The gang at Wilson Sonsini have created a very interesting term sheet generator. In addition to its practical value, it is also an interesting educational tool. If you are an entrepreneur or a new VC, it goes through all of the key term sheet elements in very specific details with the most common option highlighted and explanations for most. Definitely work a look. Be forewarned that it takes a bit of Q&A to get through it as it asks about all the key elements.

"I am the wisest man alive, for I know one thing, and that is that I know nothing."
                                                            — Socrates

I was very pleased with myself. Through early October, on my person investing outside of venture, I was actually up nearly 3% for the year. My shorts had held, gold was acting as an insurance, I had gone to cash sufficiently early. I clearly had figured out how to manage the markets in turbulent times and was even getting good at forecasting. This illusion shattered in the following three weeks. It always happens when I (or others) become complacent, overconfident and convinced that my good fortune is due to my genius and will continue on linearly.  I took my shorts off prematurely, Gold started to drop with the market (depression concerns) and my proudly purchased 4 P/E stocks dropped in a matter of days to 3 P/E stocks. I tried to put the hedges back on just as the market would jump back up and remove them just as they would go back down, knowing full well of each investment rule I was violating. Suddenly, I was 10% down in just 7 days. Whoops…

This just goes to show how important it is to keep ones discipline in both good times and bad as well as a balanced view on both the up & down sides. There are a lot of people who have lost a lot of money (or are losing their companies now) because they lost discipline during the good times. For VC's, this is momentum investing, paying up for rounds, expecting someone else to pay an even crazier amount. For entrepreneurs, this is allowing your burn to grow and focusing on too many things. Then there are those losing money on the downside and we all have more than enough examples there.

James Montier, from Societe General, recently wrote an interesting piece on the beauty of Ignorance and Humility.   Click here to download Montier_Ignorance.pdf. In it, he discusses the need for acknowledging ignorance and our inability to forecast the future as well as the importance, therefore, of staying humble while sticking to the fundamentals of a business. This is the key insurance policy you have in these times. It's a good read.

One of the most popular search topics on my blog has always been compensation. I thought I would lay out historically the average benchmarks with some caveats. The first caveat is that these numbers will be skewed more towards an early/expansion stage company versus a start-up or late stage companies. The second is that with conditions worsening, a lot of companies are going to need to ask employees to take across the board pay cuts (usually in exchange for some equity) to stretch the runway out. The third is that these are non-founders stats. Founders will have much higher equity and lower salary. The fourth is that each situation is different, as is each employee, so there are trade-offs between salary and equity. That said:

CEO (non-founder)
Salary $180-200k, bonus $50k+, equity around 5-7%

CMO
Salary $150-175k, bonus $50-75k, equity around 2%

COO/CFO
Salary $150-$175k, bonus $50k, equity 1-1.5%

VP, Sales
Salary $150k, bonus tied to sales (usually in the $50-75k+ range), equity of 1-2%

Other VP spots
Salary $140-150k, bonus $25-50k, equity 0.75-1%

Director and below
The market will dictate these. Directors usually in the $110-130k range, key programmers in the $90-120k range, controller in the $50-80k range depending on experience.

Again, these are very rough cuts. For example, a rock star CEO could easily end up at $225-$250k, $75-100k bonus. Also, I can't emphasize enough that in this current cycle, having runway (target at least 18-24 months, 12 months minimum) is your key lifeline. If you are not there, you need to sit your team down and discuss an across the board pay cut (with equity bonus tied to goals). You need to do this now so that the company has a number of months of benefit from it to stretch out the runway. Firms almost always wait too long, hoping that things will turn, and start efforts like pay cuts with only a couple of months to go. This does little to impact the runway as you have too few pay periods of savings.

Just remember: I have never (yes, never) heard a CEO bemoaning the fact that he/she reduced his/her burn too soon. I have frequently heard them comment that they wish they had done so 6-8 months earlier.

     "If you can keep your head when all about you
    

Are losing theirs and blaming it on you,
    

If you can trust yourself when all men doubt you
    

But make allowance for their doubting too,
    

If you can wait and not be tired by waiting…"
          — Rudyard Kipling, "If"

Michael Mauboussin, at Legg Mason, published a great piece in May of this year titled The Turtles of Omaha: The Mindset of Great Investors. In it, he discusses Curtis Faith’s new book, "Way of the Turtle" as well as Nassim Taleb’s latest book, "The Black Swan". His article is a must for investor and entrepreneur alike and can be downloaded here…Download TurtlesOmaha.pdf

In the early 1990’s, Richard Dennis, one of the most successful pit traders in the world, had a debate over whether great traders were born or made (nature vs. nuture). They decided to solicit applications from a broad array of fields, screen them for set characteristics, train them and give them each a small stake to invest. Those that did well each month got more money and those that underperformed lost capital. They were called  the Turtles. Faith was only 19 at the time, the youngest of the group yet he delivered the best results. Why? Temperment & discipline.

