Explaination: The term related to Board Structure in the Term Sheet stipulates about representation of the Investor(s) on the Board of the Company. This can be either by appointing an Observer to the Board of the Company or the Director.
How it applies to Startup/Investor and its impact: Generally, the investors would want to appoint a representative on the board of the company either by appointing a Director or an Observer or both for keeping an eye on the day-to-day work as well as the management of the startup. Such a representative would have the same powers as any other board member.
The rationale behind appointing Investor representative(s) on the Board of the Start-up is to check that the Start-up is working to achieve their business objective and is not entering into any shabby transactions which jeopardises the interest of the Investors as their money is at stake.
Nevertheless, in the terms of their agreement, a startup must avoid any unnecessary interference by such a representative in the functioning of the company. Their prerogatives should not supersede that of other board members. In this context, some key aspects include a quorum for board meetings, matters that require compulsory approval of such investors’ representative and reserved matters.