Facing start-ups’ unique governance challenges
Report on the ILA Governance for Start-ups launch event - 27 March 2024
Fostering effective, value-adding corporate governance for start-ups is being given extra focus by ILA. The workshop “Governance for start-ups: how adequate governance can attract investment and foster innovation”, held on 27 March, was the launch event for this invigorated approach.


Fresh ILA impetus

“We are launching this initiative today to address the needs of start-ups working to create and sustain a board, including how they can attract the right value adding people at every stage of the business’s growth,” said Najia Belbal, a member of ILA’s executive committee. “We also want to help Non-Executive Directors understand better what start-ups need, and how their experience gained in a variety of sectors can be applied in these unique contexts,” she added.

The workshop gave different perspectives on both sides of this challenge, and a detailed introduction to Luxembourg’s start-up ecosystem. It was organised by ILA in partnership with the Luxembourg Business Angel Network (LBAN) and the HEC Paris Alumni Network, with support from Luxinnovation, and was held at Kinepolis, Kirchberg.

Meeting start-ups’ needs

The governance needs of start-ups and how non-executive directors can help were addressed in two panels. The first featured entrepreneur Gregoire Saint-Cast, the CEO and founder of drone services firm Ivadrones, and two members of ILA’s Start-ups Working Committee, Marina Andrieu, MD of Women in Digital Empowerment asbl and a non-executive director, and Christophe Bianco, Head of Sales and Bids with Thales and an angel investor.

“Board members of start-ups need to be clear about the value they can provide, and they must be aware how easy it is to give inappropriate advice,” said Ms Andrieu. “Governance starts with the entrepreneur making sure they are asking for the right kinds of support,” Mr Bianco added. Often this is about help with networking and strategy, but also the operational mechanics of running a company, particularly managing investor relations.

Considerations for founders

“I was confident in my ability to develop my business, but it became obvious to me that I needed help keeping in touch with shareholders,” said Mr Saint-Cast. To a large extent this means having useful, effective reporting to ensure that investors are informed about progress meeting KPIs, not least as the company looks forward to future funding rounds.

The panel noted that too often there is a degree of mutual misunderstanding between entrepreneurs and investors, including divergence of views on the nature of business challenges and what solutions might be. A facet of this, Mr Bianco noted, is that there are too many brilliant entrepreneurs who lack basic understanding of standard business procedures. “This can be due to over-confidence, or sometimes the entrepreneur being somewhat reluctant to ask basic questions,” he said. Non-executives can provide a bridge to help smooth such relationships.

An entrepreneur’s ally

Balancing the interests of investors with the long-term needs of the company is also an important role for independent directors. Many promising entrepreneurial dreams can be dashed if directors appointed by investors prioritise making quick financial returns that are detrimental to long-term sustainability. Worse still, political machinations can see founders and their allies ousted. Trusted non-execs can keep an eye out.

However, finding a reliable ally can be a challenge. For example, one might think that an angel investor who has been with the firm from the early days might be a strong ally on the board. However, if their financial investment is relatively small, maybe they will unwilling to act if the going gets tough.

“Bringing someone onto a board with strong industry experience or a well-known personality can add value, but not always,” said Ms Andrieu. “Beware of the temptation of making such an appointment just because it looks good.” In general, she advised establishing clearly defined roles for board members and advisors.

VC’s challenges and expectations

The perspective of venture capitalists (VC) on these topics was developed in a later panel. It featured Jerôme Wittamer, founding partner at Expon Capital and Leesa Soulodre managing general partner at R3I Capital.

Mr Wittamer explained some of the different governance requirements as the start-up develops. For the early, seed investment stage, governance can be relatively informal, but VCs tend to appreciate a more structured approach, not least because they are often working with institutional money. “When we are conducting due diligence, we want to gauge the outlook of founders and whether they are willing to be challenged and give feedback,” he said. Paying appropriate attention to corporate governance can help in this regard.

