There’s an old business adage, “Investors invest in the team.” In many cases, a company’s initial “team” consists of the founder(s) and immediate operational team, the scientific advisory board (SAB), and board of directors. Because this team is so crucial, it’s critical for the founder(s) to plan carefully before they begin recruiting team members. Here, we’ll share key board-building strategies gleaned from years of working with start-ups, spin-outs from academia and company founders.
The founder(s) may be a scientific founder from academia, a practicing physician, a seasoned industry veteran, or all of the above. Founders should surround themselves with individuals that bring expertise to fill any gaps and help expand the founders’ network and ecosystem. This may involve bringing in expertise in technical, regulatory, development, commercial, finance, licensing, partnerships, etc. While early-stage founders may not yet have a fully developed and functioning board process, by the time they’re bringing in formal investors—whether angels, family offices or institutions—the presence of an SAB and board of directors will generally be expected. Even though investors may be angels, “friends-and-family,” family offices or foundations with an emotional connection to your lead program (e.g., an investor may be a patient with that specific disease), they may not have product development or business background in pharma/bio-tech. However, in order to recognize their early financial support, you may consider offering board-observer (non-voting) rights to such an investor, so that full voting seats are held for individuals with specific backgrounds that fill any gaps in the range of expertise noted above that complement the founder(s).
At this juncture, some of the key elements for the founder(s) (one of which may be the CEO at this stage) to have a handle on include the following:
- key product differentiation;
- the technology;
- the patent situation and strategies related to that;
- development considerations;
- the market landscape;
- the key industry exit/license partners;
- how to to discuss important milestones for value inflection and financing; and
- what to expect from the initial seed funding and for the first equity financing, Series A.
Even a seasoned veteran may not have all these boxes checked completely, and early partnership with the SAB and board of directors will ensure that the CEO has a full complement of skills and talents around them to manage these concerns when coming out of the gate.
You may have to talk to a lot of people. Start with your contacts, and focus on names that will help raise credibility for your venture. The selection process on both sides will hinge on such factors as potential conflicts of interest, other time commitments, stage of the development program, specific things asked of the board members at that particular time and the candidates’ areas of expertise and overall cultural fit. Have a thick skin and don’t take things personally, since there may be people who simply can’t join the board, aren’t a good fit or feel your company isn’t right for them to contribute to. Whatever happens, stay focused on surrounding yourself with a world-class team for both the SAB and board of directors.
Independent Board Directors
The board of directors is established to represent the investors, and the CEO reports to the board. At the founding stage, a general approach would be to have at least one strong independent director, along with the CEO, major investor(s) and the founder (if separate from the CEO). There may be times that the founders reach out and identify their first independent director, but that individual may accept conditionally, requesting to see the next funds raised or second independent director join. This is their way of saying, “I’m interested, but I want to see where this goes before I fully commit and get exposed.” In this case, you can consider bringing that person on to start as a consultant to engage them to support, while they feel things out.
The focus of the board of directors is strategy and broader issues. The board supports the founders and CEO on strategy for driving value inflection and decision-making. For example, is the company a single-product or portfolio company? Is it based on a specific platform or open to other products? Will the company license other assets? The board should help with high-level strategy of indication selection. There may be an indication for rapid and lower-risk proof of concept, versus what the lead commercial indication will be to build value, not to mention intellectual property issues, how much to spend, and the approach for the expensive national roll out of patents. The board of directors needs to approve the overall strategy, the outline of key milestones for seed and Series A, and the support strategy for the allocation of funds when decisions must be made about which activities to spend on.
While you may choose to engage the SAB members more on an individual level (see below), your board of directors must be able to work well together. Have the members worked together in the past? Typically, those at the top of the class are desired and/or already engaged by other companies. While it may be very enticing to have the top names, you do need to ask those individuals how many other boards they’re on, with what level of engagement, and whether they have the bandwidth to provide the focus for board meetings and support between board meetings that you’re looking for. Be realistic, whether you’re looking for a name for the slide deck or a highly functioning individual who’ll serve as a part-time member of the executive team with weekly engagement.
