This one may ruffle some feathers, but if it pisses you off, it’s likely because you know it’s rooted in truth.
Last weekend, I was invited to speak to a group of 300 investors under the general request that I choose a topic that would provide new participants in Venture Capital investing the most bang for the buck. That made my choice of subject matter easy; I simply went in and “talked my book.” Not to imply that I simply pitched our portfolio companies, but instead our unique approach to helping those companies grow and scale, the Operator Immersive model. You know, where we invest and then work really hard for free? This talk itself is not the focus here, but instead, I also heard several of the speakers who went on prior to me. After I left the stage, something struck me: the focus of the other talks and my own were incredibly disparate, and that difference was perspective. While they spent all of their focus on architecting ways to financially engineer or get access to investments, I spent mine on how to increase the value of those investments. Simply put, their jobs were over as soon as the check was cut, whereas mine was just beginning.
There’s no better analogy for where this dichotomy manifests itself most notably than in the boardroom, and to the detriment of founders and their startups. The boardroom becomes central because it’s meant to be the bridge between the experienced capital provider and the hungry upstart; together, they will conquer the world. But instead of vanquishing competitors and besting new horizons, most of the battles end up happening behind closed doors. Bickering. Whining. Vindictively attempting to achieve the upper hand. All while the company (read: investment) suffers.
In the competitive landscape of business-to-business (B2B) enterprises, effective board governance is crucial for strategic oversight and long-term success. However, board members lacking prior operational experience, such as those lacking hands-on experience as actual operators, fall short in delivering actual value. These “non-operators,” typically from specialized fields like law or finance, struggle to bridge functional expertise with practical business strategy, leading to superficial contributions and suboptimal decision-making.
The chasmic disconnect between theory and the day-to-day realities of a startup results in overly utopian advice that ignores critical nuance and realities. Without firsthand experience in managing teams, navigating relationships, or executing strategies, most board members frankly show up (often woefully unprepared) and attempt to sound smart. I’ve seen this all too often in the 11 boards I currently sit on – and its impact is felt far beyond the confines of the boardroom. In the organizations where board composition skews predominantly to VC representatives who have not operated within a business within the last decade, we see 26% less growth year over year than the boards that skew to an operator mix.
In researching the prevalence of this same trend in the broader market, I found our experience resonated at all levels. A Harvard Law School analysis of S&P 500 and Russell 3000 boards noted that those without broad strategic (operational) backgrounds “hinder effective board discussions and are less useful partners for management.” Similarly, McKinsey’s survey of over 1,000 directors linked boards with an “appropriate mix of skills and backgrounds” (including operational expertise) to stronger financial outperformance: 59% of top-quartile boards reported beating peers, versus 43% for bottom-quartile ones.
Now, if you read any commentary (even our own) regarding the current state of B2B SaaS and the impacts of AI on growth, buyer expectations, and efficiency demands, you already know that things have gotten harder in terms of creating true high-performing businesses. All of that translates to a need for hyper-alignment across a business – even within the boardroom. In fact, because of the insights we’ve garnered in our first three years, board composition and investor alignment have become one of our most critical underwriting signals. This may sound obvious in hindsight, but I will confidently lay a wager that this aspect doesn’t even appear on the radar of most investment committees. In fact, never once have I heard board DNA even enter the conversation when speaking to other VCs about the merits of an investment.
So, what’s the ultimate takeaway here? Beyond the obvious statement that we feel post-investment involvement is just as important as deal flow and selection, but we also believe that board composition is a strong early predictor of startup success. Beginning with our H2 ‘25 portfolio updates, which will be published here in a couple of weeks, we are beginning to cohort our portfolio based on ratios of BOD operator mix. The old adage of garbage-in, garbage out doesn’t just apply to one milestone; it’s consistent across the entire company lifecycle. And we firmly believe that by continuing to inject excellence in the form of both advisory and operator horsepower, we can outperform venture firms that apply only theory.
