Board Meetings, VC Firms Passing a Deal


During the JP Morgan Healthcare conference, I bumped into an industry colleague running a VC firm in Northern Virginia.  When I asked why he passed on a startup mobile company located in San Francisco, he stated that it was too early.  Sometimes such a response can be confusing, unless one takes into consideration the mechanics of investing early by a VC firm and how board meetings play an integral part of that process.

In an earlier blog, I discuss the revenue model of a VC firm – where the limited partners allow the firm to charge a fee to the limited partners, which fee increases when a startup investment has been made by an additional 1% or 2%.  Why the surcharge? Now that managing director is spending more time participating at board meetings for that startup at least once a month. He is closely monitoring the performance of that company

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and measuring the company results during each board meeting.

I already know that the San Francisco company is almost 3,000 miles away from the VC firm. That would mean travelling back and forth for the monthly board meetings.  That is a major burden for a managing director, who knows he can find other opportunities geographically closer to him. That is why he passed on the San Francisco opportunity, however great a company that could be.

Let us talk also about board meetings. Under the standard corporate governance rules, the final decision maker in any company is the Board of Directors. However, for the Board to have any authority, it must have the minimum quorum as defined in the Bylaws.

Second, for the Board decision to have any effect, it must have three important conditions: a) the meeting had been preceded by notice or that notice waived as defined within the Bylaws; b) once the meeting is held, voting has to be occur with the minimal voting consent; and c) minutes must be kept of the proceedings. C-corps must hold at least one Board meeting a year for standard management.  And there are no limits as to the number of board meetings. In many startups, they occur once a month.  If there is an extraordinary event, such as a major investment or M&A, there should also be a Board meeting.

Shareholder meetings also abide by the same methodology as stated in the Bylaws, and operate within the same requirements related to minimum votes and notices. Otherwise, they are not legitimate meetings. Since the directors represent the shareholders, the shareholders are not required to meet as often, unless extraordinary events require their consent.

So we now know that the Managing Director from Virginia, clearly knowing his duties as an investor and potential Director, would be reluctant to participate in company board meetings thousands of miles away every month. So it boils down to not simply geography but also appropriate corporate governance.

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About Juan Ramón Zarco, SVVGP 胡安•雷蒙•扎尔科

Juan Ramon Zarco, 胡安•雷蒙•扎尔科, Silicon Valley Ventures Growth Partners llp, Hygieia Healthcare Technologies Company, AllRest Technologies LLC, Crimson Growth Partners LLP, jrzarco2001@yahoo.com, is an experienced as CxO, General Counsel and Secretary to public and private companies with global operations. Established track record of producing practical, revenue-focused solutions. As Counselor and Secretary, demonstrating vision, integrity, and sound business judgment, to CxOs. Managed complex, strategic transactions, M&A, contracts support, PE Financing, IPO, SEC compliance, Corporate/HR governance, IP licensing, Budgeting, Staff, outside counsel management, International market access strategies, Domestic & foreign government relations and advocacy. Creative in designing and implementing market access strategies. Practices law beyond conventional model with low-overhead and project-based fees. Effective at managing departments, formulating marketing strategies, balancing budgets, and implementing cost-saving measures. Extensive in-house and private practice experience, advising clients on commercial, corporate, international business, and technology law and policy. http://www.docstoc.com/video/89135472/make-your-business-an-international-presence; http://www.youtube.com/watch?v=fx5gijf3yoc For Sprint, he managed iDen international development in Southeast Asia, Middle East, and Africa, and contractual issues with Verizon. In Private Equity, he worked with Pegasus in vetting international investment deals and interim President for portfolio companies, such as Data Foundation, a data storage company, handling marketing, strategy, fund raising, and accounting. Before Pegasus, Mr. Zarco, as CLO and V.P. of Corporate Development, played a principal role in the structuring, international expansions for 2 telecom companies, U.S. Cable Group and Viatel, Inc. in financing and M&A deals exceeding $200 million. Mr. Zarco earned a J.D. from NYU Law School, M.B.A. from Cornell, and B.A. from Williams College; is fluent in Spanish, Portuguese, French, and German, with working knowledge of Russian, Arabic and Japanese.
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