Venture Clout on Boards Grows in IPO Drought

BOSTON (TheStreet) -- In a time when IPOs are few and far between, venture capitalists are spending more time than ever sitting on -- and often controlling -- company boards, and VCs and top executives disagree about whether that's a good thing.

VCs sit on an average of 4.4 company boards, up from an average of four boards in 2006, with many sitting on as many as eight boards, according to a new report by the National Venture Capital Association and News Corp.'s(NWS Quote) Dow Jones. Fifty-two percent of VCs expect their board participation to increase during the next two years, the study says.

The hands-on approach lends itself to geographical limitations when it comes to investing in new companies. And when VCs spread themselves too thinly, they aren't intimately familiar with the daily operations of the companies they fund. Still, the majority of VCs (82%) require a board seat as a prerequisite for investment.

"We always take a seat on the board," says Matt McIlwain, a managing director at Madrona Venture Group, a Seattle-based firm known for its early-stage investment in Amazon(AMZN Quote). He sits on eight company boards.

"Generally that means you're local and available," he says. "If you've got six or seven board members in different cities, that's a hard job to do well. If they're all based in one city, then I can do two board meetings in a day if I need to."

Lead investors are typically more adamant about board representation than passive investors, but there are some exceptions. "If it's a team we know well and a set of investors we know well, perhaps we'll take an observership," says Ullas Naik, a managing director at Globespan Capital Partners in Palo Alto, Calif., whose past investments have included Clearwire(CLWR Quote), Net Perceptions and ShoreTel(SHOR Quote). "And as partners are getting saturated in terms of the number of board seats they can take, occasionally they'll be more prone to take an observership than they might have been in the past."