VCs on Boards of Public Companies

The story in today’s New York Times about venture capitalist Mike Moritz (of Sequoia Capital) and his tussle with a founder of RedEnvelope puts a fine point on the current debate within the venture community about board seats.

The founder (a former board member) is agitating for the current board to fire the company’s CEO, someone who Moritz apparently believes is doing a good job. Proxy battles, dissident shareholders — it’s nasty, time-consuming stuff.

So, here is the debate: Some venture folks believe that you should hightail if off a company’s board as soon as it goes public. They feel that venture capitalists are tuned to private companies, not public ones, and their job with respect to public companies is to sell the stock, or at least distribute it as soon as possible to their limited partners.

On the other side of the debate you have VCs who feel that there is nothing wrong with staying on public company boards. Matter of fact, they argue that in some circumstances you would, as a VC, be derelict in your duties if you didn’t stay on the board. After all, your job is to obtain the highest possible return for your investors: What better way to obtain the best returns than to have an influence on the strategies and actions of the public company in which you hold stock?

I’m somewhat mixed, but come down gently on the side of those who think VCs should leave public boards. While I’ll concede that there are circumstances where they should stay — executive transitions, for example — the truth is that VCs have better things to do than mess about with public companies. Put another way, a good VC should be able to consistently earn higher returns for his or her investors by spending more time on private company boards and less time on public company ones.