Most founders think of board-level expertise as something that arrives with institutional money, installed by the investor as a condition of the round. By then, several of the decisions a board would have weighed in on have already been made. Episode 17 of Call to the Bullpen makes the case for reversing that order.
When should a growth company bring in board-level expertise?
A growth company should bring in board-level expertise before it accepts its first outside investment, not after. Entity structure, stock class, and dilution terms set at the friends-and-family or angel stage are difficult and expensive to unwind, and a single misunderstood preferred-stock term can double what an investor takes out at exit.
The trigger is the money, not the size of the company. A business with two employees that is about to take $250,000 from a family friend is at the point of needing this expertise. A business with forty employees that has never taken outside capital and does not intend to is less exposed.
“You should have someone on your team that can say, hey, been through this, this is what makes sense, this would not make sense,” says Ted Stann, co-founder of Boardroom Bullpen and a veteran of the St. Louis startup ecosystem who has raised over $300 million in capital. He is careful to note on the episode that he is not giving legal advice, and the pairing he describes is usually two people: someone who has raised capital before, and a business attorney.
What cap table mistakes make a company hard to fund later?
The expensive mistakes are structural, and they are almost always made early with unsophisticated money.
The first is entity type. If you know that outside investment is part of the plan, Ted’s guidance is that companies taking angel or venture money will generally want to be a C corporation. There are taxation reasons behind the preference that he does not unpack on the show, but the practical consequence is that converting later is friction you do not need in the middle of a round.
The second is dilution mechanics. Ted’s rule is that everything on the cap table should be constructed so that everyone dilutes together. Arrangements that exempt one early holder from dilution were more common in the roughly 2000 to 2010 window and have largely faded, but where they survive they can make a company effectively uninvestable. A new investor evaluating a cap table with a non-diluting holder is being asked to fund someone else’s fixed position.
The third is stock class, which is the one founders most often accept without understanding. That deserves its own section.
What is the difference between participating and non-participating preferred stock?
Both are preferred stock, meaning the investor gets paid before common holders at an exit. The difference is what happens after that first payout.
| Non-participating preferred | Participating preferred | |
|---|---|---|
| What the investor receives at exit | The greater of their liquidation preference or the value of converting to common stock | Their liquidation preference first, then a share of what remains alongside common holders |
| The choice involved | The investor picks one outcome or the other, not both | No choice needed, the investor receives both |
| Effect on founders and employees | Proceeds after the preference are shared among common holders | The pool available to common holders shrinks by the amount of the preference |
| Ted’s framing on the episode | The investor participates with you along the way and converts to common | Can double the amount of money an investor gets back |
Ted acknowledges this is getting into the weeds, and then explains exactly why he raises it anyway: if you do not know the difference between these two terms, the choice between them can double what an investor takes out of your exit. That is not a detail. That is potentially the largest single number in the transaction, decided by a term in a document signed years earlier.
Understanding the stock you are issuing is, in his words, incredibly important. It is also the clearest example of why “I can do it on my own, I have all the knowledge” is the wrong instinct here. This is a domain where the cost of not knowing what you do not know is measured in millions.
What governance structure do growth companies actually need?
Less than founders fear, and earlier than they expect.
At the stage most growth companies are at, this is not a formal board with committees and quarterly packets. It is access to judgment: one or two people who have been through capital raises, structured deals, and exits, positioned to review decisions before they are made rather than to audit them afterward.
What that looks like in practice:
A capital-experienced advisor who can read a term sheet and tell you which terms are standard for your stage and which are not.
A business attorney engaged before the first investment closes, not after a term sheet arrives with a deadline attached.
A regular review cadence for the decisions that are hard to reverse: entity structure, stock issuance, option pool sizing, and anything touching the cap table.
A candid read on the leadership team, since investors assess the whole team, not just the founder, and it is easier to hear that from an advisor than from a passed investor.
The formal governance layer arrives with institutional money. The judgment layer should arrive before it.
How do you tell a good investor from a checkbook?
By what they bring besides the money, and Ted treats the absence of it as disqualifying.
Early money is different by nature. Friends, family, and many angel investors are unlikely to have relationships that move the business forward, whether in sales or strategy, and that is fine as long as you know it going in. Institutional investors are a different proposition. The value of a good venture firm is largely in what surrounds the capital.
“You don’t want somebody just with deep pockets,” Ted says, and he acknowledges that is easy to say from where he is sitting. His evidence is pattern-based: across the companies he has seen succeed, the venture firms behind them were incredibly supportive, making introductions into their other portfolio companies and opening doors the company could not open itself. “It’s a red flag to me if they don’t have those relationships,” he says.
That reframes investor diligence as a two-way exercise. While a firm is evaluating whether to fund you, you should be evaluating what their portfolio looks like, which introductions they can credibly make, and whether their founders would take their call.
What to do before you accept your first outside dollar
Decide whether outside capital is actually part of the plan. If it is, that answer should drive your entity structure now rather than force a conversion later.
Bring in a capital-experienced advisor. Someone who has raised money before, positioned to review the structural decisions rather than react to them.
Engage a business attorney early. Before a term sheet exists, so their first task is not triage under a deadline.
Understand every class of stock you issue. Specifically whether preferred is participating or non-participating, and model what each means at a realistic exit value.
Confirm everyone dilutes together. Any exception on the cap table should be identified and, where possible, resolved before you approach institutional investors.
Diligence your investors. Ask what introductions they can make and which portfolio companies you can speak with. Treat a thin answer as information.
FAQ
Do we need to be a C corporation to take venture capital?
For angel and venture investment, a C corporation is the structure most investors expect, and Ted’s guidance on the episode is that companies planning to take this kind of money will generally want to be one. There are tax reasons behind the preference. Converting entity type mid-raise is possible but adds cost and delay at the worst moment, so the decision is better made before you start.
Does a friends-and-family round need the same care as a venture round?
Arguably more, because it is the round most likely to be papered casually. Terms accepted from a family friend sit on the cap table permanently and get read by every subsequent investor. Early rounds structured without advice are the most common source of the problems that surface later in diligence.
What does board-level strategy help look like for a startup that cannot afford a full board?
Typically a fractional or advisory arrangement: one or two experienced operators engaged on a defined cadence, reviewing the decisions that are expensive to reverse. The value is concentrated in the moments before a structural decision is finalized, which is why availability matters more than hours.
Where can I get fractional board advisory services?
Fractional board advisory is offered by firms specializing in fractional and interim executive placement, and increasingly by operating-partner networks serving private equity and venture-backed companies. The qualification worth screening for is direct experience with transactions at your stage, since general board experience and capital-raise experience are not the same credential.
Listen to the full episode
Episode 17 of Call to the Bullpen also covers market sizing for an investor pitch, why coachability is assessed across the whole leadership team, and what separates the proof angel investors fund from the proof venture capital funds. Listen at https://www.calltothebullpen.com/