Pre-IPO Equity in Healthcare
How Pre-IPO Compensation Erodes Ethics and Stifles Innovation in Healthtech
Pre-IPO equity compensation is lauded as a masterstroke of startup culture—a means of uniting employee ambitions with corporate success. But in healthtech, this supposed golden ticket is nothing more than a gilded cage. Far from being a motivator for ethical innovation, pre-IPO equity has become a suffocating mechanism that rewards compliance, punishes dissent, and undermines the very mission of healthcare. Instead of fostering progress, it breeds moral erosion and short-term greed.
The Faustian Bargain of Equity
Equity is sold to employees as an opportunity for life-changing wealth—a stake in the company’s inevitable rise. Yet this Faustian bargain quickly turns dark. The reality is that equity is a leash, a tool for ensuring that employees stay in line and silence their own doubts. Take Theranos: a company built on lies but kept afloat by employees too paralyzed to speak out. Why? Because the price of honesty was too high. Equity compensation—the shining promise of an IPO—had effectively handcuffed them to the very fraud they were witnessing. Financial ruin awaited anyone who dared challenge the status quo.
But Theranos is not an anomaly; it's an example of how deeply broken the healthtech model is. Healthtech startups routinely offer stock options as a panacea for underpayment, but these options come with a deadly caveat: silence. The more you invest in the company’s success—ethics be damned—the higher your potential reward. Speaking up about misconduct or regulatory violations? That’s career suicide. The equity-driven model incentivizes complicity, a culture of “see no evil, speak no evil.” And in healthcare, that silence can kill.
Power and Manipulation: The Hierarchical Trap
In healthtech startups, the distribution of equity reveals an even more insidious problem: the manipulation of power. Executives and early employees hold vast amounts of equity, giving them a vested interest in pushing unsustainable growth at any cost. Look at Cerebral—a startup where top executives pressured clinicians into compromising patient care in the name of scaling quickly. The stakes were too high for anyone in power to put on the brakes. Why would they? Their financial futures were tied to the company’s skyrocketing valuation. Meanwhile, employees with smaller equity stakes were sidelined, their ethical concerns conveniently ignored.
It’s not just unethical—it’s dangerous. The pre-IPO equity model in healthtech creates an echo chamber of reckless ambition. Those with the most equity have the loudest voices, while those concerned with ethics, patient care, or even basic regulatory compliance are pushed to the periphery. It’s a system that rewards ruthlessness, valorizes growth over integrity, and dehumanizes healthcare into nothing more than a line on a balance sheet.
The IPO Mirage
There’s a persistent delusion that once a company goes public, things will change. The belief is that the rigorous scrutiny of public markets will force healthtech startups to clean up their act. This is a dangerous fantasy. Teladoc's disastrous $18.5 billion acquisition of Livongo, which resulted in a write-down of over $13 billion, proves otherwise. Investors bought into the hype, but beneath the surface, the cracks were already forming. Livongo’s massive valuation was built on sand, and Teladoc is now paying the price.
Public scrutiny doesn’t solve these problems; it magnifies them. Clover Health, another overhyped healthtech company, faced regulatory backlash almost immediately after its IPO, with allegations that it had misled investors about ongoing government investigations. These companies don’t magically reform once they go public—they double down on the very practices that got them to this point. The illusion that an IPO will suddenly create an ethical company is just that: an illusion.
Healthcare Isn’t Software: The Danger of Speed Over Diligence
The equity model is particularly ill-suited to healthcare because healthcare isn't software. You can’t push out half-baked products and fix them later. Mistakes in healthcare aren’t just bugs—they’re life-threatening. Yet the pre-IPO equity model treats healthcare as if it’s no different from launching a new app or social media platform. Speed is prized over diligence, scaling is favored over safety, and market penetration is rewarded over patient outcomes. It’s a model designed for rapid iteration, not thoughtful innovation.
The consequences are clear: patients become guinea pigs for companies rushing to meet growth targets. Clinical trials are rushed, safety protocols are compromised, and regulatory loopholes are exploited—all to satisfy the demands of investors who care more about hockey-stick growth than they do about the lives being impacted. This is not innovation; it’s reckless endangerment masquerading as progress.
Equity: The Real Cost of Silence
The ethical erosion in healthtech is systemic, not accidental. It’s baked into the very fabric of pre-IPO equity compensation, where the reward for silence is tantalizingly high. Employees who raise concerns are seen as threats to the company’s financial future, not as stewards of its integrity. And in a sector like healthcare, where lives are on the line, the cost of this silence is unforgivable.
We need to stop pretending that equity compensation aligns incentives. In reality, it creates a toxic environment where financial interests overshadow patient care. Employees become more focused on hitting the next milestone for their stock options than on whether their company is making a positive impact. This is not just a problem—it’s a moral failure of the highest order. Healthtech companies have traded their mission of improving lives for the pursuit of IPO valuations, and we are all worse off for it.
Breaking the Cycle: Ethics Over Growth
To break this cycle, healthtech companies need to fundamentally rethink their approach to equity and compensation. It’s not enough to tweak the system; we need a complete overhaul that prioritizes ethics over growth, patient safety over investor returns.
Tie Equity to Ethical Performance: Instead of rewarding executives and employees solely for hitting growth targets, equity should be tied to ethical benchmarks—patient outcomes, regulatory compliance, and long-term sustainability. If we want to realign incentives, we must build ethics into the compensation structure from the outset.
Regular Liquidity Events: The illiquidity of pre-IPO equity forces employees to stay silent, fearing that speaking out will cost them their financial future. Offering regular liquidity options, such as secondary markets or buybacks, can free employees from the golden handcuffs and empower them to prioritize ethics without risking their financial well-being.
Strengthen Whistleblower Protections: Healthtech companies must implement robust, enforceable whistleblower protections. Employees who expose unethical practices should not have to worry about losing their equity or their careers. Whistleblowers are the last line of defense against the worst excesses of equity-driven startups, and they need to be protected—financially and legally.
Independent Oversight and Ethics Committees: Healthtech companies need independent boards or ethics committees that have the power to veto unsafe or unethical practices. These boards must be truly independent—free from the pressures of executives who are more interested in protecting their own equity stakes than in doing what’s right.
Democratize Equity: Broadening equity distribution can democratize decision-making, giving more employees a real voice in shaping the company’s future. When equity is concentrated at the top, the company’s direction is determined by those with the most to gain financially. Broad-based equity distribution could ensure that ethical concerns aren’t drowned out by the voices of a few powerful executives.
Healthtech’s Ethical Crisis
The healthtech industry is facing an ethical crisis, one driven by its reliance on pre-IPO equity compensation. This model, designed for rapid growth and quick returns, is fundamentally incompatible with the mission of healthcare. Lives are at stake, yet the industry continues to prioritize financial success over patient outcomes, silencing dissent and rewarding compliance.
If healthtech companies don’t wake up to this reality, they will find themselves mired in scandal, eroding public trust, and ultimately failing in their mission to improve healthcare. The path forward is clear: realign incentives to prioritize ethics over growth, protect the voices of those who speak out, and create a culture where patient care is not an afterthought but the central focus of everything the company does. Anything less is not just irresponsible—it’s dangerous.