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How to establish a health tech startup advisory board
When you enter the health tech industry as a new startup, an advisory board is a crucial foundational step. A board can guide you through industry-specific nuances, help you make important decisions and prove your legitimacy to investors looking for a strong industry background.
An advisory board will be able to give you strategic insights about both your company and the wider healthcare and technology industries.
In my experience of raising capital, the unpredictable financial situation at the beginning of the pandemic meant we nearly lost our $2 million round, but came through with a committed $250,000, which we used to bring in about $500,000 in revenue.
Something that helped this process was building our advisory board and starting small — we didn’t go for all of healthcare but instead focused on two healthcare verticals. This allowed us to prove our concept, build case studies and win contracts with specific teams in our customers’ companies.
It pays off to stay focused and prove your worth so that your advisory board members can champion you in niche markets, with the potential to expand in the future. For this reason, it’s important to identify the main intention behind your board, and exactly who should be on it.
Who to recruit
Three to five people is an ideal starting point for an advisory board, depending on the size and stage of your company. In health tech, you need more than just the healthcare perspective — you also need the insight of those who have already grown technology companies, perhaps outside of the industry. Our company’s board is an even split of two healthcare and two technology advisers, and, ideally, you want to find a fifth who is well versed in both industries.
It pays off to stay focused and prove your worth so that your advisory board members can champion you in niche markets, with the potential to expand in the future.
An M.D., a Ph.D. from a respected institution or a thought leader in your relevant field of healthcare is the most important asset to an advisory board. These are the highly decorated physicians who have strong connections and act as a reference for their peers.
They provide instant credibility for your company, help you get into the minds of both patients and healthcare providers, and can outline how various health systems work.
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The hidden benefits of adding a CTO to your board
The pandemic forced companies around the world to adjust to a “new normal,” which caused many leaders to pivot their business strategies and adopt new technologies to continue operations. In a time of chaos and change, there is no senior leader that can navigate this sort of change better than a CTO.
Not only do CTOs understand the ever-changing tech landscape, they also provide invaluable insights to help organizations go beyond traditional IT conversations and leverage technology to successfully scale businesses.
Boards are facing pressure to be strategic and thoughtful on how to evolve in the rapidly iterating world of technology, and a CTO is uniquely positioned to address specific challenges.
There are now more reasons than ever to consider adding a CTO to your board. As a CTO myself, I know how important and impactful it can be to have technical-minded leaders on a company’s board of directors. At a time when companies are accelerating their digital transformation, it’s critical to have diverse technical perspectives and people from varying backgrounds, as transformations are a mix of people, process and technology.
Drawing on my experience on Lightbend’s board of directors, here are five hidden benefits of making space at the table for a CTO.
A unique mind (and skill) set
Currently, most boards of directors are composed of former CEOs, CFOs and investors. While such executives bring vast experience, they have very specific expertise, and that frequently does not include technical proficiency. In order for a company to be successful, your board needs to have people with different backgrounds and expertise.
Inviting different perspectives forces companies out of the groupthink mentality and find new, creative solutions to their problems. Diverse perspectives aren’t just about the title –– racial ethnicity and gender diversity are clearly a play here as well.
Deep understanding of tech
For a product-led company, having a CTO who has been close to product development and innovation can bring deep insights and understanding to the boardroom. Boards are facing pressure to be strategic and thoughtful on how to evolve in the rapidly iterating world of technology, and a CTO is uniquely positioned to address specific challenges.
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4-year founder vesting is dead
Jake Jolis is a partner at Matrix Partners and invests in seed and Series A technology companies including marketplaces and software.
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We recently invested in a team of co-founders who had voluntarily made their own vesting longer than four years. Four-year vesting is the industry standard. Why would someone voluntarily make it longer for themselves?
Their answer: “These days, with companies taking seven to 10 years to reach exit, it would make sense for founders to be on a similar schedule.”
This matters because the four-year co-founder vesting schedule frequently harms startup founders’ interests. Sometimes it damages their startup irreparably.
A growing number of founders are starting to realize this. I talked to quite a few about this over the last two years. Mostly, the “longer-than-four-years-
Importantly, this group of founders assumes they are going to be the ones actually building the company. They created the company. They are the company. Nobody is forcing them out. I suspect founders who already believe this about their own startup will find this post most helpful.
Given the massive implications of co-founder vesting schedules, all startup founders should consider co-founder vesting lengths more carefully and then choose what makes sense for them. You make this decision around the time of incorporation but feel the effects over the lifetime of your company.
4-year vesting schedules are anachronistic
As far back as the 1980s, the standard startup vesting schedule was four or five years, with five being more prevalent on the East Coast. Nobody seems to remember a time it was anything different. The closest I’ve gotten to a logical answer on why it’s four years today stretches back to a pre-401(k) era, from before Reagan’s tax reforms in the ’80s. Prior to then, tax rules incentivized big company pension plans to have vesting periods of at least five years.
Startups didn’t offer traditional pension plans. Instead, startups offered employees stock, vesting over four years instead of five as a competitive move. That is all moot today. It has no relevance for startup founders in 2020.
More relevantly, time from founding to exit has gone from four years in 1999 to eight years in 2020. Yet founder vesting remains stuck at four. This is dangerous.
Exit data from U.S. startups with minimum $1 million in venture funding. Image Credits: PitchBook
Hedging against the crash of ineptitude
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