Finding Your Seat at the HealthTech Table
Part 1 - What you need to know when designing your ideal Board: Who and Why?
In the early days of building a company, founders are required to make hundreds – if not thousands – of mission-critical decisions that will broadly impact the fate of the business. Who will be my first hires? Am I going to take on external capital? With which customer segment will I launch my business? While each of these decisions may require hours of analysis, negotiation, and often sleepless nights, a critical decision remains often overlooked but arguably holds the most significant weight on a startup's success: when will I build my Board of Directors – and with who?
The decision to build a Board of Directors ("the Board") beyond a party of one is sometimes postponed by CEOs until raising institutional capital through a priced financing round. However, the role of the Board of Directors, particularly for a first-time founder, is incredibly opaque and can sometimes be associated with increased governance, delayed decision making, or, at worst, the risk of being replaced.
However, when selected appropriately, the Board can hold an outsized impact on the growth of the business and be one of the most valuable assets to a startup throughout its lifecycle. In healthcare, Board composition is particularly impactful. In an industry that has historically been hard to navigate, is largely relationship-driven, and somewhat walled to outsiders, optimizing for value-add board members whose profiles align with the stage of the business can be an unfair advantage for hiring talent, getting in front of customers, and navigating an ever-changing and complex regulatory landscape.
Simultaneously, building a diverse board is directly correlated with better company performance. Companies with at least one female director received a better return on their investments than companies with all-male boardrooms. Fortunately, we were able to speak to a collection of female leaders in HealthTech who have not only found their voice in the boardroom but often are sitting at the head of the table.
But before we dive into the respective board member profiles, it is first essential to nail down the fundamentals.
The Value of a Board
The Board is an integral part of a company's management structure and is required by US law. By formal definition, a Board of Directors is composed of elected individuals with a fiduciary responsibility to represent a company's shareholders. VC-backed startups typically have smaller boards, usually three members at the pre-seed stage and scaling to five or seven by the Series A and after (yes, the odd numbers are intentional - for voting purposes).
Yet beyond formal governance manners, the Board practically navigates a company through a host of operational and strategic considerations- from compiling the management team to set the commercial strategy, developing appropriate financial hygiene, or addressing legal and compliance issues. As a result, the Board will often evolve alongside the needs of, and dependent on, the business's stage, leadership team, and financing history. As a result, all boards are not created equal, but instead, each has its flavor and style in line with the individuals- or the ingredients- that make up its composition.
Curating the Optimal HealthTech Board
As HealthTech investors, the profile of each board member plays a unique role in the value that the Board delivers to the business. In addition to the Board Members who represent financial institutions, Independent Directors may also join the Board and bring domain expertise and company-building skills, typically decided upon mutually by the CEO and Investors. While often Board members may fit the profile of multiple functions, we dive into the six different Board member prototypes to aid founders with who to invite to the table and at what stage of the business.
For companies that raise external funding, the first external board member often tends to be an investor representative. Financial investors (in this case, venture capital investors) bring a unique macro perspective of building and scaling an early-stage business and benefit from pattern recognition they can apply from having held Board roles at dozens of companies. This board member has a deep understanding of how an effective board functions and can draw on the best practices and learnings within their portfolio. The investor board member is particularly valuable for supporting fundraising efforts, guiding cash management discussions, and supporting recruitment, given the breadth of high-caliber talent they can draw from their firm and personal networks. For investors specializing in healthcare, these board members can be exceptionally accretive for understanding the competitive landscape, given the unique combination of both breadth and depth of companies they engage with on an ongoing and frequent basis.
Anna Haghgooie, Operating Partner at Welsh, Carson, Anderson & Stowe, and Managing Director at Valtruis, brings 15 years of experience investing and advising healthcare companies as a Board Member. Anna notes that often the first external board members at an early-stage company, "financial investors are particularly well-suited to serve the Board. We're here not only to guide the strategic vision and critical business decisions, but also to formalize board processes, set a tone for the relationships of the Board and the management team, and to ensure productive meetings." As a career investor, Anna draws on hundreds of hours spent with companies in a Board capacity and applies these learnings to ensure that the Board is adding maximum value for a company, functioning collaboratively, and notably, acting in the best interest of both the company and CEO.
In the early days of building a business, a top priority, if not the top priority, is accelerating sales efforts. As a result, many founders will look to fill the independent board seat with a commercial leader bringing expertise selling into a targeted healthcare segment such as health plans, health systems, or self-insured employers. In addition, commercial leaders bring subject-matter expertise on navigating the often-complicated sales discussions and contract structures that accompany commercializing a healthcare solution.
More recently, as we've seen an increasing number of healthcare organizations build out their internal corporate venture capital investment arms, a new hybrid profile has emerged and has proliferated across HealthTech startup boards: the Commercial Investor. These individuals bring a unique value proposition, with strategic insights on partnering with their healthcare organization or peer organizations (e.g., Kaiser Permanente Ventures, Cigna Ventures, Intermountain Ventures, or Sandbox / Blue Venture Fund) mixed with the unique value delivered by investors.