He discusses three classic psychological tendencies investors must overcome to be successful:
1) Loss aversion
2) Frequency vs magnitude
3) Role of randomness

Loss Aversion
As I’ve written in the past, humans are programmed, through millenniums of  adaption, to suffer pain twice as much as we  enjoy gain. Those that did not, probably found themselves as T-Rex snack. In trading and venture capital, over 50% (and sometimes 70%) of transactions are not profitable. Fearing loss, many investors will pull out of proven investment approaches prematurely. In one case, Faith said that over one ten month period, following the set trading strategy, traders would have lost 24 out of 28 times (avg $930 loss each time) but would have had 4 winning trades that averaged $20,000 each. Better yet, the first 17 trades were all loses as the market stubbornly refused to trend where it needed to. Many of the other Turtles bailed on the system, thereby missing several of the 4 wins. As Buffett says, "Be greedy when others are fearful and fearful when others are greedy." Recency bias trends us towards extrapolating that the future will look just like recent past.

Frequency vs Magnitude
Buffett would say that rule #1 is "never lose money". Faith would say that loss is inevitable in trading (and in venture capital). However, limiting your losses while positioning for the big upside is the key to success. It is not the frequency of the win or loss but rather its magnitude. He mentions that George Soros, who has made billions trading, is often wrong over 50% of the time. However, when he wins "it’s a grand slam". Many smart people, needing to be "right", will sub-optimize long-term performance in order not to be "wrong" in the short term.

Role of Randomness
Randomness plays a central role in investing. In the short run, markets or strategies don’t always play out as expected. Investors will attribute this to a good or poor process. The reality is that often people, fearing loss and focusing on the noise (assuming it is signal), will pull the plug too early. They hard part is knowing when something is noise and when it is a new trend.

In general, Faith outperformed the other turtles, not because he was smarter, but rather because his temperament allowed him to avoid many of the emotional traps that befell the other traders. As Kipling wrote, "If you can keep your head when all about you are losing theirs and blaming it on you…" 

Mauboussin also makes reference to another recent book by Nassim Taleb called the Black Swan. Taleb claims that market results do not follow the believed bell curve but rather are lumpier out towards the tails. Furthermore, it is the tail events that drive performance and they usually break from historical patterns when they occur (non-linear chaos theory…). Ironically, we experienced a Black Swan in August as all of the quant shops saw their models crash as credit markets backed up unexpectedly. He mentions that outliers that vary from historical norms drive most of the losses and gains in the market. Goldman Sachs took over $1B in losses, stating that events from early August should have occured only once every 100,000 years according to their historically determined models. Taking the 50 worst days out of 30 years worth of trading data drives S&P returns from 9.5% to 23.5% and removing the 50 best days out drives the returns down to 3.5%. As a result, it is important to rely more on exposure (likelihood of something happening using common sense) and less on experience (what historical trends indicate).

Since technology markets follow very similar, non-linear patterns and inflection points, these very same lessons apply to entrepreneurs as they do to investors. Minimize your losses (burn, etc) while you wait for markets to turn, minimize emotional & instinctual responses to developments and realize that when things inflect, they can explode upward much more significantly than expected or predicted (just look at YouTube or Skype). As Mauboussin concludes: focus on your process (value proposition), recognize where your risk is, look for favorable odds and realize that over time, rational factors will play out through the noise if you don’t let emotions short-circuit you. Watch your behavior to assess how you truly are responding emotionally to developments.

I am increasingly coming to the conclusion that it is temperament & emotional behavior and not intelligence/insight that drives the majority of successful investing.  Knowing common behavioral traps and being aware of your own behavior is key to becoming a truly successful investor.

Excessively relying on information is one of the behavioral traps that researchers are increasingly focusing their efforts on.  As the amount of information rises around an investment decision, the greater the likelihood that noise will crowd out core signal in the process. In fact, with studies on genius, research has shown that experts do not necessarily process information more quickly than any of us, but rather they simply and cut noise out more effectively. They use pattern recognition to quickly cull options and focus on the most relevant.

