XA Podcast 023 | Board Fundamentals For Startups With Carmen Yuen And Ferish Patel | Governance Series

Startups are expected to move fast and break things. But too much of that and you land in hot water! That’s why high quality startups spend time establishing a responsible and active Board. Find out how in this episode jointly presented by Singapore Institute of Directors and the XA Network.

Discussion Topics: Board Fundamentals for Startups with Carmen Yuen and    Ferish Patel | Governance Series

• The purpose, roles, and responsibilities of a corporate board
• How startups should start thinking about boards
• What a startup should expect from its board
• How investors can prioritise their time as a board member across their portfolio
• The difference between a board and a board of advisors
• Assessing the efficacy and compliance of a board

Transcript: Board Fundamentals for Startups with Carmen Yuen and Ferish Patel | Governance Series

Belinda Ong: Welcome XA Members, founders and a warm welcome to all SID Members who are joining us for the first time. Today’s session is slightly different from our usual fireside chat, because it’s the first instalment in a series of conversations regarding start up board leadership and governance. This series is brought to you as part of a collaboration between the XA Network and the Singapore Institute of Directors. The XA Network is Southeast Asia’s foremost Tech Leaders Investment Network, and SID is the National Association of Company Directors in Singapore. These conversations have been designed to delve into the topic of board leadership and governance as it relates to start-ups in Southeast Asia. It is our hope that it provides guidance and best practices to create a healthy dynamic among the board, management team, and shareholders. We will cover these topics primarily from the perspectives of an entrepreneur as they are in the best position to design forum and benefit from a strong board. This series will be moderated by Reza Behman, who is both an XA Network Member as well as co-chair of the SID start up committee. Reza has more than 30 years of experience in the tech scene as an entrepreneur intrapreneur, board member and advisor. He led Yahoo’s operations in Southeast Asia 15 years ago, where he launched products and services in six countries. This was then followed by a venture partner role at IDG ventures and founded a number of his own start-ups including Control Shift. Today, Reza is a start-up advisor to a number of Tech start-ups and venture builders, as well as an active angel investor. Reza, thank you for hosting the series of discussions. Without further ado, the floor is yours.

Reza Behman: Thank you, Belinda, and welcome everybody. It’s great to have so many people on the call today. And thanks Belinda for setting the stage. Today’s session will focus on board fundamentals, exploring the true purpose and role of a board. It’ll provide a foundation for our future discussions in this series as Belinda mentioned, where we will delve into how best to leverage a board and avoid common pitfalls. Today we have the pleasure to host Carmen Yuen and Ferish Patel. Carmen is a general partner at Vertex Ventures. She has served for many years in Singapore’s government backed venture capital initiatives, including EDBI, and as General Manager of Seeds Capital, where she formulated policies to steer more funds toward early stage start-ups in Singapore. She currently serves on the boards of tickled media Sunday insurance, speed dock, and turnkey lender. Welcome, Carmen. Ferish, is the Managing Director of Cooley’s Singapore office, which he founded in 2019. Ferish, has 20 years of experience advising founders and boards across the full lifecycle of the new age economy. From private financings, corporate governance matters, mergers, and acquisitions all the way to IPOs. His breadth of experience spans across Asia, the US and Europe. He also regularly mentors founders via the Google for start-up network, endeavour, and other founder impact groups across Asia. So Carmen and Ferish welcome. Before we dive into the crux of today’s conversation, it would be great if you could start with a quick fun fact about yourself and also tell us why this topic is so important. Carmen, would you like to kick us off?

Carmen Yuen: Sure. Hi, everyone. Thank you so much for spending your lunch hour with us. Fun fact. So I have got two mouse at home, and I am responsible for getting them to be part of the family. I play with them, but I do not feed them, nor do I pay them nor do I walk them. So that’s the fun fact and this is cool to be in this position, but okay, and on a more serious note, what is so great about my job, and why I like to be on the boards of companies we work with. So I’m privileged to be in the VC scene since about 2000 before venture capitalist or being in a VC was sexy and invoke. And I must also thank my family for being very supportive of the long hours that I spent on this work, but I do enjoy it. Well I enjoy being on the board is that you problem-solve with the founders, and you try and find a solution that actually caters to the demands of the shareholders, the directors, and the businesses. So more on that later.

