When companies take their first institutional investment, they usually have little in the way of corporate governance.  For many companies, at the early stage decisions are simply made by the founder(s) with no formal vote at all.  While these companies typically do have a board of advisers, their board is there merely to advise, not direct.

As I have described in my post How Companies Are Governed all of this changes when a startup takes an investment from a VC.  Good VCs require their portfolio companies to put in place robust corporate governance structures, decision making procedures, dis-aggregated control (e.g., a board of directors), etc. 

For some this may beg the question, "why does governance matter?"

Ultimately, governance enables a corporation to improve its ability to make decisions that maximize overall shareholder value.  In practice this means enabling the company to work through stalemates and protect minority investors when incentives are not aligned.  In other words, governance stabilizes a company, enabling it to better weather complicated decisions.  For VCs governance protects their investments by reducing the odds that challenging decisions will destroy the company.

Governance is not only important for internal decision making, it is also important for shaping external perceptions.  Partners and customers want to work with companies that are positioned to continue to provide services for the duration of their relationship.  While early-stage companies do face a litany of risks, having proper governance in place can mitigate the risk that internal conflicts will implode the company.  A VC investment is often seen as a "good house-keeping seal of approval".

As a result, the governance that VCs bring to startups inreases the odds that a startup can both survive difficult decisions and more easily engage in contracts with customers and partners.