Trust is an important quality for a board, and this can be tested when funding and M&A decisions need to be made. We have witnessed the difficulty of being an advisor and non-executive board member, both from observation of clients and our own experience with boards on which we sit.

The difficulty comes from a subtle but important part of being a board member; a board member needs to trust those around them, executive and non-executive. A successful technopreneur is not necessarily familiar with the intricacies of M&A activity and capital raising. Indeed they may have different ideas of how shareholding can work. Do we apply shareholder debt or do we buy shares off each other? How do we capitalise properly if shareholders are not equally wealthy?

Technopreneurs have typically put their money, lives and family into building the business and so equity is very important to them – but if they can’t fund an increase in capital requirements, then how does the company survive? Do they have ambitions to grow the business beyond their own financial capacity? How will a new shareholder work with the existing culture? All these questions and more are enough for a board and shareholders to deal with, without adding a process of bringing new shareholders and capital into the business.

When it comes to an investor (often represented by a board member) driving a capital raising process, we have noticed high potential for misunderstanding and perhaps even mistrust.

The flip side of this observation is that the board member/shareholder can bring insight into both the process and the structure finally agreed. But we believe that this is where a strong advisor can play an even more important role in helping the board and investors to play a positive part in a capital raise. The advisor should speak the language and be sympathetic to technopreneurs’ needs as well as the company’s.

A case in point is around ensuring that the technopreneur is sufficiently invested in the company. We have had a client that failed to raise, principally because the founder team was not sufficiently invested. A nice rule of thumb that we talk about is that 50% of the shareholding should still be in the hands of the founders by the Series A round, otherwise subsequent dilution can lead to apathy on the part of founders who may feel that their shareholding is insufficient to incentivize them through hard times (which there will be). Some institutions have been explicit with us in terms of quantum.

What does this mean for technopreneurs? We believe that it is best to appoint a professional advisor to a fund raising process, even if the board and shareholders are savvy around the topic. Indeed having one more set of eyes on the process, structure and pricing strategy does help a professional advisor, too. Hubris is definitely not helpful for either party!