Reza Behman: Thank you, Carmen. Ferish, how about you?

Ferish Patel: Yeah, absolutely. My apologies to anyone if it sounds like I’m cutting in and out of flu, alright, I’m not that well so I may cough a little bit so apologies. But thank you to everyone for joining during your lunchtime. Thank you to Reza Belinda, the XA Network and the Singapore Institute of Directors for having me here. We go in reverse order, which is that this topic is so important because good corporate governance, particularly at the board level, is in my view, one of the most fundamental drivers of long term shareholder value. Find too often, that corporate governance is often equated that either compliance with law and operating with integrity, which, frankly, are table stakes, right? If you’re saying that your corporate governance policies and your corporate governance ethos is to follow the law, that’s a little bit concerning, because who doesn’t operate like that, or it can oftentimes be relegated to form check exercises where it’s okay we have some policies, we have some codes in place. To me, in reality, good corporate governance means having and why this is such an important topic is that means having the right systems processes and people in place to direct and oversee the affairs of the company. So legal, technical jargon, but most importantly, to assess strategy and operations, monitor the progress of the company on achieving that strategy. It’s basically a form of self-discipline. So, in terms of fun fact, well, I am a lawyer so there isn’t a lot that we are fun about. But I’d offer up two thoughts. One, is, I’m a huge lover of history, particularly like wartime history, not so much the actual battles that lead ups and the history because history always repeats itself, as we’re even seeing today. But also to have a keep it real element I’m also what I would call an evolving prepper. For those of you who don’t know that term, it’s these people. So feel free to judge me, who prepare for the end of the world kind of scenario. So we can talk about that during Q&A. Nobody does that on an island.

Reza Behnam: Fantastic. Thanks for that Carmen and Ferish. Ferish, let’s start with you. You already started to talk about this, but what is the board’s purpose? I mean, why are we talking about this topic and what are the general roles and responsibilities of a board?

Belinda Ong: Welcome XA Members, founders and a warm welcome to all SID Members who are joining us for the first time. Today’s session is slightly different from our usual fireside chat, because it’s the first instalment in a series of conversations regarding start up board leadership and governance. This series is brought to you as part of a collaboration between the XA Network and the Singapore Institute of Directors. The XA Network is Southeast Asia’s foremost Tech Leaders Investment Network, and SID is the National Association of Company Directors in Singapore. These conversations have been designed to delve into the topic of board leadership and governance as it relates to start-ups in Southeast Asia. It is our hope that it provides guidance and best practices to create a healthy dynamic among the board, management team, and shareholders. We will cover these topics primarily from the perspectives of an entrepreneur as they are in the best position to design forum and benefit from a strong board. This series will be moderated by Reza Behman, who is both an XA Network Member as well as co-chair of the SID start up committee. Reza has more than 30 years of experience in the tech scene as an entrepreneur intrapreneur, board member and advisor. He led Yahoo’s operations in Southeast Asia 15 years ago, where he launched products and services in six countries. This was then followed by a venture partner role at IDG ventures and founded a number of his own start-ups including Control Shift. Today, Reza is a start-up advisor to a number of Tech start-ups and venture builders, as well as an active angel investor. Reza, thank you for hosting the series of discussions. Without further ado, the floor is yours.

Reza Behman: Thank you, Belinda, and welcome everybody. It’s great to have so many people on the call today. And thanks Belinda for setting the stage. Today’s session will focus on board fundamentals, exploring the true purpose and role of a board. It’ll provide a foundation for our future discussions in this series as Belinda mentioned, where we will delve into how best to leverage a board and avoid common pitfalls. Today we have the pleasure to host Carmen Yuen and Ferish Patel. Carmen is a general partner at Vertex Ventures. She has served for many years in Singapore’s government backed venture capital initiatives, including EDBI, and as General Manager of Seeds Capital, where she formulated policies to steer more funds toward early stage start-ups in Singapore. She currently serves on the boards of tickled media Sunday insurance, speed dock and turnkey lender. Welcome Carmen. Ferish, is the Managing Director of Cooley’s Singapore office, which he founded in 2019. Ferish, has 20 years of experience advising founders and boards across the full lifecycle of the new age economy. From private financings, corporate governance matters, mergers and acquisitions all the way to IPOs. His breadth of experience spans across Asia, the US and Europe. He also regularly mentors founders via the Google for start-up network, endeavour and other founder impact groups across Asia. So Carmen and Ferish welcome. Before we dive into the crux of today’s conversation, it would be great if you could start with a quick fun fact about yourself and also tell us why this topic is so important. Carmen, would you like to kick us off?

