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Why a Startup Needs a Board: The Why and How of Constructing a Board Early
Spencer Rascoff
Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.
If your business is a corporation, you are required by law to have a board of directors. For many startups, it can seem like just an option. However, there are many reasons startups should aim to form their own board of directors early in their lifecycle.
Does Your Startup Need a Board of Directors?
Yes. Even for experienced founders, a new company comes with new challenges — and an opportunity to make all new mistakes. For first-time founders, you don’t know what you don’t know. The best way to avoid many of these mistakes is to surround yourself with experienced counsel, and a board is a way to formalize that. The primary job of a board of directors is to look out for shareholders' interests, oversee corporate activities, assess performance, assess the CEO and senior management and give feedback about the future direction of the company. Your board should help provide advice and mentorship from people who have been there, done that.
When Should Your Startup Form a Board?
As you start to think about your board as founder and/or CEO, the board can initially be as small as just one director: you.
As the startup grows and evolves over funding rounds, you should expand and include more members. The most standard time to form a board is after the Series A funding round, but some startups choose to after the seed round. Typically, the board expands as the company does from two to three directors (including the CEO) around the Series A, to five to seven directors when the company is in the Series C/D stage to seven to nine directors as it is preparing to go public.
I prefer boards on the smaller side because they can be more collaborative and interactive, but as you create board committees, you will need a larger board in order to have two to three directors on each committee.
Who Should Serve On Your Startup's Board?
One of the best ways to fill a board of directors is to find the people you wish you could hire but may be in positions where it’s not really feasible. For a startup, you should aim for a board with three to five directors. This should include one or more in each of the following categories: the founder, an investor in the company and an independent director.
You’ll want to have some of your investors on the board because they are the ones most rooting for and affected by the financial success of the company. This will also allow them a small measure of control and visibility into the company's progress. Keep in mind it’s important to keep cultivating these relationships for when you need to raise capital down the road.
Additionally, it’s important to have one or more independent directors — a person who is neither an employee nor an investor in the company — on the board early. Ideally, you’ll be able to find another founder, peer, colleague or acquaintance who has been in your seat before and can bring a clear, objective perspective to board discussions. A trusted independent director can let you know if you’re missing an opportunity or taking a step in the wrong direction. Plus, most importantly, help navigate the challenges that arise when the investor board directors may have a different perspective from or disagree with the operating board directors.
Lastly, the diversity of your board is also extremely important. Groups from different backgrounds, genders, races and perspectives make better decisions and improve business outcomes. I recently had a conversation with CNBC’s Julia Boorstin at the dot.LA Summit about this very thing.
A Board Success Story
Throughout my countless years working and growing with boards, I’ve had many opportunities to see just how important a good BoD is. A great example of when a board decision aided my company and me more than expected is from my time at Zillow.
Prior to 2008, investors were looking to invest more money into Zillow — which we didn’t need at the time. One of our board members, Bill Gurley, gave the great advice of “take the hors d'oeuvres when they’re being passed” or take the money when it’s being offered. We ended up taking on the new capital and it was good that we did. When the 2008 financial crisis hit, the extra capital allowed Zillow to weather the storm and take advantage of the moment to expand more aggressively when the market was up for grabs.
It’s small moments like this that led to bigger successes down the road and prove the importance of having a board early.
Final Thoughts
Your board of directors should help you navigate challenges and serve as a trusted sounding board (pun intended) when you need advice. Something most, if not all, founders know by now is that startups are dynamic and constantly evolving, so as your startup scales your board will too. And if you build the foundations of your board thoughtfully, it will aid your startup in the years to come.
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Spencer Rascoff
Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.
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Kore Infrastructure Is Turning Waste Into Clean Energy in Downtown LA
09:37 AM | April 12, 2022
Courtesy of Kore Infrastructure
Hydrogen accounts for roughly 70% of all matter in the universe—and these days, it seems that hydrogen power startups account for about the same share of emerging green-tech companies in California. But while the space is replete with big dreams using hydrogen to power planes, cars, buildings and more, most companies are still years away from finishing a prototype—let alone building a plant or going to market.
Not so for Kore Infrastructure. The energy startup is already online at its plant in Downtown Los Angeles, where it’s converting tons of waste into hydrogen, biogas, natural gas and carbon char every day.
The idea behind Kore’s technology is similar to that of other companies also deploying the process known as pyrolysis: You take organic waste like deadwood and brush, heat them in a low oxygen environment at a very high temperature, and collect the gasses and carbon char left over. When all goes well, this avenue of hydrogen production can be carbon negative, meaning that CO2 is removed from the carbon cycle that usually sees it burned into the atmosphere.
When a pile of manure is left in a field, for instance, it naturally converts into methane and CO2—two greenhouse gasses that warm the planet. But if the manure is fed into a pyrolysis machine, about half of that carbon is converted into solid carbon, also called char. In this form, the carbon atoms can’t be broken down by microbes and released as CO2. The element is then sequestered as a solid, and its potential to warm the atmosphere is eliminated.
Now, after 14 years of quietly developing and building its technology, Kore is coming out of stealth mode and ready to start selling its pyrolysis machines to practically anybody looking to process organic waste. The company’s machines can handle a variety of inputs—from nut shells, agricultural tree prunings and biosolids to construction and demolition waste.
“The big differentiator with Kore is having steel on the ground, having something operational, having something to show,” Kore founder and executive chairman Cornelius Shields told dot.LA. “If you're going to build these types of facilities, you have to go through a lot of pain.”
