Series A Preparation: The Board & Governance Foundation Investors Demand

## Series A Preparation: The Board & Governance Foundation Investors Demand

We see the same pattern repeatedly: founders spend weeks perfecting their pitch deck and financial models, then lose a deal over something that should have been solved months earlier—inadequate board structure and governance frameworks.

It's not glamorous. It won't impress at a dinner pitch. But it's the first thing sophisticated Series A investors evaluate, often before they even look at your metrics.

This is the governance blind spot that kills otherwise fundable companies. We'll walk you through exactly what needs to be in place.

## Why Board Structure Matters More Than You Think

Investors don't just fund companies—they join the governance structure. They're betting not just on your product and market, but on whether the company can be scaled, directed, and eventually exited.

When a Series A investor proposes board representation, they're essentially asking: *Do you have the infrastructure to actually take direction?* If your answer is "we'll figure it out," you've already lost leverage.

Here's what happens:

- **Bad governance creates liability** — Investors have personal fiduciary duties. If your company is sued, has compliance issues, or later fails, board members can be held responsible. If your governance isn't documented, investors assume the worst and price in risk.
- **It signals operational maturity** — Founders who've thought through board structure, decision-making processes, and investor protections look prepared. Those who haven't look like they're still operating from a garage.
- **It determines who actually controls decisions** — Cap table structure matters, but governance determines *how* decisions get made. Investors want to know: Can we block bad decisions? Can we force good ones? Do we have veto rights over key hires or spend?

In our work with Series A startups, we've seen deals fall apart at the final stage because the founder's cap table had structural issues—missing board documentation, unclear investor protections, or equity allocations that create future disputes.

## The Series A Preparation Checklist: Governance Fundamentals

### 1. Establish a Proper Board of Directors

Your board should have **three to five members**:

- **Founder/CEO** (you)
- **Investor director** (usually the lead Series A investor)
- **Independent director** (ideally someone with relevant operating or industry experience)
- **Optional: Second investor director** (if two lead investors with board seats)

Many founders skip this until Series A. Don't. You should have a board structure in place—even if it's just you and an advisor—before you start fundraising seriously.

**Why?** Because setting it up retroactively creates complications. Investors want to see clean governance from day one, not scrambled together in due diligence.

**Action items:**
- Draft bylaws that define board roles, meeting frequency (quarterly minimum), and decision authority
- Document all board meetings with minutes and resolutions
- Establish board committees (audit, comp, nominating) even if they're just you initially

### 2. Create a Cap Table Management System

Your cap table is the governance foundation. It determines voting rights, liquidation preferences, and dispute risk.

We recommend:

- **Use professional cap table management software** — Carta, Pulley, or similar. Spreadsheets cause errors that investors uncover in due diligence.
- **Track all equity grants and vesting** — 4-year vesting with 1-year cliff is standard. Document every option grant, SAFE, and convertible note.
- **Document equity ledgers** — Show the full history of equity issuances, who holds what, and at what price.
- **Calculate fully diluted cap tables** — Show both current and post-Series A scenarios. Investors need to know what their ownership will actually be.

One of our clients raised Series A with a "cap table" that was actually three spreadsheets maintained by different team members. The Series A investor's lawyers found 15 discrepancies. The round closed three months late.

### 3. Establish Investor Rights and Preferences

Series A investors won't just hand you money. They'll negotiate:

- **Liquidation preference** — Typically 1x non-participating preferred (they get their money back first, then participate in remaining proceeds)
- **Anti-dilution protection** — Usually weighted average for Series A
- **Board observer rights** — What information do they get, and how often?
- **Information rights** — Monthly financials? Quarterly board decks? Annual audits?
- **Inspection rights** — Can they audit your books?
- **Drag-along rights** — Can they force you to sell if they want to exit?
- **Pro-rata rights** — Can they invest in future rounds to maintain ownership?

These aren't details to negotiate at the last second. They're structural decisions that shape your company.

**What we tell our clients:** Don't try to avoid these conversations. Professional investors expect these terms. Fighting them signals inexperience and wastes leverage on things you'll lose anyway. Save negotiation leverage for the actual valuation.

### 4. Document Decision Authority and Governance Policies

Investors want to know: who decides what?

Create a governance policy document that specifies:

- **Board-level decisions** — Require board approval: material contracts, major hires, spending above thresholds, strategy changes
- **CEO authority** — What can you decide alone? Operational decisions, hiring below director level, vendor contracts under $50K
- **Committee structures** — Even if your board is small, establish an audit committee that meets quarterly to review financials and compliance
- **Shareholder approval thresholds** — What requires 50% shareholder approval vs. 66%?

Document these in your bylaws. They should be reviewed by a startup attorney ($3-5K investment), not written by the founder from a template.

### 5. Implement Proper Meeting and Minute Documentation

This sounds procedural, but it's critical.

**Every board meeting must have:**

- **Documented attendance** — Who was present, who was absent
- **Board resolutions** — Formal approval of key decisions
- **Action items** — Who's doing what, by when
- **Minutes filed with the company** — Not just in a folder on your laptop

Investors' legal teams will request the last 24 months of board minutes during due diligence. If they're missing, vague, or inconsistent, red flags go up.

We've seen founders claim they made certain decisions, but when lawyers ask for the resolution or meeting minute, it doesn't exist. That creates legal ambiguity—and cost.