Carmen Yuen: Sure. Hi, everyone. Thank you so much for spending your lunch hour with us. Fun fact. So I have got two mousse at home, I am responsible for getting them to be part of the family. I play with them, but I do not feed them, neither do I pay them nor I walk them. So that’s the fun fact and this is cool to be in this position, but okay, and on a more serious note, what is so great about my job, and why I like to be on the boards of companies we work with. So I’m privileged to be in the VC scene since about 2000 before venture capitalist or being in a VC was sexy and invoke. And I must also thank my family for being very supportive of the long hours that I spent on this work, but I do enjoy it. Well I enjoy being on the board is that you problem solve with the founders, and you try and find a solution that actually caters to the demands of the shareholders, the directors and the businesses. So more on that later.

Reza Behman: Thank you, Carmen. Ferish, how about you?

Ferish Patel: Yeah, absolutely. My apologies to anyone if it sounds like I’m cutting in and out of flu, alright, I’m not that well so I may cough a little bit so apologies. But thank you to everyone for joining during your lunchtime. Thank you to Reza Belinda, the XA Network and the Singapore Institute of Directors for having me here. We go in reverse order, which is that this topic is so important because good corporate governance, particularly at the board level, is in my view, one of the most fundamental drivers of long term shareholder value. Find too often, that corporate governance is often equated that either compliance with law and operating with integrity, which, frankly, are table stakes, right? If you’re saying that your corporate governance policies and your corporate governance ethos is to follow the law, that’s a little bit concerning, because who doesn’t operate like that, or it can oftentimes be relegated to form check exercises where it’s okay we have some policies, we have some codes in place. To me, in reality, good corporate governance means having and why this is such an important topic is that means having the right systems processes and people in place to direct and oversee the affairs of the company. So legal, technical jargon, but most importantly, to assess strategy and operations, monitor the progress of the company on achieving that strategy. It’s basically a form of self-discipline. So, in terms of fun fact, well, I am a lawyer so there isn’t a lot that we are fun about. But I’d offer up two thoughts. One, is, I’m a huge lover of history, particularly like wartime history, not so much the actual battles that lead ups and the history because history always repeats itself, as we’re even seeing today. But also to have a keep it real element I’m also what I would call an evolving prepper. For those of you who don’t know that term, it’s these people. So feel free to judge me, who prepare for the end of the world kind of scenario. So we can talk about that during Q&A. Nobody does that on an island.

Ferish Patel: This audience is sophisticated directors, entrepreneurs, investors, and so you’re all savvy enough, and founders yourself so you know, that here in Southeast Asia, in Asia, a lot of the companies are incorporated, either in Delaware, and Singapore and Indonesia, Vietnam, India, kind of came in everywhere, except for North Korea, and so the reason I say this is that what I’m offering to respect everyone’s experience, is not a jurisdiction by jurisdiction. But instead, let me just give kind of a high level principle statement, which generally applies to most jurisdictions like Singapore, and Delaware, and others, where there’s sophisticated corporate governance regimes, which is that, the Board of Directors, their job is to oversee the business and affairs of a company and to manage and supervise the leadership team. Note that this is very important that it is a supervisory and oversight role. You’re not a day to day manager, and you are ultimately responsible for the management of the company, not day to day operations. And this dovetails a bit with Carmen’s point about how she and colleagues in the venture capital industry as investors who are placed on boards, operate in their day to day or in their supervisory roles with companies.

Reza Behnam: And just to follow up on that point, what is this judiciary duty really mean? I mean, what are directors in for in terms of their obligations towards the stakeholders, and you can define who those stakeholders are?