Part of the reason that Kore suddenly seems to be at the forefront of the pyrolysis race is that it’s had a considerable head start. The company has been quietly operating since 2008 and built its first full-scale pyrolysis machine in 2015. These machines are massive, occupying a real estate footprint of close to an acre; to the untrained eye, they look like an unholy amalgamation of pipes, tanks and valves. At maximum capacity, one of the machines can process 24 tons of feedstock per day to produce 1,000 kilograms of green hydrogen and six tons of solid carbon char.
Kore Infrastructure's pyrolysis machines in Downtown L.A.Courtesy of Kore Infrastructure
Kore’s technology eventually drew the interest of SoCalGas, which provided a $1.5 million grant in 2017 that allowed the startup to begin setting up operations in Downtown L.A. By August 2021, the company had completed permitting and construction of the plant and began running its pyrolysis machine as a proof of concept for commercial applications.
“We have been pretty quiet,” Shields said. “As a founder, I just wanted to make sure that we were ready [and] that the technology was working before we came to market—that we knew we had real data, and it just wasn't a hope and a prayer.”
While Kore is still coy on its exact business strategy going forward, Shields says it's fair to estimate that a pyrolysis machine will cost up to tens of millions of dollars to purchase. That’s not a small chunk of change—but compared to the cost of building a full pyrolysis plant, which can cost $100 million or more, Kore thinks it may be able to entice buyers.
“We're selling modular systems to industry,” according to Shields. “That kind of scaling is far faster because an industrial client can say, ‘Okay, let's do two modules to start. Let's see how that goes, and then we can add other modules.’”
Pyrolysis’ appeal is bolstered by financial incentives like the California’s Low Carbon Fuel Standard (LCFS) tax credits and the federal 45Q tax credit, which award companies for saving and sequestering carbon emissions. Then there’s the hydrogen itself, which currently costs about $10 per kilogram at the gas pump if you drive a hydrogen car. And even the char left over from the process is valuable: The solid carbon can be used in fertilizers and to strengthen concrete, but it can also be burned as a coal substitute. (Obviously, burning the char undoes all the hard work of sequestering the carbon in the first place—but for hard-to-decarbonize industries like steel and cement production, a carbon-neutral fuel source is a massive improvement over coal.)
“We can decarbonize transportation fuels in the state [and] decarbonize the supply chain for natural gas—and then use the same technology to make hydrogen as demand for that ramps up,” Kore executive vice president Steve Wirtel told dot.LA. It’s this sort of double-edged benefit that makes Kore’s technology exciting for Wirtel: Pyrolysis converts carbon that would otherwise warm the planet into a coal substitute, and produces green hydrogen in the process.
Given those multiple revenue streams, pyrolysis is becoming an increasingly attractive waste disposal avenue, and Kore is hoping to have its first commercial machine sold and delivered to a customer by the end of this year. The company is also looking to raise an “institutional round of capital,” Shields said, citing interest from private equity investors.
He added that Kore is already drawing international interest in its technology, but is planning to stay conservative for the time being and focus on scaling locally—part and parcel of the slow and deliberate pace that’s served the company well to this point.
“There's so much opportunity in our backyard in California, that's where we're going to stay for now,” Shields said.
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David Shultz
David Shultz reports on clean technology and electric vehicles, among other industries, for dot.LA. His writing has appeared in The Atlantic, Outside, Nautilus and many other publications.
‘Don’t Lose the Stupid Way’: Melin Hats Co-Founder Brian McDonell on Building a Business
09:33 AM | June 07, 2022
Courtesy of Brain McDonell.
Brain McDonell didn’t have the stereotypical rags-to-riches story.
On this episode of PCH Driven, the Melin Hats co-founder joins the show to talk about losing everything, working when he was young and how he built his company.
With his dad as a successful entrepreneur, an 11-year-old McDonell got to experience family vacations at ski resorts and having family outings in Cabo, Mexico. But that all changed when his father’s business went bankrupt and the family was forced to sell off everything.
“I remember going to my parents at one point and saying, I want to go to the movies, and I would just go to them expecting to get some money… And my mom put her head down, she goes, ‘We're not going to have money for a while’,” said McDonell.
Without totally understanding what had happened, McDonell promised he would never let this happen to his family again; he began hustling.
Today, McDonell is the co-founder of a premium baseball hat company called Melin Hats.
His idea came out of a problem that bedevils baseball cap wearers: the funky smell and sweat stains that accompany heavy use.
“I really want to solve [problems] like the sweat stains and like the product integrity of the shape… that basically we could make the hat stay looking and smelling and feeling new, much, much longer,” said McDonell.
Building in features like a moisture-wicking lining that would actually draw the sweat off your forehead.
McDonell said he wasn’t always the smartest or most athletic person in the room, but he was always careful with his decisions and did everything possible to reduce risk, including vetting everyone he works with.
“Don't lose the stupid way,” he advised. “If the business idea was wrong. Fine. Be judged for that. But don't die off in some random, silly circumstance,” said McDonell.
Now a father, McDonell thinks often about what he’d want his own son to learn from him. He acknowledged that making a business will always come with many challenges, but he hopes those will become teachable moments.
“I think just having the aptitude to understand that everything in life is within our control, so long as we're committed to the outcome that we desire, and how [we] treat people.”
Subscribe to PCH Driven on Apple, Stitcher, Spotify, iHeart, Google or wherever you get your podcasts.
dot.LA Engagement Fellow Joshua Letona contributed to this post.
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Jamie Williams
Jamie Williams is the host of the “PCH Driven” podcast, a show about Southern California entrepreneurs, innovators and its driven leaders on their road to success. The series celebrates and reveals the wonders of the human spirit and explores the motivations behind what drives us.
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