Facilitating quality communication

Ms Soulodre agreed, but underlined that governance needs should be assessed case-by-case, as structures need to allow innovative potential to thrive. “Funding rounds can be very awakening moments for entrepreneurs, but we won't force a board on founders at the start,” she said.

“We focus on ensuring a sufficient range of diverse perspectives are around the table at regular meetings. This is the essence of ensuring the delivery of strong business practice and governance,” she said. This means “adequate representation of the markets and functional expertise.”

Building trust is key

Mr Wittamer noted that work around corporate governance includes a process of establishing and deepening trust. “It is encouraging when entrepreneurs are willing to recognise where they can improve and make changes, and be open to outside support,” he said. When founders use meetings to focus on selling, he thinks they are often missing an opportunity to inspire deeper levels of confidence in their vision.

Conversely, founders need to use every opportunity to make an assessment of their investors and whether they buy into the company’s vision. Failure to address these questions can see the company diverted from reaching founders’ goals, with potentially negative long-term consequences for the business.

“Founders can have board members forced upon them by investors, so maybe start-ups need to be more careful about what money they take, and how active they want that money to be,” Ms Soulodre said. “It’s important to understand where you are in the development cycle, and what maturity is expected of you at this moment,” she added.

Business angels’ roles

The workshop also addressed the role of business angels in the Luxembourg context. ”A business angel will have some money, but it doesn’t have to be millions. But they should have the ability to create value, such as with advice or by opening doors,” said Michel Rzonzef, the president of the Luxembourg Business Angel Network (LBAN), an active business angel and mentor, and member of the ILA Start-ups Working Committee.

“Business angels can react more quickly than VCs, helping the company during the early, seed stage of growth when the first products are being developed,” said Mr Wittamer. VCs require a higher level of maturity, a growth pipeline, and thus somewhat lower levels of risk; coming at a later stage to offer “rocket fuel” to help the firm grow far and quickly.

Angel investment strategy

Romain Hoffmann, a director with LBAN and an angel investor added some outlines of investing strategies. As a rule of thumb, he said 20% of invested start-ups will render 80% of returns, so investing in 20 start-ups gives a high chance of breaking even, and about a three-in-four chance of getting back three times the amount invested. However, he noted that only around one in 20 companies will reach €1m in sales, with one in 200 reaching €10m, and next to 0% getting to €50m.

Selecting a portfolio is hard work, as business angels and VCs receive many hundreds of project decks each year. He said his investment decisions were based on engaging closely with the start-up ecosystem “and then being guided by gut feeling.”

Ecosystem overview

A detailed overview of other aspects of how start-up ecosystems function completed the programme, with particular focus on the Grand Duchy. The roles of different local business incubators were explained, with the University of Luxembourg Incubator acting as a seedbed, with start-ups then taking things further in the likes of the Luxembourg City Incubator and Crédit Agricole’s Village. An ecosystem overview was given by Inge Kerkloh-Devif of HEC Paris, who explained how this leading business school is working to foster start-up development.

Luxinnovation’s holistic support

There was also a deep-dive into the range of support Luxembourg’s national innovation agency Luxinnovation provides to start-ups and established firms. As well as assisting with research, development and innovation investment, this public-private partnership organisation offers coaching and networking support, plus help to hire the experts firms need to make leaps forward. The agency is also an access point into European innovation networks.

“Our key mission is to help all types of companies on their innovation path,” said Sasha Baillie, Luxinnovation’s CEO. “This is about helping them understand challenges and turning these into opportunities, while avoiding some of the pitfalls.” With start-ups, she noted that the agency works to develop business plans, including assisting with mentoring and putting boards in place.

While thanking those that are already engaged with the start-up ecosystem, she highlighted Luxinnovation schemes that offer other opportunities for local business people to put their experience to good use. The Entrepreneur in Residence mentoring scheme is being established by Luxinnovation, and jury members are needed for the agency’s Fit 4 Start acceleration programme.


Save the date: the next event of the ILA Start-up initiative will take place on 10 June at Coque Luxembourg.


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