Ferish Patel: So just to lay the groundwork, that right, again, they’re responsible for the management of the company, so they do not run day to day operations. And so examples of this, when it’s properly done, are working with the founders, in the case of VC backed companies and management team of leadership team, to craft strategy, financial plans and the objectives, and then approving them in monitoring progress. They’re also tasked with evaluating the founders and the management team that they hire, approving very fundamental matters, like sale of the company or material acquisition. And I think this one is really important, just in terms of again, right, this is an experienced audience. So I think that this is important. I’ll talk about like the fiduciary duties that are typically found, but I think one that’s really important in terms of for board discharging its fiduciary duties is that it’s self-evaluating itself, or evaluating itself in terms of the board’s effectiveness. And there is I want to take a slight pause here is that I very rarely, you know, a lot of my practice individually and that of our firms is advising boards of directors and founders on sound corporate governance practices as they move across the lifecycle. And we rarely see this annual, biannual self-assessment of the efficacy and the effectiveness of the board, is the board of the right size, is it a time to move certain investors into an observer role, and perhaps expand the board to include independence with industry and operations expertise. You know, these conversations aren’t easy, but that’s a function of what good corporate governance is and why, as I said earlier, it’s a fundamental driver of long term shareholder value. One final point, I think all of you that are directors, you’ve probably had training sessions on this, which is, typically in most sophisticated jurisdictions like Singapore, Delaware, came in evolved, which is, is that fiduciary duties, well boiled down into kind of two key constructs, one is the duty of care, which is that a director must keep themselves informed about the affairs of the company and there’s a duty of loyalty, which is placing the interests of only the company and all its shareholders above their own interests. We’re going to talk about I think a little bit later fund directors and how they manage that, because there is a potential conflict of interest. But synthesized that down, its two core fiduciary duties, and an overarching statement about managing the affairs of the business.

Reza Behnam: Thank you Ferish. Yeah, we’ll definitely dig deeper into that in a second. But before we do that, I want to go to Carmen and Carmen, how should a start-up founder who’s perhaps starting their venture how should they be thinking about the board? And how does that sort of evolve during the maturation of a company from sort of pre seed idea stage all the way to a more mature sort of pre IPO company, perhaps?

Carmen Yuen: So thanks for that question. So adding to what Ferish has said, the reason why accountability is important, or having the board is important is because the founders are to give an accountability statement to the people who have entrusted them with money. So let’s say if somebody is starting from ground up using their own money, when they can do sort of like whatever they like, because this is their money, after all, however, the moment they start to take external funds, then that’s where governance will be important. And honestly, all of us, other than maybe some places, all of us are born into a world where there’s really some form of governance where there are certain rules in place, basically, where, from a young age, we know what it is to cross the road, if we don’t cross the road correctly, we might be pulled aside, we might face the consequences, etc. Similarly, if we were to apply this into the business, there are also business rules and some of this will include seasons of reporting, which founders generally like less of. And unless they’re using their own money, they must know that the moment they are touching other people’s money, it comes with certain obligations to the investors, and also more importantly to the staff. So when, as they are growing the company, they will need to make sure that the business is sound, because at the end of the day, it has to be operated correctly, so that they can pay their staff to put money on the table. So the mindset of founders is not going to be one where they imagine it to be a lifestyle upgrade. And I have seen some founders after they have raised around, they will post on IG nothing wrong with announcing to the world that you have raised money. However, the way they announce it is actually generally in the background of a business class on SQ. So that’s when as an investor, thankfully, I didn’t invest in any of these companies. But when I saw it, I’m like, Oh, my goodness, what were the investors say to knowing that there are funds that actually paid for some people’s airline tickets. So therefore, the mindset of the founder has to be one where they are prepared to subject themselves to certain level of inconvenience to guidance to reporting and to be told that some things are not right.

Reza Behnam: And Carmen, I guess, if I’m a founder doing a startup, how do I think about putting together a board? What should I be thinking about? Because oftentimes, at least in my experience, what happens is, you start raising angel money, you start raising money at various stages of the company, and de facto those investors end up on your board without much pre planning. So it becomes a reactive situation. Is that okay? Or should the founder be thinking more proactively about the structure of the board and how they should put the board together?