Liz Rockett, Managing Director at Kaiser Permanente Ventures, describes the value she brings as someone who deeply understands how a system like Kaiser Permanente thinks about healthcare delivery and innovation. In addition, she brings introductions, thought leadership, and strategic perspectives, which are all critical to helping a company scale combined with the investor lens to building a business. Liz notes that "at times, I am the only "healthcare person" in the Board room. People look to me to roll up my sleeves, make introductions, help to accelerate commercial activity, and quickly understand and share any unseen opportunities or signs of distress in the business." As the commercial expert in the room, Liz emphasized the value of someone who profoundly understands navigating an organization like Kaiser Permanente to the Executive Team and other Board Members.
Operating board members represent a unique cohort of individuals that have held previous roles leading digital health companies or are industry or veterans who each have "been there before." They can bring tactical guidance, industry relationships, and notably the emotional fortitude required to help CEOs navigate the turbulent moments of building an early-stage company. While often former operators will hold the Independent Board Seat, bringing a hyper-specialized operational experience to support a company's specific business need, more recently, the "Operator turned Investor" profile has accelerated in the venture capital community. As such, many financial investors may serve both functions and bring operational expertise.
One notable individual embodying this profile is Dr. Molly Coye, MD, who holds an esteemed career as an EIR at Avia, former Chief Innovation Officer at UCLA, former hospital operator and public health leader, and current Board Member at a plethora of healthcare startups, including Headspace Health (formerly Ginger), ConsejoSano, Curai, and as an Advisory Board member at BabyScripts, Ripple, Hazel, and BraveHealth. Molly notes that she spends most of her time on very function-specific topics as a board member, given her depth of expertise. She states that "one of the primary use cases I've supported on Boards is helping companies navigate the complexities of operations within market segments. For example, suppose you are selling into health plans. In that case, it's critical to understand the problems that plans are looking to solve and the internal politics and mechanisms that may inhibit adoption. These are examples of the value-add that an industry expert and Independent Board member can bring to the business."
As healthcare solutions become more consumer-centric, there has been increasing emphasis on building a seamless, intuitive product that provides a delightful user experience. While healthcare historically has not been acclaimed for best-in-class product solutions, a new swath of digital health players is reshaping this narrative and leveraging leading experts to guide their product strategy and operations. Product experts are often former operators with hyper-specific expertise, often serving as Independent Board members or as Board Advisors.
For example, Jessica Bell van der Wal, CEO of Frame Fertility and former Head of Product and User Engagement at Castlight Health, often supports companies in this function and serves as an advisory board member to several digital health organizations, including SWORD Health, dayzz, and Foodsmart. As a board advisor and product engagement expert, Jessica spends time working with companies to optimize their product and user engagement strategies, set and evaluate KPIs and design the team for the next phase of growth. Jessica notes that while this need is becoming more paramount, companies should be strategic about when to bring in a product expert and align the skillset of that advisor with your stage. In particular, the needs of the company pre-product-market fit vs. post-product-market fit will likely be very different. Therefore, it may be best to bring in a specific product expert to hone in on that leader's domain expertise when you refine the solution.
As investment in early-stage care delivery startups has exploded, so too has the need for clinical leaders to deliver operational and medical guidance to deliver high-quality care and clinical outcomes. The "Clinical Expert" board member, who often interfaces with the Chief Medical Officer, brings a unique set of technical/business and medical expertise. In addition, the clinical board member is equipped with medical credentials and, if applicable, specialty expertise. These board members are critical assets for organizations whose success is highly dependent on designing new clinical protocols, delivering care, or directly interfacing with patients and providers.
As a new wave of digital health companies has matured and achieved successful exits, many promising female medical leaders of these organizations, including Dr. Jenny Schneider (former CMO Livongo, Collective Health) and Dr. Deena Bravata (former CMO Castlight, Lyra), are applying their subject-matter expertise to guide the next generation of early-stage HealthTech startups in building clinically sound models. Armed with digital health expertise, we expect to see the Clinical Expert sitting at the table more often than ever before.
Last, and certainly not least, is the People expert. One of the essential skill sets on a board is workforce strategy. As Peter Drucker once described, culture eats strategy for breakfast; the people implementing the plan are the ones that make all the difference. Further, the pandemic, also referenced as the "Great Resignation" period, has accelerated the complexity of managing talent while also shining a light on labor practices, especially in healthcare. Recruiting and retaining top talent has never been as complex, and we expect diversity to continue as a critical organizational initiative from now on. The data supports this: research from the National Association of Corporate Directors shared that the presence of new board members with people operations backgrounds has nearly doubled over the last three years. We're also seeing the same mentality trickle into private board rooms. Experts like Rachel Pacheco play an essential role in helping companies design their organizational structure and people strategy at the earliest stages. Rachel advises companies like Included Health, Maven Clinic, Wellthy, and Onduo.
Ultimately, designing a Board is about balancing and bringing the right voices together to maximize value and accelerate growth. Additionally, Boards change as a company scales, so it's essential to consider the right mix of perspectives at different stages. Now that you have a sense of who is on the Board, in our next post, we'll dive into what you can do as a new (or newer) board member to become a value-add and most-wanted Board Member, like the experts we've profiled here. So keep an eye out for Part 2!
Shout out to Margaret Malone @ Flare Capital and Rachel Stillman @ 7wireVentures for co-authoring this piece.