Welcome to the 49th episode of Deep Tech Catalyst, the channel by The Scenarionist where science meets venture!
Building effective HR plans and a functional CEO-board relationship are crucial parts of a founder’s role and must be tailored to the various stages of a company’s growth, with clear KPIs in mind.
🧠 Thinking about this, some interesting questions might include:
What key factors do VCs consider essential in an investable HR plan, and how should these goals evolve from early-stage to mid-stage growth?
How can founders establish a strong company culture that engages and motivates all employees in the right direction?
What do VCs look for in the CEO-board relationship, and what risks arise when this relationship goes wrong?
To help decode this path and share a ton of valuable experience, we welcome back Anil Achyuta, Managing Director at TDK Ventures!
Key Themes Covered:
🚀 HR Plans for Early- vs. Mid-Stage Deep Tech Startups
🍰 Managing Stock Option Plans
🤝 Understanding the Involvement of Co-Founders vs. Employees
📋 3 Ideas for Approaching Your First Hire
🧩 The Critical Nature of the CEO-Board Relationship
🚦 Red and Green Flags for VCs
🤝 Join The Scenarionist’s Partnership Program
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Before diving into it, please note: This content is provided solely for educational and informational purposes and should not be construed as financial or legal advice. Entrepreneurs and investors are strongly encouraged to consult with qualified legal or financial professionals to navigate these areas effectively.
🚀 HR Plans for Early- vs. Mid-Stage Deep Tech Startups
An effective early-stage HR plan centers around 3 critical elements:
Establishing Company KPIs
For a growing company, setting clear Key Performance Indicators (KPIs) on an annual basis is essential. These KPIs act as a roadmap, providing measurable goals that everyone in the company can work toward. This helps ensure alignment with the company’s mission and growth targets.Defining KPIs for C-Level Executives
KPIs are equally important for the executive team. Having defined performance metrics for C-level executives clarifies expectations and helps assess whether leaders are effectively contributing to the company’s goals. By regularly reviewing these KPIs, you can identify who might need additional support, who is excelling, and potentially, who may not align with the company’s direction.Establishing Core Values and Culture
Building a strong, meaningful culture begins with clearly defined core values, ideally set by the CEO:
"Culture is not something you write on a wall and put some slogans and stuff like that. Culture is really about what you are going to do when nobody's watching. That is the key part. And as long as people understand that, it has to come from the top down—from the CEO level, more often than not, from the CEO or founder. […] So those are the absolute musts in an HR plan for an early-stage company. It doesn’t have to be complicated; it has to be very simple, as long as you write it down in actual words and sentences and not make it like a PowerPoint. It has to be in a Word document where people can read and there’s a logical progression of why it is that you want to do it in a certain way. So that’s, in a nutshell, a skeleton of an early-stage HR plan."
The Transition to Mid-Stage HR Plan
As a company transitions into a mid-stage phase, especially when it begins generating revenue, the HR plan should build upon the previous three points by adding incentive structures to address a new priority: sales.
At this stage, companies often form a commercial team, requiring a structured incentive plan, like performance-based bonuses, to motivate members to meet or exceed targets and drive company growth.
An effective bonus structure should reward employees who contribute to growth, especially in sales and revenue roles, while also helping departments like finance and support understand their role in building equity value.
The Importance of Cultivating a Company-Wide Understanding of Equity Value
Encouraging all team members to recognize their impact on company value fosters ownership and motivation, driving a collective commitment to long-term growth.
Encouraging every team member, from finance to support staff, to understand how they contribute to the company’s overall value helps cultivate a sense of ownership and motivation. This awareness fosters a collective drive toward building equity value, a critical aspect of a growing organization. Setting incentives aligned with this mindset can take some time to develop but adds substantial long-term value.
🍰 Managing Stock Option Plans
Stock option plans can vary widely by geography, particularly when comparing the U.S. to other regions. There’s no universal “right” stock option plan, but there are some practices that are generally advisable and others that should be avoided.
Protect your Cap Table from “Dead Weight” Equity Holders
One common issue seen in early-stage companies is when institutions, such as universities or national labs, take excessive equity. This can create a “dead weight” on the cap table, adding limited value while significantly diluting the founding team and investors.