Carmen Yuen: Generally, from a convenience standpoint, they will put people on the board and who are friends, who are really quite close to them. So this will generally be your investors or be your relatives. Somebody who has been there done that, just to maybe to fulfill the needs to appear that you have got a board or I think I can work with you. So therefore, why don’t you be on my board. But as they proceed further so when we get involved in a company, of course, we will want to have a board seat, we also want to make sure that we know what the companies are doing. But when we come into the board, we generally will say you ought to also make room for expanding the board to include an independent director. At that point in time when we invest, we might not have an independent director in mind yet, but at least from a mindset perspective, we will say that, okay, we need to make sure we have got a third party point of view that we will invite along the way, how do we craft this third party that will be depending on how we evolve that business over time, it could be somebody who has gone more experience in Financial Management, so maybe that and if a company is very weak on that, then maybe this board member can give us certain guidance. So we always have this notion of having an ID in mind. And I believe for founder’s it is good practice to always set aside in their mind in their companies in the board, to have room for an independent director somewhere down the road. But they must know that if you have taken money from investors, generally investors will want to know what’s happening with their money, and therefore they will demand a board seat.

Reza Behnam: Thank you, Carmen. Ferish, Carmen mentioned the role of an independent director, we’d love to hear your thoughts about sort of what is the right stage to introduce an independent director and how you manage through that if you have investors on the board?

Ferish Patel: So, oftentimes, we get asked that question, which is what is the right time to bring on board and independent? And of course, you ask a lawyer, this question, and it depends on the facts and circumstances, but I looked up some data and what we found, if you look at some empirical data of international startups or internationally based startups, obviously, a lot of the cohort bias there are, there’s a cohort bias towards the United States and Western Europe, what you typically see is somewhere around three to and again, these are companies that have gone for an exit, obviously, if it’s a trade sale, it’s a different scenario. But that’s where your ultimate exit pathway is, but you typically see from, say, some type of public liquidity event like an IPO, or three to five years working backwards, about when to bring on board, at least a strong independent director. Now, the asterisk to that is that particularly if you are a health tech company, or a company in like a FinTech company that moves very closely within a regulatory space oftentimes, we have seen successfully done again, in the facts and circumstances where the situation founders who are comfortable. And this is another aspect about corporate governance, and Carmen has touched on this a little bit is that if the founder or founders are confident about this, they can bring on board as an independent director a little bit earlier, who is often a serial entrepreneur, like many of you, who is able to help them with in a non-Board Advisory context, but to be able to help them where there’s some more regulatory heft to help them think through that and operations and risk management again, as you play your strategy and build out your business plans. Sorry Reza there is one more thing. Typically, people start asking this question, which is, oh, yeah, well, that’s great. Like, you know, I don’t know when my IPO of Apple is going to be is that it’s not a typical, if you work back from that continuum of, say, three to five years, where it’s kind of sort of after your series A, maybe a series B, fundraise, you’ve got some institutional investors on board, you know, the business is scaled into a different vector and bringing on board somebody with industry and operations expertise if not earlier, is probably kind of sort of a good zip code.

Reza Behnam: Thanks, Ferish. Carmen, question I often get is, you know, as a founder, what should I be expecting from my board? What should I rely on them for? Are they for example, a coach? Should they be a coach to me? Should I go to them if I have something happening at home that’s affecting my work? Or is that the role of a coach or an advisor or something else? You know, how can a board help the entrepreneur especially in earlier stage companies?

