Caution! Angel on board – Peter Whent
Caution! Angel on board

Caution! Angel on Board

It’s a wonderful moment. A forward somersault straight up into double fist pump moment. After all the work you’ve done turning your idea into a business plan, followed by a seemingly endless round of presentations to investors, it’s finally happened.

An email has dropped into your inbox which starts with the words you’ve been waiting for:

“I’d like to go ahead and invest £50,000 in your business….” It says. You feel a smile spread over your face. You read on.

“I think the business is worth £1.5 million, which will give me a 3.2% stake in the company.”

OK, it’s not quite the £2 million valuation you were asking for, but you’re willing to go with it for the sake of getting the business launched.

This is great news. You’re on your way.

As the euphoria subsides you look down at the email again and read the next line:

“I’d expect a seat on the Board”

If this was a movie, you’d now hear the noise of a stylus scratching quickly across a vinyl record and the romantic mood music stopping abruptly, and then a long silence.

A seat on the Board? For an investor with a 3.2% stake? You think about it and slowly reconcile yourself to it. After all, if that’s what it takes to get going, it can’t be wrong can it?

You’re feeling uneasy, and then you read the next line of the email.

“My standard Director’s Fee for sitting on your Board is £25,000 pa”

You spit your coffee back into your mug as you read.

“That’s absurd” you mutter.

On the basis that you probably don’t have a line in your budget for an uninvited 3.2% shareholder’s Director’s fee, this guy isn’t investing £50k at all. He’s taking half of it back in fees that you haven’t allowed for. It’s a £25k investment.

So, let’s take stock. An investor who is putting up £50k, and taking a 3.2% stake in your company, wants to take a seat on your Board, and he wants half his investment back in the first year in fees. It’s not singing to you.

Maybe you should take a closer look at him before you write him off. You dig out his CV from the file. Your mind is racing to a place where your angel has relevant skills and contacts that can help you grow quickly. Surely that would go someway to justifying his request.

His CV tells a different story. He made his fortune in logistics moving heavy industrial machinery around the world. It’s difficult to see him setting the pace in your Fintech start-up.

As far back as you look in his CV, and as hard as your scroll through a Google search, there is nothing but good old fashion industrial experience.

So, your angel investor who is putting up £50k, and taking a 3.2% stake in your company and wants to take a seat on your Board, and wants half his investment back in the first year in fees, doesn’t have any relevant skills that you could take advantage of.

What’s the answer?

I see this little cameo play out on a regular basis, so rather than just make comedy of it, what do I suggest to the entrepreneurs I work with who are in this predicament? Let’s start by looking at the Board seat

The role of the Board

The first thing you need to understand is the role of the Board. Apart from some very particular legal and statutory obligations, The Board’s primary responsibility is to oversee the company’s prosperity by directing affairs. One of its most important roles is to appoint a CEO who they believe will ensure the company thrives.

Yes, you read that correctly. The Board has the power to select or remove the CEO. Your £50k angel investor is asking for an appointment that gives him, together with others, the power to remove you.

That should focus your mind on whether or not you offer him a Board seat.

Board representation

Apart from not wanting to give someone you barely know a hand in whether you keep your job, you need to keep your Board as lean as possible, so you can’t be giving seats to anyone who has a £50k cheque for you.

If you have more than one angel who wants to invest, then one suggestion is to coral your minority investors and ask them to select one person to sit on the board to represent them. But I wouldn’t consider this unless the minorities all together made up a sizeable shareholding. Say 20% or more.

I’ve seen this done successfully in several companies I have run. In one company we had 38 minority shareholders represented by one person. Apart from anything else, it gave those 38 someone to badger for regular progress reports other than the CEO.

An Observer role

If together the minority shareholders make up a less significant shareholding and they are insistent on being represented, then a compromise could be to let a representative attend Board meetings as an observer. This way they get to see what’s going on and join in the discussion as if they were a full Board member, but they have no say over what the Board decides, because they get no vote.

Minority shareholders’ agreement

If the angel’s concern is about protecting their investment, rather than trying to buy a role that pays them a fee, another option is to draw up a Minority Shareholders’ Agreement. You can use this to guarantee the minorities some rights and protections that may put their mind at rest that you are not going to totally disregard their interests or run off with their money. But be careful. Any protection you offer them must be proportionate to their participation. You can’t let the tail wag the dog and you can’t offer them anything which may cause problems in later funding rounds.

But however hard you try to soften the blow or give your angel investor reassurance, you have to be honest with them and say that £50,000 and a 3.2% stake, doesn’t get a seat on the Board of Directors let alone a £25k pa salary. But there may be another way.

The Advisory Board

An alternative may be to form an advisory board. This is a less formal set up. A group of people who all have valuable skills that you want to take advantage of, which meets regularly. But crucially, it has none of the statutory obligations (or draconian powers) which The Board of Directors has. If you do this, you have a very good reason to ask angel investors to illustrate what skills they have and what they can contribute.

Angels all think they’re business gurus. Some may be, but you only want people on your advisory board who offer you something you need, that you don’t already have.


If none of these options work and your angel’s heels are firmly dug in, I would question what he is in it for. Is he in it to buy himself a role which in two years will pay back what he’s invested? Or does he really believe in the investment, in which case you may be able to reason with him.

If all he is trying to do is buy a portfolio of Board positions as he slides into a plural semi-retirement, then as much as you want the money now, you have to ask yourself whether accepting it on his terms is storing up a world of trouble further down the line.

I understand this is difficult. £50k cheques don’t land in your lap every day and it takes some real strength to turn them down or even enter a discussion that may jeopardise them. My experience of these situations (both of these have happened to me) is that a reasonable investor will come to a compromise with you, and an unreasonable investor will quickly take his cheque somewhere else when he realises that he can’t have it his own way. In the long run that is the best result all round.

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