You Can't Fire a VC From Your Board: Here's Why | Wilson Sonsini Startup Legal Basics

**Jason Calacanis** (0:06)
All right, everybody, welcome back to Startup Basics. Yes, that's right, this is where we spend just 10, 20, 30 minutes going over a basic concept that you need to run your startup. There's tons of blocking and tackling in finance, in AI, in customer acquisition and sales, and most of all, legal. So if you want to see all the past episodes or all the different topics, thisweekinstartups.com/ you guessed it, Basics. Today, we're going to continue. Today, we will continue our Legal Basics series with my lawyer, Becki DeGraw from Wilson Sonsini, Goodrich and Rosani. We call them WSGR here in the Valley. I mean, people call you Wilson, Wilson Sonsini, the full name WSGR.
Should I know what the right thing to say is or is it up to me and how I feel?

**Becki DeGraw** (0:56)
However you feel, it's perfectly fine.
But Wilson Sonsini is good enough or WSGR. I don't think I would go through the full name set of it, but yes.

**Jason Calacanis** (1:07)
I noticed raw is not up there yet. I guess another year or two and keep working.

**Becki DeGraw** (1:12)
Yeah, sure. We'll pull the DeGraw out.

**Jason Calacanis** (1:16)
This is a seriously multi-decade firm.
You and I have been doing this for a while. Today, we've got some really important things to discuss. Board composure is something that founders get very animated about, very concerned about, and then some VC firms are extremely heavy-handed, sharp-elbowed, persistent about board seats, and then others are like, we don't ever want to take a board seat. So let's talk about what a board seat is, why an investor actually takes them, we'll go into independence, and then we'll also talk about observers. But what's the role of the board in my seat or series A company?

**Becki DeGraw** (2:03)
Let's start with that. So the board sets the strategic vision for the company. So think at the highest level, it manages the affairs of the company. All the day-to-day operational stuff that gets delegated down to the officers, but the really important stuff, that's at the board level. So whoever you're adding to the board, you really want to make sure that you're aligned on what the future path is for the company. Now, we all know startups can pivot, so that may change, but the best that you can make sure you like this person and you are aligned on today's vision and that they're a thought leader in terms of where the company might go.
The other thing I'll note about the board is it has to approve certain material acts in order for them to be valid. So any issuance of any security, so any stock, I don't care if you want to issue one share, it has to be board approved. Option, yes. Any financing, that includes safes, convertible notes, preferred stock, bank debt, anything, M&A transactions, certainly, material contracts and one that's also near and dear to all of our founders' hearts, hiring and firing the CEO. So the board has a lot of control.
It's a very powerful unit when you are looking at it.

**Jason Calacanis** (3:20)
In the early stages, you have some investors. Everybody's got an opinion on boards. Of course, this is Silicon Valley and the technology industry.
Some folks are like, don't do a board.
Push it off as far as you can. Other folks are like, we need to get going on, you know, six board meetings a year, 10 board meetings a year. And I have always fallen into, hey, series A, you're going to have to have a board. Before you have product market fit, you're probably not going to have one. So there's something between those two moments in time. Typically, you raise over a couple of million dollars or you start making over a couple of million dollars. You might want a board to help you structure it and see what's around the corner. So I tell folks, hey, add up how much you've raised. Look at how much you're making. And you've probably never heard my speech on this, but hey, if that number is greater than two or three million, maybe a board, it's just one board member, one attorney, two founders, just getting together and formalizing some stuff would be in your best interest. And you start learning. So then when the Series A investor comes along, hey, there might have been three board meetings. There might be three board decks and there might be some resolutions that makes them feel more comfortable. That's my philosophy. What's your philosophy? When do you advise your founders that you're working with to start board meetings?

**Becki DeGraw** (4:41)
Ideally at the beginning stages, it's just the founder or founders that are initially on the board. If you have multiple founders, it doesn't mean that every single one of them has to be on the board either. There's a bit of a negotiation that goes into that and who should be the right folks. But one of the things that's super important is you don't need to add five people to your board on day one just like what you're saying because you think it's going to help the company look better. In fact, if you do that, you've just lost control of your own company. They're going to be making the decisions for you. Even if we don't have board meetings, there's board actions that we need to take. You're probably going to be hiring some folks and we want to issue option grants to them.