Carmen Yuen: So for us, we say that we are very close with our portfolio companies. So we will know when a child is born. We get invited to weddings as a board member. We are notified when there’s any problems in the family, for some of the companies that we work with really close with. So there isn’t really that divide line to say, Oh, if it is personal, don’t talk to us. If it is only business, we want to know it all. So I think at the end of the day, we are working with founders and many of the founders are actually on this call and you know your board members, some of them are more transactional, others are more relational, but yet equally effective as a board member. So at the end of the day, we are human beings. So to start with, I don’t draw that line in terms of where family ends and where work begins. But as a board member, I will expect the company as a founder to ease their way into doing proper reporting, so maybe when we first invest in them, maybe this is their first startup, so they don’t really know how to do reporting, how to even do a proper board deck. So, this is where we will guide them typically at the board meeting, we expect this kind of items to be discussed and to be presented. If you have got some suggestions on possible solutions share with us. If not, we can take it as a question and we will try and find blocks for you to take them forward to find a solution on so we can guide them. So depending on how experienced the founder is, we can work through it all because we have invested with companies, where founders are very new but we have also invested in companies where it’s a senior entrepreneur. So for senior entrepreneur, they get it the first board meeting is really and cool, because most of the things you expect is already there. But for newer founders, we might have to tell them, look, you don’t present to us four line financial statements we need more information than that, etc. So it really depends.

Reza Behnam: Great. So now looking at it from an investor perspective, Carmen, how do you split time between the portfolio companies who are doing really well? And if I could use this sort of slang the problem child’s right, whether it’s due to the market or product market fit, or whether it’s due to other things like the team not gelling and so forth. How do you prioritize your time as a board member across your portfolio?

Carmen Yuen: So thankfully, this is the ethos of the company, right of the fun I work with. So we are not in a hurry to invest quickly, in many companies in one year. So we have noticed that our pace is about 12 new deals a year. And that’s pretty comfortable for us to ease the company into our portfolio management as well as for the new companies to get used to working with us. And in that process, we will share with them what are some of the expectations of our at board meeting meetings, they will have many problems statements or try and hopefully answer some of them during that one year, before we take on another so called new batch of companies. And this has happened so over the last nine years or so on average, I have seen companies easing up to being able to raise Series B, series C, series D, and so on. So those become less problematic. If they’re able to raise more money generally, they are less problematic, because they already are able to build a team around them to problem solve. So then it’s about devoting more time to companies that are newer, problems with raising funds, challenges in opening doors, problems of hiring, because cannot raise funds. So those will be the ones that we will have to spend more time with. And hopefully, in sufficient amount of time, we will move them up to the more mature stage so that we can free up our bandwidth to take on new companies. And when companies have raised the series C, series D and so on our shareholding in a company might become less meaningful. So there will always be a board reshuffling and we might also step down from the board at that time.

Reza Behnam: Thank you. What advice Carmen, would you give an early stage startup who’s starting their journey in today’s market with regards to a board? And how does the board perhaps differ from a board of advisors? And how to leverage each one of those?

Carmen Yuen: So for board of advisors, I tend to look at them as being more specialized so they could be domain knowledge people. So let’s say if I were in a media space, and I need to find somebody other than just the board, because most of us investors, we don’t really know what’s happening in the media world. So this is where we might have to tap into a board of advisor to guide the founder on what are some of the key propositions that will speak to the media giants that they’re trying to quote, and at the same time, for example, advisors could be those that help and guide founders in terms of maybe some of their coaching their capabilities in terms of managing people in how to put certain metrics in to show that the team is doing well, etc. So it’s less directly involved with the business, but super indirectly contributing to the performance of the company.

Reza Behnam: Thanks, Carmen. Ferish, do we have your back?

Ferish Patel: Yeah, my apologies. I think we’re talking about board of advisors, correct?

Reza Behnam: Yes, we’re talking about board of advisors and sort of the difference between them. But I also want to go back to a point that you raised before, which is the self-assessment at the board level. Can you take us a little bit sort of into more detail around how a board does that and related to that how to balance performance versus compliance at a board level, we’ve seen a number of companies get into trouble for not having enough compliance, and therefore, maybe the balance wasn’t quite right. So we’d love to hear your thoughts on that.