Note that you may not be able to address all potential future needs up front with the board makeup. Focus on the critical issues first as an early start-up. For example, commercial issues may come later, but perhaps the key issue at start-up is licensing. It’ll certainly be financing and establishing and maintaining proper governance, etc. Thus, finance and legal/business development may be the key skill sets you want to focus on first. This, of course, can also be handled via simple consulting engagements, and you don’t necessarily need to engage all your experts on the boards. However, be sure to think strategically about the type of board makeup that’ll add the most value to you and how it will change over time. Its makeup can evolve with the company, so that the start-up isn’t creating too large a board at the beginning. Again, it’s a matter of what’s right for a particular start-up’s situation.
The Scientific Advisory Board
The goal is to be ready for your financing road show and ultimately the Series A. Surround yourself with and leverage the best expert input from your SAB so that you’re ready with your plans. There are a range of issues and questions spanning regulatory, development, drug delivery, clinical, basic science, business development, etc. The profile you bring into your SAB depends on the need at that time to complement and supplement the skills and experience of the founder(s). SAB members may also play a critical role in fundraising, if investors ask to engage them as part of diligence.
You may decide to meet with the SAB as a group or continue with one-on-ones. These may be ad hoc, monthly, quarterly or annual communications. It’s up to the founder(s) to set a strategy, and it depends on the start-up’s needs and the most effective way for the founding CEO to engage with the SAB to extract the most value.
Tips for the Process
Factors that help ensure success include:
• Strong board setup. Set up your boards to provide the most valuable input and be most effective. This starts with good preparation and includes frequent communications, updates and engagement. It may seem obvious, but a meeting agenda sent out the night before, giving board members limited time to prepare, isn’t effective. Make it standard practice to send out a detailed background and agenda in advance, and set the expectation that board members should review the material and come prepared. The CEO should come to the board with recommendations and leadership, not simply wait for the board to decide what to do. Having one-on-one engagements with board members between formal meetings is important as well, so the team isn’t just managing things from meeting-to-meeting.
• Effective use of sub-committees. Balance the level of technical data at board meetings so the focus can be on strategy and key decisions. As strategic or business issues come up that are the focus of a board meeting, use sub-committee meetings with those who have the most relevant expertise on the technical topics to dive deeper off-line. The sub-committee meetings can be summarized at future board meetings or in other board communications.
• Finance. Particularly in the early stages, when a single-vendor activity may provide a large part of the cash on hand, focus on use of cash, runway left and presenting the scenarios of different activity plans, different financing milestones, etc., and how that drives timing and size of value inflections. You may come prepared with, “Option A: If we do this program first…. and Option B: If we do both…. and Option C: If we put one on the backburner,” showing how each may drive different valuations on different timelines.
The founder(s) need to set the vision and culture, and to find the best team that shares the same. As one example, there may be times—especially during seed and bridge rounds—that the operations/management team may need to take a decrease (or stop) in salary. Will the team you recruit be on the same page? Each member of the board of independent directors and SAB will have a critical role in your success by providing specific expertise. The best leaders will be humble and will closely examine their own areas in which they need support so they can identify the ideal profile of the board members. Carefully plan your approach to creating and managing your boards, and you’ll see how a specifically selected, highly-functioning board is key in driving the company forward.
1. Booth B. Atlas Ventures. https://lifescivc.com/2012/03/high-performing-boards-in-early-stage-biotech/.
2. Kolchinksy P. The Entrepreneur’s Guide to a Biotech Start-Up, 4th Ed. https://www.ctsi.ucla.edu/researcher-resources/files/view/docs/EGBS4_Kolchinsky.pdf.
Mr. Chapin is a senior vice president of the Asset Development & Partnering Group at Ora. The company offers drug, biologic and device consulting; preclinical and clinical research execution; and regulatory and development strategy to support its clients and partners. Mr. Gioia is CEO and co-founder of Vinci Pharmaceuticals, focused on developing products to fill unmet needs in retina. He has several other board positions within ophthalmology and is managing director of consulting firm PharM&A Advisors. Send comments or questions to email@example.com or visit www.oraclinical.com.