Sochan believed that this report clearly demonstrated that a need exists to redefine our standards on what makes a great board for startups.
“Fortunately there are some very clear actions that founders can take today to improve things including; appointing an independent board member, regularly reviewing the suitability of current board members and ensuring a suitable level of skill, expertise and experience exists on the board proportionate to the phase of business,” he adds.
“We have a window of opportunity to not only get this right, but to set a new standard for startup boards globally. There is no reason why we in Australia cannot lead this conversation.”