Michael Mauboussin of Legg Mason is one of the more interesting writers in the investment circles. His partner, Bill Miller, is one of the most reknowned investors in the world for having beaten the markets for 13 straight years (just missed last year). He has published two interesting pieces on investment approaches and psychology. I will write later about his second one, Turtles in Omaha.

Michael recently wrote about the impact of information on horseracing results. The handicappers grew increasingly confident in their rankings as they were given more & more information. The irony, however, is that their predictions deteriorated as they moved from having 5 pieces of information to 40 pieces. So, they became more confident in their results just as they were getting worse.

I have always been amazed by the simplicity of Warren Buffett’s approach. He does not have seas of analysts (I don’t believe he may have any) nor does he do excessively deep diligence dives into companies. He becomes "competent" in certain areas and, though he doesn’t mention this much, leverages the opinion of key people he knows in each area. This is also why you often see investors have repeated hits in a given area. They are able to determine who has the most reliable and relevant networks in a given field and use them to accelerate decisions.

For many investors, they develop a gut feel for an opportunity and then leverage data points to confirm that feeling. Some are quantitatively driven in the hedge world but this is not really possible on the venture side due to the immaturity of many business models. Overall, what this says is that good investors are those that can determine effectively what are the key pieces of information versus gaining access to the broadest array of information. Furthermore, it provides a warning to investors that having more information is not always (some would say usually the opposite) a good thing and to not take comfort in masses of numbers and facts. In the end, it is the simple core things and your network of people that makes the difference.

"You are only as happy as your worst off kid"
   — Parenting Proverb

One day, I was going through a bipolar moment. One of our companies was about to sell for a nice multiple on invested capital. However, later that day, another company informed us that it had lost two major customers and was in a severe liquidity squeeze. Since your attention always goes to the fire drill of the day, I jumped into crisis mode on company B while much of the euphoria from company A receded. Ironically, later that day, I was talking with a friend about children. He mentioned the quote above. You’ll often find yourself, as a parent, happy that one of your children finally mastered a hard task but find yourself stressed because another is struggling due to health, friends, academics or the like.

I began to think about the children/portfolio analogy and realized that there were a lot of other common lessons. Most of these relate to how you interact or manage the deal. One of the most difficult tendencies to avoid as a venture capital is to jump to deeply into the day to day operations of an entrepreneur’s business. VC’s have to walk the fine line between being helpful and being meddlesome. Many of these lessons also apply to CEO’s and how they manage their lieutenants.

They have to own the concept & responsibility: VC’s come up with all sorts of brilliant ideas on how a business should be run. Some are insightful and come from years of going through similar situations in the past. Some are simply seagull droppings deposited from 20,000 feet up. Since VC’s have leverage due to their capital and their board role, there is a tendency, at times, to try and push through an idea even if the team or CEO doesn’t agree or track on it. This usually does not end well.

Just like with my kids, if they don’t buy into the idea, they won’t take ownership of it, they won’t internalize the need and it will get done half-assed as best simply to get you off their back. Furthermore, they (kids or management) often have a better read on what the daily constraints will or won’t allow and how it fits into the bigger picture. As a result, I have found it best to explain my point of view, give my reasoning, establish boundaries (see next) and let the company do what it thinks is best.

Set Boundaries, Principles & Consequences: Kids only truly learn to take responsibility, become autonomous and take ownership when they accomplish it themselves. While CEO’s should have the freedom to run their businesses, they also have to be respectful of the "law of gravity". VC’s have a pretty good experience base to draw from regarding "things that go boom". However, they should avoid micro-manage the team. VC’s should establish, along with management, boundaries (revenue targets, cash runway, number of customers, etc), establish principles (minimize dilution, deal openly & honestly with the board, etc) and let the company execute as it deems best. The consequences for success or failure are usually pretty straight forward. This approach sets direction and expectations but allows for the CEO to take ownership and responsibility.

Let Them Fail: Parents hate to see their kids suffer. There is also an "ego boundary" expansion where the child’s success or failure is the parent’s also. VC’s have the same issue. If the VC has effectively set boundaries, then there should room for the company to make mistakes and fail from time to time without taking the business down. Failure is a key way for CEO’s to fully appreciate the different facets of "the law of gravity". As the Irish say, what doesn’t kill you, makes you stronger. On the other hand, I have often found that they were right all along and pulled things off.