Ferish Patel: So to address the first one, which is how do you assess the efficacy of the board because exactly to Carmen point, you start raising capital, you have investor directors coming in, depending on how well you’re advised, there’s a balance or perhaps growing balance of maintaining founder, parity or potential control of the board visa vie the number of investor directors, but the point is, is that your board is expanding, and oftentimes, we see in Asia, that the boards grow quite quickly in number of members. And then as your stack, if you your number is round over around increases, your board and interests, as well as also experience may evolve. And so typically, what we see, I mean, there’s no one right way, oftentimes, we’ll see that, like companies, if they do it right even in private companies, which may seem strange is that, you know, they’ll put together they’ll have a subcommittee of the board, which may be say a quote unquote nominating committee. It’s not like a nominating committee in a public company, because that’s a little bit different. But the idea here is, is that they would go through a self-assessment, there’s countless forms and checklists that you can find, I’ll actually post in here, a link to one of our reference sites where you can find these. The idea is that you’re assessing in an agnostic way, the talent question of the board, and it’s not to diminish any particular say, investor directors or the need for independence to come on board, but it’s just recognizing that, hey, if you’re a growth rising late stage company, the needs of your board may have evolved from when you were a series A funded company, and also keeping in mind, things of size and the number of directors as well as also commitments as well, which is a point that Carmen highlighted earlier. Your second question was about, conformance versus performance?

Reza Behnam: Yes.

Ferish Patel: So I’ll try to give a quick point here, which is that, to me, these two constructs are fundamentally intertwined and they’re not ends of the spectrum, and it goes back to the first principles that we discussed at the beginning, which is sound corporate governance is about having the appropriate systems, people hiring them, paying for them in place to craft a correct strategy and operations. And implicit within that, right when we talk about compliance, and to your point, Reza about, hey, companies that have perhaps gone a little off piste, in terms of their governance practices, what often happens is, is that in this strategy setting, right, again, if you have a proper corporate governance framework at your board level, again, the board is focused on in addition to spreadsheets, they’re focused on strategy and driving strategy and pushing the founders and pushing the management team on strategy and thinking about, how do you implement that. I mean, that’s what a great board is able to do. And implicit within that they’re challenging the founders and the leadership on assessing risks implicit within that strategy. I mean, that sounds very nice and high minded. Of course, yes, everyone can applaud, like the lawyer gets, like some great thoughts on this. But I do think that like, there’s some recent examples where the Wall Street Journal’s reporting about a telemedicine company, where the thought, at the board level, as well as at the leadership level about how risk assessment, conformance with rules, was not implicitly was not intertwined with strategy setting. And so this company, you’ve all probably read about it in the journal in the last few weeks where it’s a large unicorn in the United States and they’re a telemedicine company, their focus was on delivering drugs and diagnoses to people with mental disorders or made a mental pathology, neuro disorders, and a simple thing like age identification, so that you would be in compliance with the rules that if someone is under the age of 18, you must notify their parents. When setting that strategy with a board and the management team, according to at least the journal went the wrong way was that they over optimized for performance and didn’t think about that, hey, in a 20 minute session, should a clinician could we have spent a million or $2 million more to focus on maybe buying a software or hiring people, people in system to check the age of these people who are coming on board to our platform and asking for medication and diagnoses, and instead they punted it to the clinicians within 20 minutes, had to diagnose a teenager you know, dispense medications and do KYC and age verification. That’s a perfect example of where conformance was not intertwined with performance in terms of strategy setting. So obviously, after regulators are done massacring them, and they will have paid 10s, if not hundreds of millions of dollars in fines, that’s a perfect example where this matrix is misbalance and that was suboptimal corporate governance coming back all the way full circle.

Reza Behnam: Thank you, Ferish. To our audience, please start preparing your questions. I will ask one more question from Ferish, and then go to the audience questions. Ferish, you mentioned that the two responsibilities of a board director at a very high level is one being aware of what’s happening. I’m paraphrasing, being aware of what’s happening in the company, like being informed of what’s happening and two, taking the best interest of the company at heart. And so I want to touch on this question, because there are conflicts that generally happen, because as a investor, I also have a duty to my LPs and to my sort of VC fund. So I wear a hat as an investor, I also might wear a hat as a board member. How do you reconcile this conflict? And where does this conflict become more pronounced?

