When digital health founders are no longer CEO material

Hard conversations are happening in the boardrooms of digital health companies, as directors assess whether the founding CEO with the great idea is the same person to lead the company's growth.

The transitions are happening with increasing frequency as early-stage companies find their footing and mature. In the last 18 months, the founders of Oscar Health, Calibrate, GoodRx, Tia, Particle Health, Eleanor Health and Clarify Health, among others, have stepped aside as CEO. Investors, board members and entrepreneurs see it as a natural evolution for a part of healthcare that saw record amounts of venture capital funding in 2021 before coming back down to earth in the last few years. 

Related: Private equity interest in digital health heats up: Rock Health

“Over the last several years, we had two things happening, an explosion of companies and a real mismatch and reckoning between expectations and reality,” said Bill Geary, co-founder and general partner of venture capital firm Flare Capital Partners. “When those expectations clash with reality, people try to find the root cause — the market that we envisioned hasn't unfolded the way we thought, the company doesn’t have good product market fit and of course, the company doesn’t have the right team in place.”

Similar transitions happen in all industries but timing them right is critical in a complex industry like healthcare, where determining a product’s return on investment can be more difficult, Geary said.

And like companies in all industries, the CEO who started the company may not have the same skills as the one needed to produce returns for investors and potentially guide the company through an initial public offering and quarterly earnings calls.

Adam Fine, founder and managing partner of venture capital firm Windham Venture Partners, is a member on four boards and a non-voting observer on another four. In the past 12 months, Fine has overseen at least one transition from a founder-CEO to a more seasoned executive.

“The CEO that took over, this is his fourth or fifth CEO gig. He’s gotten some really good returns for his previous companies,” Fine said. “He’s really transitioning the business from tech-enabled service to a real software platform, which is not easy to do.” 

Sometimes the founders themselves know when it’s time to go. David Van Sickle founded and led respiratory tech company Propeller Health for 10 years before selling it to ResMed for $225 million in January 2019. Van Sickle stayed on as CEO of Propeller for two more years, operating it as a standalone company under ResMed, before deciding it was time to move aside.

“It felt like the next stage of Propeller would be better handled by somebody with more operational experience [in] scaling, manufacturing and so on,” Van Sickle said. “Myself and my co-founder were also ready to try something new.” 

Other times, the change is not so well-received. In September 2020, Zocdoc co-founder and former CEO Cyrus Massoumi sued his fellow co-founders and current CEO Oliver Kharraz and others over getting removed as CEO five years earlier. The suit initially was dismissed, revived in May 2022 and then dismissed again on Thursday.

Massoumi did not respond to requests for comment. 

Geary said the conversations should never come as a surprise to the founder. If they are removed in a way that seems abrupt, a lot of other employees might follow suit and leave the company.  "Early-stage companies are really fragile," he said. 

The removal of a founder as CEO doesn’t necessarily mean they have to depart the company.

Some founders will accept a different role if the board helps them understand how the company would benefit. Oscar Health co-founder Mario Schlosser moved from CEO to president of technology in March 2023, which allowed former Aetna CEO Mark Bertolini to step into the top role.

Abner Mason took on a different role after SameSky Health, the company he founded and led, was purchased in April by GroundGame.Health. Mason is chief strategy and transformation officer of GroundGame.Health, and is still getting used to his new role. He said he has had no problem managing his ego and continuing the work. 

“Being a founder and CEO of an early-stage company is hard work. It’s also lonely, frustrating and it’s a heck of a journey,” Mason said. “You have to look at your own self and assess when is it time to say, ‘I've done all I can do here and I need to step aside.'”