Offer Help & Resources: Offer but don’t insist on resources. Only they know what they truly need to accomplish a task. Additionally, if they don’t appreciate or understand why a resource is useful, they won’t be able to take full advantage of it. Often VC’s will say "you need to talk with xyz, VP of Biz Dev at Acme Inc". The VC will think that this is a key introduction, but the CEO will see it as a tangential effort and only take the meeting to please the VC (e.g. wasted time). This is like demanding that a kids see a tutor or other resource. Sometimes you have to, but you’ll get your best results if they see how it fits into the big picture and why it is useful.

Let Them Come Up with Solutions: VC’s should help define the problem or challenge but then ask the Company to come up with solutions or ideas. VC’s had trouble resisting throwing in their opinion and recommended course of action. This skews the process and often ends up with a solution the CEO only half supports. With my kids, I have been amazed by how creative they are when given the task of solving for themselves. Often the solution is much better than I would have ever come up with.

3 to1 Praise/Criticism: I can’t recall if the ratio is 5:1 or 3:1, but I do remember the childhood development folks talking about the importance of giving multiple genuine praises for every criticism. Humans feel lose or criticism significantly more than praise (lot of stock market psychology tests have demonstrated the lose aversion theory). VC’s are a nervous bunch and can be quick to point out all that either is going wrong or could go wrong. It is essential to keep things in perspective and to remain supportive of the company. It is grueling out in the battlefield and the last thing a CEO needs is the "nagging" VC at home. This doesn’t mean that it should be a Barney love fest, but VC’s should attempt to infuse positive energy into their companies. Look for small successes, not just misses or risks.

Sparse Use of the Nuclear Button: Every parent finds that moment when frustration is so high that he/she feels the coronary coming on. Often this results, when the child has defiantly refused to do something, in the parent raising his/her voice and relying on the cliche "Because I Said So". When a parent begins to yell or threaten extreme consequences, it gets the child’s attention. It also becomes less effect with each use and shuts down the communication channel and insures that the child will not internalize any of the discussion or reasoning. With a CEO, sometimes a VC will need to bring out the stick. However, once this happens, trust will begin to breakdown and information flows will likely get filtered. If this happens repeatedly, either the CEO will eventually go or the company will be sold.

Don’t Make It Personal: Stay calm and try to keep emotions out of it. When my daughter was young and rammed her head into table, she was fine until I looked at the huge, purple bump forming and panicked.  She then proceeded to burst into hysterical tears. If dad can’t deal with this, why should she? While a VC might fear that the ship is going down, he/she should lay out the facts, defining the consequences and jointly laying out an action plan versus bemoaning the despair. The board’s attitude towards these situations will heavily influence how the CEO approaches and behaves.

While these sounds straight forward, they are very hard to comply with due to human nature. I would give myself between a C+ and an A- on these at different investments. My goal, overtime, is to move more consistently upward. That said, I won’t survey the kids…

"As a general rule, it is foolish to do just what other people are doing, because there are almost sure to be too many people doing the same thing."
   — William Stanley Jevons (1835-1882)

Marc Faber included a rather humorous story in his most recent issue of The Gloom, Boom & Doom Report. Marc is one of the leading thinkers and writers on the markets around and has been publishing his report for years from Hong Kong. He is an annual participant of the Barron’s Round Table every year. He follows up the following story with a quote stating

"In speculation, as in most other things, one individual derives confidence from another. Such a one purchases or sells, not because he has had any really accurate information…but because some else has done so before him"
— J.R. McCulloch 1830

This sums up a lot of what we are seeing in the Web 2.0 world these days. Many of these plays have popped up not necessarily because of inherent value or traction, but because they look similar or their investors hope to replicate some of the initial pops in the category like MySpace, YouTube or even Flickr. This list contains a plethora of companies focused on ad networks, demand generation, social networking and the likes. This is the first cycle when all asset classes have risen ranging from stocks to commodities. Everyone has had a taste of success. The explanation for it all is "the world is awash in liquidity". Everyone is also feeling rather complacent & secure. It reminds one of the Red Indians….

"It was autumn, and the Red Indians on the remote reservation asked their new Chief if the winter was going to be cold or mild.

Since he was a Red Indian Chief in a modern society, he had never been taught the old secrets, and when he looked at the sky,
he couldn’t tell what the weather was going to be.