Ferish Patel: It is a great question because I mean, this occur time over time. I mean, there’s all sorts of terms for it. The one that I like is metaphors deputization. And the idea is, that look at its core, if you are a director of a Singapore company, a Delaware company, frankly, any, like I said, semi to upper sophisticated jurisdiction on this planet, where most of the companies that we either advise that you all invest in or that you run, the reality is that there is no such construct as an Investor Director or a Founder Director. You are a Director, and your obligations are to the company and to all of the shareholders. Now, in some ways, when we negotiate shareholders agreements and governance documentation, what we find is that there’s almost the nomenclature presupposes that mistakes are going to occur, because if you think about this, this puts oftentimes investor directors on a collision course where their duties exactly like you said Reza, their fiduciary duties to their LPs are potentially in conflict with that of all shareholders of the company, where we typically see right just to get to brass tacks, where we typically see this is that more in growth, late stage companies, where there are often issues associated with members earlier in the stack or investors earlier in the stack are more focused on not surprisingly, that hey, the company has reached a certain maturation where perhaps an exit or some type of liquidity event is more desired, versus growth later stage investors who are still looking for their returns. And in those moments where a company, for example, needs to raise bridge financing, and you have an investor director who may have a de facto block right, has to be very careful about making sure that look, the decision being made in the best interest of all shareholders, because that is where the fiduciary duty is owed, and not necessarily to their LPs. Two suggestions that I often find that one is that you see this with a lot of the crossover late stage funds, which is that with the crossover late stage funds, what they’ll do is that they will move somebody to an observer and not have them be in a board director seat, where if you know that there is the likelihood because at this point, your fund is reached a ripened point, you need to see some type of liquidity in the company up deft move it still keeps you in the mix on the board, but you are now in an observable, you’re I have access to all materials, you’re involved in the conversation, but you’re able to avoid a conflict of interest situation. And other one, before we go to Q&A, please do not laugh is that and this is self-serving is hire counsel. It’s kind of what I’m about to say but even 75% but we’re seeing these fact patterns evolving in Southeast Asia and South Asia, where you see conflicts arising between directors, investor directors, who have invested in different vintages of the lifecycle of the company and getting proper guidance, whether it’s internal within your fund, or external counsel or advisors is really important because there’s a lot of including here in Singapore now we’re seeing disputes related to this.

Reza Behnam: Ferish, just a follow up on that, does this council usually sit in on board meetings as a sort of a pseudo observer or it’s handled sort of in the backroom or sort of outside of the boardroom?

Ferish Patel: Yeah, it’s great question. So typically, you take Valley or US, a lot of the companies that we work with here, you know, they’ll counsel, taking minutes sitting in the boardroom staying abreast of what the issues are. If you look at the value model, nobody charges for that, really like it should be done in a probe on a no cost basis, the idea is, is that then the founders in the board are able to ask company counsel, because it is counsel for the company and not any specific investor questions related to Hey, what is the issue here that is arising related to this potential fiduciary duty consideration. Now, if there happens to be and you often see this fact pattern play out, when a company is starting to enter into a zone of a sale, where some type of liquidity event, and there’s a dispersion between interests, sometimes it makes sense. In fact, quite often in those situations, where a particularly fund may want to is who’ve to go and get their own counsel. But typically, it’s the former to answer your question.

Our Guest: Carmen Yuen

Carmen Yuen is a general partner at Vertex Ventures. For many years, she has served in Singapore’s government-backed venture capital initiatives, including EVBI. She’s also served as general mana of seeds capital, where she formulated policies to steer funding for seed-stage startups in the country. She currently serves on the boards of Tickle Media, Sunday Insurance, Speed Doc, and Turn Key Lender.

Ferish Patel is the Managing Partner of Cooley Singapore, which he founded in 2019. He has 20 years of experience advising founders and boards across the full life cycle of the new-age economy, including private financing, corporate governance, mergers and acquisitions, and IPOs. His breadth of experience spans Asia, the USA, and Europe. He regularly mentors founders on founder impact groups and platforms across Asia.

Reza Behnam, Founder of digital.direction and Senior Entrepreneur-in-Residence at Mach49, is a veteran in the tech and digital space. He has founded and exited a number of companies in the martech and business analytics spaces and is an active angel investor in innumerable ventures. He is an active member of SID as well as the XA Network