A good balance for early-stage companies might look like this:
50-60% for the management team, keeping the leadership engaged and motivated.
40% for investors, including a small percentage for early supporters (e.g., friends, family, and angel investors) and a larger portion for institutional backers like venture capitalists.
Additionally, the CEO should aim to retain at least 20% equity at the seed stage to incentivize and enable them to steer the company effectively.
Set Aside Stock Options for Early Employees
From an options perspective, setting aside around 20% for the team is a good starting point for early-stage companies. While this percentage may vary, it allows room to attract and retain key talent without excessive dilution. Striking the right balance here is crucial, as stock options are intended to align employees’ incentives with the company’s growth. While distributing stock options, it’s essential to manage equity value thoughtfully and avoid practices that can undermine the company’s growth.
"Top-Ups" and Valuation Sensitivity
A “top-up” occurs when an employee requests additional shares to offset dilution from new funding rounds. Consistent top-up requests signal a lack of “valuation sensitivity”—the understanding that a smaller percentage of a larger, more valuable company is more beneficial than a larger share of a lower-value company.
Founders and employees should focus on building the company’s value rather than fixating on preserving their equity percentages.
For example, owning 5.4% of a $100 million company is far more valuable than owning 6% of a $30 million company. Value-sensitive employees contribute to milestones, improve revenue, and help de-risk the company, focusing on the long-term growth.
🤝 Understanding the Involvement of Co-Founders vs. Employees
A CEO’s priority is to bring in talent that surpasses their own abilities in critical areas.
While they’re accountable for the company’s success, the CEO isn’t necessarily the expert in product development or scaling operations. This requires a mindset focused on recruiting top talent and assembling a team that can deliver on the vision.
Hiring a co-founder differs significantly from hiring an employee.
The level of commitment, equity considerations, and mutual respect required are unique, making this decision fundamental to the company’s trajectory.
Understanding Executive Roles and Responsibilities
Before hiring, clarify if you need a co-founder or an executive. A co-founder often means a more equal share of equity and an enduring commitment to the company’s mission. Sometimes, founders even share a portion of their own equity to bring on a co-founder who can drive the business forward as a CEO or COO. This decision should be rooted in mutual respect and a shared belief in the new co-founder’s vision and capabilities.Hiring for Strength, Not Just Absence of Weakness
A valuable hiring principle at the co-founder level is to prioritize the magnitude of strength over lack of weakness. As Ben Horowitz suggests, look for people with a “superpower”—a distinct skill that elevates the team as a whole. For example, an exceptionally skilled programmer who may be introverted can bring a level of technical depth that outweighs any perceived weaknesses in communication style. The goal is to build a team of non-linear thinkers who can innovate and drive the company forward, despite the challenges startups typically face.
📋 3 Ideas for Approaching Your First Hire
Beyond evaluating the candidate’s technical and analytical skills, it’s essential to assess soft skills like resilience, adaptability, and collaborative spirit. Here are some practical tips and key questions to help structure the interview process.
"What’s the Hardest Thing You’ve Done?"
This question, popularized by Elon Musk, is an excellent gauge of a candidate’s problem-solving skills, resilience, and tenacity. When a candidate describes their most difficult challenge, you should listen for specific details that demonstrate they took ownership, pushed through adversity, and mastered every aspect of the situation."Tell Me About a Crisis Situation You Solved."
In a startup, crises are almost constant. This question assesses how they handle adversity and whether they can remain effective under pressure, especially when competing with larger companies, dealing with slow customer adoption, or managing financial constraints.Conduct Thorough Reference Checks
One of the most significant mistakes founders make is not conducting enough reference checks. Don’t limit yourself to references provided by the candidate; seek out additional contacts who have worked closely with them in various capacities. For instance, ask former colleagues or supervisors if they noticed the specific qualities or "superpowers" you’re looking for.
🧩 The Critical Nature of the CEO-Board Relationship
In any startup, the relationship between the CEO and the board of directors is pivotal.
For investors, a strong and functional CEO-board relationship is an indicator of a company’s long-term viability.
The CEO reports directly to the board, which represents the interests of all investors. This dynamic creates an accountability structure: the board holds the CEO accountable for achieving agreed-upon goals, while the CEO relies on the board’s guidance and support to navigate challenges and drive the company forward.