Nevertheless, to be on the safe side, he replied to his tribe that the
winter was indeed going to be cold and that the members of the village
should collect wood to be prepared.
But also being a practical leader, after several days he got an idea.

He went to the phone booth, called the National Weather Service and asked "Is the coming winter going to be cold?"

"It looks like this winter is going to be quite cold indeed," the meteorologist at the weather service responded.

So the Chief went back to his people and told them to collect even more wood in order to be prepared. A week later,
he called the National Weather Service again.

"Is it going to be a very cold winter?" "Yes," the man at National Weather Service again replied,
"It’s definitely going to be a very cold winter."
The Chief again went back to his people and ordered them to  collect every scrap of wood they could find.

Two weeks later, he called the National Weather Service again.
"Are you absolutely sure that the winter is going to be very cold?" "Absolutely," the
man replied. "It’s going to be one of the coldest winters ever."

"How can you be so sure?" the Chief asked.
The weatherman replied, "The Red Indians are collecting wood like crazy."

The venture business runs between the goalposts of greed and fear. This is no more apparent than during a funding event. Entrepreneurs are often puzzled by why another company’s funding erupts into a feeding frenzy, while their fundraising drags on like "the Bataan Death March." While no one can ever capture all of the intangibles, here is my stab at a couple of drivers:

Scarcity is king: like with any other asset, people tend to want something more when it is popular and they may be prevented from getting it. During a financing, this happens when there are active parties doing due diligence and generating term sheets. Scarcity is enhanced by several factors:

• small raise amount…less available, less for new investors
• strong insider interest…if Mikey likes it, the cereal must be good.
• leave room for one at the table…if only one new investor can get in, they can’t collude since they are now all competitors for the one slot. This eliminates their ability to coordinate their attack and drive price down.

Financings, like fish, smell after a while: you can sometimes generate strong interest and buzz initially during a financing. However, if investors fail to advance the ball or, worse, begin to turn down the deal, it begins to go stale. Word gets out when lots of groups have looked at a deal and turned it down for the same reasons. Eventually, it is like the guy that all the girls at school turned down for the prom. To prevent this, use a rolling prospect list. Don’t go to all 25 potential investors day one. Go to the top 5 and see how they respond. Begin to tee up the next 5, but only engage a handful at a time. You won’t be able to service everyone at once. As they start to drop out or slow down on you, you can add additional names.

Where’s the beef?: without a forcing mechanism, investors will hover like vultures waiting for something to happen. Often, companies will try to create a pseudo forcing event by telling investors that they have a term sheet in hand. I recommend only doing this if you have a term sheet, while not optimal, you would be willing to close on (because you may have to). New investors will do one of three things. One, do nothing, waiting to see if you are bluffing. If you are bluffing, you are now officially screwed. They will assume you are so desperate that you are resorting to lying and will assume the price will be coming down. Two, back channel to figure out who the term sheet is from. They will decide if it is worthy of their throwing in a competing offer. If it is from Sequoia, then people start to foam at the mouth. If it is Dumb Strategic A or No Name VC, then they don’t really care. Three, shut down their process since they have too far to go on their due diligence and won’t make it in time.

Three’s a crowd: following up on the last point above, make certain when you start the herding process by announcing a term sheet, that your potential other suitors are far enough along in their process. You want to try and keep the various parties at roughly the same place in their due diligence processes so they all feel motivated to dive into term sheet at the same time. You need at least three players throwing out term sheets to run a solid process. When you start with only two, one of them is likely to drop out for some reason. This leaves you negotiating without a back-up and it will show through eventually.

Raise when you want, not when you need: any investor can look at your balance sheet and cash flow statements to figure out how much runway you have. The worst cluster *(&^#’s I have experienced are when the company is burning significant amounts of cash, insiders are tapped out and there are only a few months of cash left. Investors know that when you hit the wall, they can get you for pennies. Ironically, once you hit the wall, very often, they will not jump in since you are truly damaged goods at that point. If they do jump in, you will be squeezed mercilessly. So, keep the burn under control and stretch out the runway. Make certain your insiders have dry powder.

Listen for Key Themes: when you hear back from the first batch of investors, determine key themes and impediments. Make certain you have answers in place to address these. Do not go the defensive route and say "these stupid investors just don’t get it. Why is it called venture capital if they want all of the risk out of the deal." Whatever, the reason, the consumer is always right and if enough consumers come to the same negative conclusion, you are tarnished regardless of reality. Don’t let lightning strike twice. If your pitch is disorganized or conveying the wrong points, fix it. If they want to see more customer traction, it might make sense to hold off the financing process a touch and get a few more customers in place. If they don’t like your burn, reduce it and get your financials under control more.

