Blog

Casting the Movie: How Catalyst Approaches Independent Board Member Recruiting



by Susan Bihler & Mia Hegazy

Catalyst almost always takes a board seat at our portfolio companies to allow for continued involvement and guidance after we invest. We leverage our 20+ years of growth equity experience to provide our companies’ leadership with strategic guidance and to oversee corporate governance. We have “seen the movie” many times before –– that is, we know the growing pains and opportunities companies experience as they scale from $10 million to $50 million in revenue because we have invested in more than 60 companies at that stage.

 

Our management teams appreciate our focus on the growth stage and experience as investors, but sometimes they have questions or ideas they want to run by operators – people who have “acted in the movie” before. Our teams want to glean insights from leaders who have scaled businesses successfully, so we bring in operators to serve as independent board members at our portfolio companies.

 

Board composition varies from company to company and depends in part on the amount of capital raised. At Catalyst, we are typically minority investors, so our boards usually are comprised of the CEO (who represents a common shareholder seat), other minority investors (other VCs who represent preferred equity seats), and one or more independent directors. These independents add another operating voice in addition to the CEO’s to the board discussion, serve as a resource to the management team between board meetings, often acting as a mentor to the CEO, and provide an independent perspective for board voting and governance.

 

Kylie Wright Ford, CEO of Catalyst portfolio company Reputation Institute, appreciates the insights and diversity of thought from the two independent directors on her board: “The CEO role doesn’t have to be as lonely as they all say with the right people in your orbit and importantly, in your board rooms.  Strong independent Board Members bring clarity of thought and line of questioning that elevates critical conversations in addition to the obvious governance benefits.  I find it most valuable when independents draw on business models outside the industry and appropriately challenge “business as usual”. They can spark new thinking and cut through the noise on old board room topics that have become repetitive if dominated by board members that are close to the business.”

 

If you’re working with a large board, it can help to create a Nomination Committee, a subset of the board, to lead the search process and coordinate the scope, recruiting and onboarding process for an independent director. This creates a team (typically two or three board directors) to synthesize the requests of the board and make sure the process moves quickly to attract and retain the right individual.

 

Step 1: Scope

 

Once we decide to appoint an independent board member, we then work with the CEO to determine the best candidate profile. This scope varies, but should include specific desires around the following criteria:

  • Functional expertise (general operations, product/tech, go-to-market)
  • Prior company size (revenue, employee count)
  • Business model experience (SaaS, services, marketplaces)
  • Sector experience

 

Sometimes we target a C-level employee from a specific company that the board or management team respects, having already successfully scaled to a significant size. Sometimes we are looking for a board member who is willing to get more involved in coaching the team between board meetings, such as a former sales-oriented CEO who spends a couple of weeks working with the company’s sales and marketing leaders to optimize their go-to-market strategy. There isn’t a one size fits all solution, but there are many ways in which independents can add value and help our CEOs see around corners.

 

Vicki Raport, an experienced board member and executive who serves as an independent board member on Reputation Institute’s board, shared: “Each seat on the board represents an opportunity to expand the pool of knowledge, strategy, and experience that the CEO and leadership can draw upon. As an independent board director, I bring my diversity of background, expertise, and culture as a former CEO and entrepreneur to the board.  At a board level, the collaboration of a broad set of skills and experience increases the likelihood that the CEO and leadership team have the support they need to create well-constructed strategies to take the business forward.”

 

Step 2: Recruit

 

While making a new investment is often the catalyst for starting a formal independent director recruiting process, we’re always thinking about expanding our network of advisors and consultants for our portfolio companies. We often leverage our network of Catalyst portfolio company alumni who seek to professionally develop beyond their management roles while paying it forward to other management teams. We also use resources like GLG, Athena Alliance, Him for Her, and The Boardlist to bring diverse talent and perspectives into the boardroom.

 

Once we have a pool of candidates, the nomination committee conducts introductory conversations to share background on the company and learn more about the candidate’s experience, interests and motivations for taking an independent role. We surface compelling candidates to the CEO and other members of the board.

 

As we progress through the interview process, we share more information on the company’s performance, products and plans, and we simulate board conversations with candidates to understand how they would approach real issues, such as advising the CEO on how to manage a fundraise while running the business, evaluating product development opportunities to expand the addressable market, or thinking about the tradeoffs between growth and profitability. We run a thorough process to ensure that the independent board member is a good fit with the board and the management team as they are typically signing on for a minimum two-year commitment.

 

“What makes a good marriage between a company and a board member? To me, as a board member, it means having a passion about the sector the company operates in, feeling a cultural match and a shared set of values, and having a skillset that complements what the current board and management already have. The key in a successful partnership is understanding the role a board member plays as overseer and advisor, providing counsel to the CEO and senior management in an honest, productive, and transparent manner,” said Reputation Institute’s second independent board member, John McKinley. Catalyst recruited John to the board of Reputation Institute, having worked with him for nearly a decade as a member of the Catalyst Advisory Group.

 

Step 3: Onboarding and setting everyone up for success

After selecting an independent board member, we set them up for success by preparing them for board discussions and setting a cadence for working with the company between board meetings.

 

As investor board members, we benefit tremendously from the independent operator insight. Because we focus exclusively on the growth stage, we often take insights from an independent at one company and apply them across our portfolio. As a team of lifelong learners, we welcome the opportunity to work with independents and expand our knowledge to help better advise our companies.

 

 

News

NVCA Member Spotlight: Catalyst Investors

Tell us about your firm. What makes it different?

Catalyst Investors is a New York based growth equity firm investing in B2B software and tech-enabled services businesses. Our founding partners have worked together since the mid-1990s and we have invested in more than 50 portfolio companies and completed 100+ consolidating acquisitions. Since our first fund in 2000, we’ve been driven by the same mission statement – we seek to earn superior returns by helping entrepreneurs build great growth companies. 

Research is at the core of what we do. We employ a research-driven approach to develop investment theses in high-growth industry sectors. This allows us to build a depth of knowledge as sector experts and form key relationships with leading companies. It is important for us to be thought leaders, so we make our research publicly available on our website. Once a company joins our portfolio, the management team gets access not only to the partner-led team, but also to the experience and expertise of our Catalyst Advisory Group comprised of industry veteran executives and entrepreneurs.

READ MORE >
Blog

Restaurant Tech Overview

By Kapil Desai

Restaurants in 2019 continue to face several challenges, including everything from attracting and retaining customers to hiring and training staff. These challenges, both customer-facing (“Front of House”) and operations-focused (“Back of House”), keep restaurant profit margins low at 6% and contribute to the industry’s high failure rate. Increasingly, restaurants are more attune to these pain points and seek out restaurant-focused software and tech-enabled outsourcing solutions to increase sales volumes and reduce costs.

READ MORE >
Go back to Main News Page