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Why think about governance in the midst of a startup’s whirlwind of needs?


Suzana Marques Domingues and Marco Antônio Villas Boas – Partners DMS Partners


A question that seems to have already been answered considering the directions made by associations, investors and people with great experience acting as mentors. Everyone highlights the importance of governance for the healthy growth of the startup.


Here we put ourselves in the shoes of entrepreneurs, who have several batons spinning to be picked up and thrown again to keep the business up and growing. Not an easy task to include one more.


First, let's remember what Governance is and its purpose. According to the Brazilian Institute of Corporate Governance (IBGC), governance is "a system by which companies and other organizations are directed, monitored and encouraged, involving relationships between partners, board of directors, management, supervisory and control bodies and others interested parts." It seems complicated and only necessary for large companies, but the fact is that governance can and should be applied to any size company.


Any size? At any stage of startup maturity? Like this?


We may not realize it, but there is governance in any company, in any organization.


Let's consider this situation very simple: I created a startup and my partner is a school friend, we are partners with 50% each. The company is, for now, integrated by just the two of us. She is the creator of the technology, and I serve as commercial director. We discussed the path of the startup's strategy as equal partners, with greater or lesser difficulty in reaching consensus. On the other hand, in operational terms, she provides technological solutions and I make commercial decisions. Okay, we have the separation of functions as partners (governance agents) and as operational managers (directors and executives). This is already a governance practice, even if those involved are present at both levels. It is important to know how to distinguish the roles of these two types of agents, and to practice them in an organized way.


So, to put it in simple terms, governance is used to avoid management failures that could compromise the company's sustainability and growth. And why is this important for startups? We can cite a few reasons:


To be in alignment with the purpose, values, agreed guidelines and, most importantly, the strategy.


To grow on solid foundations.


To avoid future problems in society.


To have clear rules regarding the actions of partners in matters that are pertinent to them, and of managers in the exercise of their functions.


To assure potential investors that the company is healthy to prosper.


At a time when the caution and reflection of investment funds has been widely announced, including with large players such as Softbank reporting losses of around US$16 billion in the first quarter and US$23 billion in this last quarter of 2022, governance is , without a doubt, one of the essential aspects when choosing the startup to invest in.


Therefore, it is correct to say that if healthy growth and investment support are linked, governance is an increasingly required item. If your startup intends to seek funding in the future, it will be important to take the first steps early on the governance path to be ready for this competition.


Investors soon want to reap the results of their contributions, and governance compatible with the maturity of the startup is, without a doubt, a relevant criterion for confidence in the management of the investment made.


But don’t worry, the introduction of governance doesn’t have to be complex! A startup can and should have an evolutionary governance path, in the same way that it evolves in its growth phases, that is, the process can be implemented in parts, within the maturity stage, growth and evolution of the company. IBGC created an e-book CORPORATE GOVERNANCE FOR STARTUPS & SCALE-UPS that shows what is needed for each stage. If you want to know more details, we recommend that you download this content from the IBGC website.


Here we present the first step, that is, what is essential to start this journey well:


Partner agreement


A company is started with at least two partners and is so for several reasons: complementarity of knowledge, skills, family or friendship connections, financial needs. While having more than one partner is essential, disagreement between partners is, according to research released by Fundação Dom Cabral in 2012, the biggest cause of mortality in companies.


The Partners Agreement is different from the social contract that you register with the commercial board and which regularizes the company. This instrument is separate, not openly disclosed and has a very important function in structuring a company, because it governs relations between partners. Clarity in this relationship can be the difference between having this joint dream last or being left on the way.


Some important items that must be contained in the Membership Agreement: clarify


https://www.dmspartners.com.br/leansolutions


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