### 6. Address Option Plan and Employee Equity Framework

Before Series A, you need:

- **An approved equity incentive plan** (usually 15-20% pool for employees)
- **Equity grants to key early employees** with clear vesting schedules
- **Documentation of equity grants** — Not informal promises
- **A process for future grants** — Who approves new equity?

Investors will ask: Is your equity pool reasonable? Are key employees properly incentivized? Do you have a process for future hires?

Missing equity documentation creates disputes. One of our clients had promised equity to their CTO but never formalized it. When Series A arrived, the investor wanted clarity. The founder and CTO had different memories of the terms. It got messy.

### 7. Establish Financial Controls and Reporting

Governance includes financial discipline.

Before Series A, implement:

- **Monthly financial close** — You should have P&L, balance sheet, and cash flow within 10 days of month-end
- **Board financial packages** — Monthly P&L and cash balance minimum; quarterly includes balance sheet and unit economics
- **Audit rights** — Your accounting should be clean enough for an investor's accountant to review quickly
- **Segregation of duties** — CEO doesn't approve their own expenses; CFO doesn't handle cash reconciliation alone

This directly relates to [Series A Financial Operations: The Compliance & Reporting Crisis](/blog/series-a-financial-operations-the-compliance-reporting-crisis/), which covers the operational systems investors expect.

## Common Governance Mistakes in Series A Preparation

### Mistake 1: Thinking You Can Solve Governance in Due Diligence

You can't. If your governance structure is broken, fixing it during due diligence adds weeks (or months) and costs thousands in legal fees.

Investors expect you to show up with governance already in place. "We'll fix it once we raise" signals that you don't understand what you're raising for.

### Mistake 2: Creating Governance That Favors the Founder

Some founders try to structure governance to retain total control. Investors see this immediately.

Good governance balances founder autonomy with investor protection. Trying to block investor input or board observation signals you don't want accountability—which investors interpret as risk.

### Mistake 3: Ignoring Cap Table Cleanliness

We've seen founders with:
- Equity promised to advisors but never formalized
- Early employees on paper but never actually granted options
- SAFEs or convertible notes with different terms than documented
- Missing board consents for equity grants

Each of these creates a liability that investors force you to cure (at cost) or discount in valuation.

### Mistake 4: Not Understanding Your Own Governance Structure

One founder we worked with couldn't explain his own liquidation preferences. His first investor had 1x participating preferred; his second had 1x non-participating. He had no idea what that meant for different exit scenarios.

Know your cap table. Know what each investor gets in different outcomes. If you can't explain it clearly, investors won't trust that you understand what they're investing in.

## The Governance Timeline for Series A Preparation

**9-12 months before Series A:**
- Establish board structure if you don't have one
- Create or update bylaws
- Begin monthly financial close discipline

**6 months before Series A:**
- Have attorney review cap table structure and investor agreements
- Implement board meeting and minute documentation
- Establish equity plan if you don't have one

**3 months before Series A:**
- Audit cap table for completeness and accuracy
- Ensure all equity grants are properly documented
- Implement governance policies and decision authority framework

**During due diligence:**
- Provide clean board minutes for the past 24 months
- Show documented cap table with full history
- Present governance policies and investor rights agreements
- Be prepared to explain any governance decisions

## What Investors Actually Ask About

In our experience, Series A investors prioritize these governance questions:

1. **Is the cap table clean?** (No surprises, proper documentation)
2. **Who controls key decisions?** (Clear governance structure)
3. **What are the investor protections?** (Standard or unusual terms?)
4. **Does the founder understand what they're raising?** (Can you explain preferences, dilution, exit math?)
5. **Can this company scale governance as it grows?** (Will the current structure work at 50 people? 200?)

If you can answer these clearly and confidently, you've eliminated a major source of due diligence friction.

## The Relationship to Series A Metrics

Governance isn't separate from metrics—it's foundational to them.

If your governance and reporting systems are weak, your metrics aren't trustworthy. [Series A Preparation: The Metrics Consistency Crisis Investors Exploit](/blog/series-a-preparation-the-metrics-consistency-crisis-investors-exploit/) explores this in detail, but the principle is: investors trust metrics reported by companies with strong financial controls.

Similarly, understanding your [burn rate and runway](/blog/burn-rate-accounting-the-hidden-cash-timing-gap-killing-runway-accuracy/) requires proper accounting, which requires governance discipline.

## How We Help With Series A Governance Preparation

At Inflection CFO, we help founders establish governance frameworks that withstand investor scrutiny. This includes:

- Cap table audits and restructuring
- Board documentation and minute systems
- Governance policy development
- Financial control implementation
- Due diligence readiness audits

We also connect you with startup attorneys and help you understand—not just memorize—the terms you're negotiating.

## Next Steps: Get Your Governance Audit

If you're planning a Series A in the next 6-12 months, the best investment you can make is a governance audit now.

We offer a free financial and governance audit for founders preparing to raise. We'll review your cap table, board structure, and financial controls—and give you a clear roadmap of what needs to be fixed before Series A.

The cost of fixing governance issues now: a few hours of your time and maybe some legal fees for proper documentation.

The cost of fixing them in due diligence: weeks of delay, legal discovery costs, and valuation discount.

**[Contact us for a free Series A readiness audit.](/contact)** We'll tell you exactly where your governance stands and what needs attention before you pitch.

Your Series A preparation starts with metrics and materials. But it's won by having governance in place that investors trust from day one.