Board Observer Agreement: Fill & Download for Free

It's totally normal to have one investor representative on your board.It sucks to have a board full of observing investors.One thing I have done in the past that works well is writing into the unanimous shareholder's agreement 'any shareholder with more than 10% of the shares is entitled to board observer status'. That can give an early angel board observer status now, and will remove it later as other investors come in.The other possibility is that the investor is looking to protect their information rights, and they are assuming if they aren't on the board, they won't know what is going on. You might instead commit to them to provide a monthly one-page update on the business to all investors, including them (or you could use a platform like ours, IncMind, instead). Knowing they are getting information may be enough.

Antone gives great recommendations. In addition, to avoid this situation, try to negotiate upfront the parameters of the board observer in the investor rights agreement and/or observer rights agreement.

Chris Yeh's answer is right on target. A board seat in and of itself has no particular value, and is often something to be *avoided*, rather than sought out. It doesn't give you more cash compensation, more equity ownership or more direct control over the operating business.The legal role of the board is to make strategic and corporate-level decisions, hire/fire the CEO, and represent all of the stockholders of the company. Indeed, being a member of the board of directors means that you have a legal, fiduciary responsibility to the other investors, and are required to put the stockholders interests ahead of your personal ones.So the question you need to ask yourself is "why do I want to be on the board"? If you are going to be a true co-founder (and 20% equity sounds like it), sharing over-all decision making about company direction, strategy, financing, staffing, etc. with one or more co-founders, and you see that role continuing in the future, as the company's President or Chief Operating Officer, then being on the board might make sense. Similarly, if you are putting cold, hard cash into this pre-funded startup, along with your time and skill, then that may well warrant a board seat to protect your money.But typically, a seed startup board would only have three members (often one founder, one investor, one independent), expanding to five around the time of a full Series A venture round. That means if you're not the CEO (who is also presumably a founder and who really needs to be on the board), then you'd effectively be taking the remaining non-investor seat. Ask yourself if that would make more sense for the company than having it occupied by one of the other co-founders, or by an outside director who may be able to bring direct value.One approach that hasn't been mentioned, and that I've seen in some cases, is for one or more key members of the senior management team regularly sit in on board meetings as an observer, either by custom or by right. So you might consider asking for Board Observer status to be written into your agreement.However, as Chris pointed out, this issue is an immediate one: if it doesn't happen now, it certainly won't happen in the future (nor would it make sense). Over time, founders typically *leave* the board as they are replaced by an increasing number of investors/independents. They don't *join* it later.