When should a startup appoint an independent director?

Not revenue, not headcount, not a funding stage. Count the people in your board meeting and ask how many of them are neither a founder nor an investor.

If the answer is zero, every discussion in that room has two constituencies and no referee. The founders want runway and optionality. The investors want progress against a thesis and a path to a return. Those interests overlap most of the time and diverge at exactly the moments that matter — a down round, a pivot, an acquisition offer that is good for some shareholders and not others, a decision about the chief executive.

An independent director is the only person in the room whose duty under section 172 of the Companies Act 2006 is not complicated by a second role. That is the whole function.

No. A private UK company needs at least one director, and that is the extent of it. Nothing obliges you to appoint a non-executive or an independent one.

The UK Corporate Governance Code, which sets out expectations on board independence, composition and committee structure, applies to companies with a premium listing. It does not bind seed-stage companies. But institutional investors apply its thinking well below the listed market, and a board that has never had an independent voice becomes a diligence finding somewhere between Series B and an exit.

Section 172 does apply, to every director you appoint, listed or not. It requires each of them to act in the way they consider most likely to promote the success of the company for the benefit of members as a whole. Your investor directors are subject to it too, which is worth remembering — but they are subject to it while also having a fund to answer to.

Any two of these together, and you are late rather than early. An investor has asked: the most common trigger, and usually a condition rather than a suggestion. A round has just closed: the board is about to be reconstituted anyway, and appointing an independent in the same motion costs one conversation, where appointing one in six months costs a governance argument.

The board has two investor directors: two funds with different lifecycles and different entry prices is where independent judgement starts earning its fee. A first-time chief executive: a CEO who has never run a board needs someone who has sat on one, and it should not be their lead investor.

Committees are forming: the moment anyone says "audit committee", you need a member who is neither an executive nor a shareholder representative. And an exit or a further raise is in view within eighteen months: board composition is a diligence item, fixing it takes a quarter, being asked about it takes a meeting.

Three different things, and the confusion is expensive.

An adviser gives you their opinion and carries almost no exposure. A director carries statutory duties and personal liability, which is why they are paid more, ask harder questions, and need to see the management accounts rather than a summary.

If what you want is a name on the website and occasional introductions, appoint an adviser. If you want someone who will tell your lead investor they are wrong, appoint an independent director — and pay for it.

Four things. Without them a search takes twice as long and produces worse candidates. A written specification of the gap — not "a NED with fintech experience" but "someone who has taken a payments business through FCA authorisation and can chair an audit committee". The last two board packs and your management accounts, because a serious candidate will ask and a candidate who does not ask is not serious.

A view on fee and equity before the first conversation, since working it out during the negotiation puts you on the back foot. And your directors' and officers' position: if you do not have cover, the strongest candidates will decline, and they will be right to.

For what the role actually involves once appointed, see what a non-executive director does at a seed-stage company. For fee benchmarks by tier, see how much non-executive directors get paid.