However, when this relationship is misaligned or lacks clarity, it can lead to serious, often irreversible, issues.
Outcome-Based KPIs: Focused and Measurable Goals
Outcome-based KPIs make it easy for both the CEO and board to track the company’s success against clear, measurable targets. KPIs should be defined by specific outcomes rather than vague actions. Here are 3 examples for early-stage startups.
Product Development KPI: From Prototype to Product
One of the most critical KPIs in a company’s early stages is transitioning from a prototype to a market-ready product. This KPI can be broken down into concrete, measurable outcomes:Example KPI: “Demo the fully functional product at CES, with the goal of achieving at least 100,000 views.”
Supply Chain KPI: Building Strategic Relationships
For companies aiming to scale production, establishing key supply chain partnerships is crucial. Instead of vague goals like “develop relationships,” this KPI should define the desired outcome:Example KPI: “Secure signed contracts with at least three key suppliers by [specific date].”
Fundraising KPI: Achieving Financial Milestones
Fundraising KPIs are essential for startups that rely on investor capital for growth. Setting a clear funding target with specific terms helps the board and investors track financial progress.Example KPI: “Raise $10 million at a pre-money valuation of at least $25 million by [specific date].”
🚦 Red and Green Flags for VCs
Maintaining a productive, transparent relationship between the CEO and board is essential for any startup’s success. However, when communication, feedback, or accountability lapses, this relationship can quickly deteriorate.
Here, we explore common red flags that indicate dysfunction in CEO-board dynamics, as well as green flags that signify a healthy, reflective, and accountable board culture.
🔴 2 Red Flags in CEO-Board Relationships
When the relationship between the CEO and board falters, it often results in irreversible damage. Some common red flags include:
Absence of Defined KPIs: One of the most significant issues that can disrupt the CEO-board relationship is the lack of clearly defined KPIs. Without measurable KPIs, the board has no basis for evaluating the CEO’s performance, which often leads to frustration and blame-shifting. This situation frequently stems from the board itself rather than the CEO. When KPIs are missing, both parties lack direction, making it difficult to foster a results-driven company culture.
Lack of Constructive Feedback Between Meetings: Passive board members who attend meetings without actively engaging with the CEO between sessions can hinder progress. The real work often happens between board meetings, yet, in some cases, board members do not provide actionable feedback to the CEO. This leaves the CEO isolated, navigating challenges without the benefit of board insights, ultimately stunting the company’s growth.
🟢 3 Green Flags in CEO-Board Relationships
On the other hand, certain practices indicate a strong, healthy CEO-board relationship that supports company growth. These “green flags” provide a roadmap for building a reflective and accountable board culture.
Regular One-on-One Feedback Sessions
Effective board members often take the time to meet with the CEO one-on-one after each board meeting to provide direct feedback. For example, having a follow-up breakfast or meeting allows the board to share feedback gathered from all board members, highlight areas of improvement, and reinforce positive achievements. This consistent communication fosters trust, ensures alignment on goals, and empowers the CEO to act on constructive feedback. Regular check-ins also create an environment of accountability, where the CEO feels supported yet responsible for achieving the board’s goals.Implementing Critical Success Factors (CSF) and Continuous Reflection
Companies that are committed to growth often implement a Critical Success Factors (CSF) framework, which encourages continuous reflection on what has been accomplished and what can be improved. Reflective boards and CEOs take time to ask, “How can we do better?” This is sometimes formalized in offsite retreats, where board members and company leaders step away from daily operations to assess the past year’s successes and setbacks. Such sessions, often involving industry experts or board members, offer valuable opportunities for self-critique and strategic planning, reinforcing a culture of continuous improvement.Clear, Consistent Tracking of Goals and Outcomes
The most effective CEOs and boards keep detailed, transparent records of goals set, promises made, and results achieved. In board materials, companies that track “reds, yellows, and greens”—indicators of which goals were met (green), partially met (yellow), or missed (red)—tend to have a high level of accountability and clarity. This structured, transparent tracking creates an environment where both board and CEO are aligned on priorities, making it easier to identify areas that need attention and reward accomplishments. Companies that maintain this level of detail and clarity in board materials demonstrate their commitment to execution, which is attractive to potential investors.
