What founders — and VCs — can learn from Klarna's board mess
Last week’s game of musical chairs on Klarna’s board seems to have finally come to an end. Longtime investor and former Sequoia partner Michael Moritz, who left the firm last year, survived an attempt by Sequoia to oust him as independent chair of the board. Instead, Sequoia partner Matthew Miller, who took Moritz’s Sequoia seat in January, was ousted — and Sequoia partner Andrew Reed will replace him, according to The Information (a person familiar confirmed to me that Reed is being recommended for the seat). Whew.
It’s still unclear what exactly happened; some reports say a clash between Klarna’s cofounders; others point to disagreements between Moritz and Miller over shareholder agreement changes (Klarna declined to comment and Sequoia declined to comment on the record). But it’s not the only recent board drama: OpenAI CEO Sam Altman was also fired — and rapidly reinstated — late last year.
“There's more and more situations that become public, where founders realise, 'Oh, wait, there's a topic that I didn't really think about yet,’ and it’s no coincidence that this happens when [the market] is not all up and to the right anymore,” says Michael Schuster, cofounder and former partner at Speedinvest, and now founder of Boardroom, a consultancy working with board members. “That’s when the board usually gets more important.”
So what lessons can founders learn about how to choose investors for their board — and manage them?
“It sounds obvious, but I always say, choose the person before the fund,” Lucile Cornet, a London-based partner at VC firm Eight Roads, tells me. “You will be amazed by how different people behave, especially in adversity or when things become harder.”
Cornet says it generally works out best for founders if their VC board member stays at their fund. “One thing I've seen, especially in the last couple of years in Europe, is there's been a lot of [moving] of people between funds.”
She suggests founders ask themselves when constructing their board: “Could I really work with that person for 10 years? Or is he or she gonna behave well, even if things get tough? […] And is that person gonna stick around so that I'm not switched around?”
Victoria Younghusband, a lawyer focused on investment funds and corporate governance at law firm Charles Russell Speechlys, recommends founders have a good shareholders agreement that includes mediation dispute resolution clauses and confidentiality.
Founders need to actively manage their boards, too, says Cornet. She advises founders to anticipate “tricky conversations”, share plenty of information with board members ahead of time and make sure they leave ample time to discuss key matters — like M&A or IPO plans — in board meetings, to “avoid people panicking”.
For companies in the pre-IPO phase, there's lots to consider — from who the leadership team will be as a public company to what the share governance structure looks like.
Cornet also says founders should understand the pressures board members might be under. “In the next couple of big IPOs, you'll have half of the investors happy and the other half unhappy, because people that have invested in the early days [are] getting liquidity ... [and will] actually make good money; and you'll have people in these boards that will be in the red.”
VCs could pay far more attention to board management as well, says Schuster. He doesn’t know of many VCs that have someone on the team focused on board governance, transitions and best practice. Moreover, firms should think about how best to hand over board positions, add value to boards and upskill members.
I’m very curious to hear from you, founders: have you experienced drama on your board? How did you deal with it? Are you planning to switch up your board members anytime soon, or have you had a tricky departure in the past? And VCs: do you have someone (or are you planning to hire someone) in charge of managing board seats at your firm? I’m all ears.
— Anne Sraders, senior reporter
