Ask @StartupCFO: How to avoid the “Oh shit” board meeting


I was at a gathering of most of Canada’s VC fund managers a few weeks ago in Vancouver. One of the fund managers talked about something I have seen firsthand. He referred to it as the “oh shit” board meeting.

This meeting is typically the first meeting after the funding round has closed. No longer having to sell and spin, the management team can speak candidly about what’s going well and more often, what’s not.

Fundraising is a delicate balancing act. Investors generally discount your projections, which creates a temptation to inflate them (and the discount because companies inflate. It’s a vicious circle). But, they can get upset when you miss your projections. What do you do?

When investors walk into that board meeting and things are not going well, they get nervous. They’re nervous because they can’t control you.

If you create realistic projections, you run the risk of investors still discounting them, assuming you’re not a high growth business, and passing. If you pump up your forecasts, then you run the risk of inflating expectations and not meeting them. At the end of the day, selling shares in your company is selling trust. There is no public market for the shares in your startup. If an investor has buyer’s remorse (driven by you not meeting expectations), the investor can’t sell.

Expanding on this notion of trust, investors often talk about something called “agency risk”. Investors raise money in order to deliver premium returns to their LPs. They place their faith and capital in you (founder, management) as the agents that will deliver those returns. They succeed through you.

The problem, of course, is that they can’t control you. If you start to mess things up, they can help, guide, and mentor. But their only true recourse is to remove you.

When investors walk into that board meeting and things are not going well, they get nervous. They’re nervous because they can’t control you. They need you to suceed. They know that in the worst case, removing you and replacing you as CEO is painful and often doesn’t help.

Startups are never a straight line. And the only thing we all know about your forecasts is that you won’t hit them. So, what steps can you take to avoid that “Oh shit” meeting?

Build trust early

If you only meet investors as you are running a formal fundraising process, then they have a short window of time to assess you and make a decision. Even if they say yes, they will not have seen you operate long enough to know that you can get through the tough times and that you have a track record of delivering on your word.

It’s far better to get to know investors long before your raise. Tell them what you’re going to do. Give them months and quarters to track your performance and build credibility (by doing what you said you would do) before kicking off a raise.

No surprises

Board meetings should not be scripted, but if you have bad news to deliver, your directors should know it before the actual meeting. Send the board pack out in advance. Even before that, if you have sensitive or negative news, speak with your directors one on one before they get the board slides.

Solutions, not problems

The best management teams don’t come to the board with problems. After all, the board doesn’t actually operate. Instead, the best teams come with an acknowledgement of the problem and ready to talk about the potential solutions.

Make them part of the team

Even though your directors don’t operate you can still make them part of the solution to any challenge you face. Get them on the same side of the table as you. The way to do this is through open and regular communication. Give frequent and consistent updates. I see some CEOs only send investor updates when the news is good. That destroys trust for me.

Send updates on time. Good or bad. Have regular touch points with your directors between board meetings. Engage them as a sounding board and part of your team to solve problems.

Syndicated with permission from Mark MacLeod’s StartupCFO blog.

Photo courtesy Crucial Skills


Mark MacLeod

Since 1999, Mark MacLeod has been helping fund, grow and exit venture-backed startups. Mark has over 14 years of experience as a CFO for leading companies such as FreshBooks, Shopify, Tungle, and many others. In addition, Mark spent three years as a General Partner for Real Ventures. Mark now runs SurePath Capital Partners the leading investment bank advising the SMB software and commerce markets.

0 replies on “Ask @StartupCFO: How to avoid the “Oh shit” board meeting”