Sifted - Lessons from Klarna’s board mess

Good morning there,

Last week, startup and venture industry observers got a treat: drama was unfolding at one of Europe’s most important startups, and a massively influential VC was at the heart of it. Grab the popcorn.

I’m talking, of course, about the Sequoia Capital and Klarna board debacle. Today I dig into a few of the lessons startup founders and investors can learn from it about how to manage their boards. 

Elsewhere, my colleague Cristina Gallardo digs into mounting legal trouble for Barcelona-based delivery unicorn Glovo and we unpack how to use AI in your hiring process. 

— Anne Sraders, senior reporter

How to build more inclusive products

In episode two of The Inclusive Startup Playbook podcast, we’re joined by imagi’s Dora Palfi, Unfabled’s Hannah Samano and OKO’s Simon Schwall to dive into why inclusion is important, how to design inclusively, the hurdles that stand in the way and the rewards at the other side. 

What founders — and VCs — can learn from Klarna's board mess

Last week’s game of musical chairs on Klarna’s board seems to have finally come to an end. Longtime investor and former Sequoia partner Michael Moritz, who left the firm last year, survived an attempt by Sequoia to oust him as independent chair of the board. Instead, Sequoia partner Matthew Miller, who took Moritz’s Sequoia seat in January, was ousted — and Sequoia partner Andrew Reed will replace him, according to The Information (a person familiar confirmed to me that Reed is being recommended for the seat). Whew.

It’s still unclear what exactly happened; some reports say a clash between Klarna’s cofounders; others point to disagreements between Moritz and Miller over shareholder agreement changes (Klarna declined to comment and Sequoia declined to comment on the record). But it’s not the only recent board drama: OpenAI CEO Sam Altman was also fired — and rapidly reinstated — late last year.

“There's more and more situations that become public, where founders realise, 'Oh, wait, there's a topic that I didn't really think about yet,’ and it’s no coincidence that this happens when [the market] is not all up and to the right anymore,” says Michael Schuster, cofounder and former partner at Speedinvest, and now founder of Boardroom, a consultancy working with board members. “That’s when the board usually gets more important.” 

So what lessons can founders learn about how to choose investors for their board — and manage them? 

“It sounds obvious, but I always say, choose the person before the fund,” Lucile Cornet, a London-based partner at VC firm Eight Roads, tells me. “You will be amazed by how different people behave, especially in adversity or when things become harder.” 

Cornet says it generally works out best for founders if their VC board member stays at their fund. “One thing I've seen, especially in the last couple of years in Europe, is there's been a lot of [moving] of people between funds.” 

She suggests founders ask themselves when constructing their board: “Could I really work with that person for 10 years? Or is he or she gonna behave well, even if things get tough? […] And is that person gonna stick around so that I'm not switched around?” 

Victoria Younghusband, a lawyer focused on investment funds and corporate governance at law firm Charles Russell Speechlys, recommends founders have a good shareholders agreement that includes mediation dispute resolution clauses and confidentiality. 

Founders need to actively manage their boards, too, says Cornet. She advises founders to anticipate “tricky conversations”, share plenty of information with board members ahead of time and make sure they leave ample time to discuss key matters — like M&A or IPO plans — in board meetings, to “avoid people panicking”.

For companies in the pre-IPO phase, there's lots to consider — from who the leadership team will be as a public company to what the share governance structure looks like. 

Cornet also says founders should understand the pressures board members might be under. “In the next couple of big IPOs, you'll have half of the investors happy and the other half unhappy, because people that have invested in the early days [are] getting liquidity ... [and will] actually make good money; and you'll have people in these boards that will be in the red.” 

VCs could pay far more attention to board management as well, says Schuster. He doesn’t know of many VCs that have someone on the team focused on board governance, transitions and best practice. Moreover, firms should think about how best to hand over board positions, add value to boards and upskill members.

I’m very curious to hear from you, founders: have you experienced drama on your board? How did you deal with it? Are you planning to switch up your board members anytime soon, or have you had a tricky departure in the past? And VCs: do you have someone (or are you planning to hire someone) in charge of managing board seats at your firm? I’m all ears.

— Anne Sraders, senior reporter

👨‍⚖️ Barcelona-based delivery unicorn Glovo is facing mounting legal trouble in its home market Spain, as more sanctions pile up over its employment relationship with its couriers. 

• The company, hailed as one of Spain’s startup successes, is under pressure to pay more than €205m to the Spanish Labour Authority, which says Glovo is in breach of law by not treating some of its couriers as salaried employees.
• In January, Spain’s high court suspended two payments worth a combined €64m as it ruled forcing Glovo to pay would push it to an “extreme situation”. But in the same month, the Spanish Labour Authority issued a new fine to the company, showing that its legal headaches are far from over.
• Glovo, which is appealing the Labour Authority’s decisions, tells Sifted these “are not yet final and are currently under the revision of courts”.

🤔 How do you make sure you’re hiring the best people for your startup? Well firstly, says David von Rosen, don’t pay them too much. 

• You’re a startup and you’re on a budget, so don’t pretend otherwise. And anyway, he says, if you hire people who are asking for too much money, then you might have reason to question their motivation. Will they just move on when a better offer comes along?  
• Other advice that von Rosen is keen to share is not to hold on for the mythical “perfect candidate”, because a) there probably isn’t one, and b) if there is they’re likely to be working for big corporates, not small startups. “Look for candidates who are entrepreneurial, willing to learn and are good team players,” he says.

👀 Lazard, the financial services firm, has published its annual list of 100 European tech companies to pay close attention to. Fintech’s share of the top 100 has dropped from 30% to 23% this year while, predictably, deeptech has jumped from 6% to 16%. 

• Pasqal, Mistral, Aleph Alpha, Enpal and 1Komma5 are all on there, as you’d expect.

🧱 68 proptech startups to watch.

🤖 How to use AI for hiring.

🔥 Tomorrow, we’ll be showcasing five of the leading European early-stage fintech startups currently fundraising at our Pitch event, exclusively for Pro subscribers. RSVP.

🇪🇸 Cristina Gallardo is at 4YFN x MWC this week in Barcelona — going to be there? Drop her a note.

💸 On March 13, Amy Lewin will bring together a panel of experts from Octopus Ventures, FaceIt, Latham & Watkins and Bloom to discuss what's in store for M&A activity and how startups can prepare. RSVP.

Stockholm-based Serverpod, an open-source app server for the Google Flutter community, raised €1.7m in pre-seed funding. PreSeed Ventures led the round. 

Utrecht, Netherlands-based Amigos, a social network app that connects people for local meetups, raised €1m in funding from angel investors including former Booking.com CPO David Vismans.

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