Intangibles that drive a strong process:

• Market position/rank: everyone loves a champ. If you are #1 or #2, people are interested. If you are further down the food chain, someone has to find something special in you to love.
• Proximity to exit: if investors can taste and see the exit, they are more likely to jump in and to price based off of that assumed exit value.
• Attractive analogs: investors will put you into a given category. They will look at other companies in that category and see if they like it or not. Telecom equipment is not a good category but a sexy 2.0 (for now) is more interesting.
• Strong economics: good margins and sales momentum.

In short, you have the ability to control your destiny. Be prepared for the investors not to come in and make certain you have your plan B in place. Knowing this, you will appear and negotiate with more confidence and avoid being lumped in with the kid without a prom date. Manage your burn, your dry powder and your milestones to make certain you don’t end up over your skis too far. And, try to drive scarcity into the process. Small investor allocations, strong business momentum and multiple stalking horses (or self-sufficiency) all lead to peaked investor interest. Avoid bluffing and fake forcing mechanisms as they always seem to backfire and make you look like a naive amateur. Don’t believe your own hype (manage your alternatives religiously) because financings can go cold quickly overnight. If investors smell blood, you will find yourself in a painful Bataan Death March.

"Can’t we all just get along?"
— Rodney King

I was talking this afternoon with one of our CEO’s, Tim Stultz, at Imago. He mentioned that he had been cornered at a cocktail party by a number of local angel investors. They proceeded to lay into him about how evil venture capitalists were, how VC’s always screwed them and how could he work with VC’s. They said that they took the risk, helped start the businesses and ended up getting crammed down in the end.

Tim pushed back (guess we will have to do an upround next financing!) and said that the terms he had seen in some of their deals were unrealistic and screwy. My favorite, which he mentioned as well, is the non-dilution clause…the angel investor will maintain their % ownership even after the new money comes in.

I don’t think this kind of relationship has to develop like this. The biggest issue in these deals is that angels try and structure/price financings with no understanding or knowledge about what a likely next financing will look like. When reality hits and all of their bells & whistles are torn out, they feel violated. For example, on the non-dilution cause, who then takes the brunt of the dilution…management. Who does the new investor affiliate with…management (not the old investors). So, why set yourself up for a certain reversal that won’t stick.

The second issue is that angels pump all of their money into the deal day one (or a large portion). We have spoken a lot about this in the past. Dry powder is king. Angels aren’t the only ones hit hard when they run out of money. Every VC will also go along for the ride.

The third issue is set up by the entrepreneur. Sometimes they raise money from angels because that is their only source. However, a number of times, they do it because the angels will give them all of the terms the VC’s won’t. They get a high valuation which, when milestones are met, gets hammered by the new money coming in.

So, my greatest advice to angels is to use convertible debt. Don’t try and guess what the right structure is. Simply have a vanilla vehicle that converts into the next round and use warrants to get a discount. Some VC’s will push the money to common and some will try to strip the warrants off. However, most will let it fly. This eliminates many of the sticking points. Also, make certain that you preserve dry powder. Put 1/3 of your eventual total allocation in day one.

My advice to entrepreneurs is don’t stuff the angels with crappy terms. Realize that they are sticking their necks out for you so don’t start out with a deal at a $19m post-$ at the seed level unless you are a rock star.

Listen to the Oracle of the LA Riots and get along!

How ironic…I did a post yesterday about how disfunctional venture backed boards can get and behold, a new white paper "The Basic Responsibilities of VC-Backed Company Directors" from a consortium of venture groups comes out on best practices regarding boards.

"The paper’s basic premise is that VC-backed boards are particularly prone to
dysfunction, due to: (1) Conflicting interests; (2) The regular addition of
new board members following financing rounds; and (3) The likely presence of
inexperienced members like first-time entrepreneurs, junior VCs or
independent directors with strong domain knowledge but no background on
VC-backed boards. Moreover, what happens if one high-profile VC is on a
board with a bunch of lower-profile VCs. Does the high-profile guy always
get his way, because the others don’t want to lose out on the opportunity to
continue co-investing?" (PE Hub)

Interesting read. We will see what uptake occurs on the board assessment tools.