If your healthcare startup succeeds,
will you?

Imagine spending seven years building a healthcare startup.

You identify a problem through your clinical experience, develop a solution, recruit a team, raise venture capital, and eventually build a company that gets acquired.

Then you discover that most of the proceeds from the sale are going to investors, leaving you with far less than you expected.

Potentially nothing.

How does that happen? And more importantly, what can you do today to prevent it?

The 88% statistic that sparked a debate

A recent LinkedIn discussion started by Carles Reina caught my attention.

The discussion highlighted the July 2026 working paper Dilution vs. Risk Taking: Capital Gains Taxes and Entrepreneurship by Eduardo M. Azevedo and Kent Smetters (Wharton, University of Pennsylvania), and Florian Scheuer and Min Yang (University of Zurich).

Using data on 157,669 U.S. startups and 248,454 founders from 1987–2025, the authors estimate that approximately 88% of venture-backed founders receive zero exit value.

It’s an attention-grabbing statistic. But as with most headlines, the details matter.

Many of the businesses included in the research failed or never generated meaningful exit value. So we shouldn’t interpret this as 88% of founders who successfully sold thriving companies walking away with nothing.

Still, the discussion raises an important question:

If you’re going to spend years building a company, how do you make sure you actually participate in the value you’re creating?

This is particularly relevant for physician founders, who often enter entrepreneurship with exceptional clinical expertise but limited experience navigating venture capital, ownership structures, and investor rights.

As capital strategy advisor at Startup Physicians Incubator, I encourage founders to think about these questions long before they negotiate their first term sheet.

When I look at the research and the conversation it sparked, four important areas stand out.

1. Business failure: prove the economics before you scale

The first reason founders walk away with nothing is also the most fundamental: their companies never become financially sustainable or valuable enough to generate a return.

No ownership structure can solve the problem of a business that runs out of cash without finding a buyer.

This is particularly relevant in healthcare, where founders often face long sales cycles, regulatory requirements, reimbursement uncertainty, and expensive product development.

Premature scaling means expanding your team, spending, or entering new markets before customer demand and the business model are proven. In healthcare, that can mean growing before demonstrating clinical value, fitting into care workflows, and establishing a reliable route to payment. Costs rise before the business can sustain them, increasing pressure to raise more capital and further diluting founders. A physician may have identified a genuine clinical problem. But a clinical need does not automatically translate into a viable business opportunity.

Before expanding your team, entering another market, or raising a large round, ask yourself:

• Have we demonstrated that customers are willing to pay for our solution?
• Do we understand who makes the purchasing decision and how long that decision takes?
• Can we demonstrate a sustainable business model?
• What evidence would justify our next significant investment in growth?

What I advise founders is to tie spending to measurable, evidence-based milestones.

Rather than hiring ten people simply because you’ve raised enough capital to do so, establish what those ten people need to help you achieve and whether the business has demonstrated sufficient traction to justify the expense.

For physician founders, that might mean securing paying pilot customers, validating reimbursement assumptions, or establishing commercial partnerships before significantly expanding operations.

At some point, you also need to make an honest decision about whether the market evidence supports continuing, pivoting, or stopping.

The goal isn’t to raise as much money as possible. It’s to create as much business value as possible with the capital you raise.

2. Dilution: understand what you’re giving away

Every time you raise capital by issuing new shares, you typically give up a percentage of your ownership.

This is called dilution.

Dilution isn’t inherently bad. If you own a smaller percentage of a significantly more valuable company, you may be better off.

But it becomes dangerous when founders don’t understand its cumulative impact.

Imagine you begin with 60% ownership in your startup. After several financing rounds and adjustments to the employee option pool, your ownership falls to 20%.

That might be an excellent outcome if your company’s value has increased substantially.

But what happens if those rounds produce only modest growth? Or if you need additional funding at a lower valuation?

The ownership you surrender is real, even when the business value you’re expecting to create is uncertain.

What I advise founders in our incubator is to build a forward-looking cap table, not just a picture of what they own today.

Model what happens after future financing rounds. Account for outstanding SAFEs, convertible notes, employee option pools, and other instruments that could affect ownership.

Before accepting capital, ask yourself:

What will this money allow us to accomplish? And will that achievement make our remaining ownership materially more valuable?

Fundraising should accelerate value creation, not simply postpone the next fundraising process.

3. Investor preferences: know what you’ll actually receive at exit

This is one of the most misunderstood aspects of venture-backed entrepreneurship.

Your ownership percentage doesn’t necessarily equal your percentage of the exit proceeds.

A founder might own 20% of a company sold for $20 million and expect to receive $4 million.

But that calculation may be completely wrong.

Why? Because investors often negotiate rights that determine who gets paid first, and how much.

These rights are commonly called liquidation preferences.

Let’s look at a simplified example.

Imagine a company is acquired for $20 million. Its investors have collectively invested $15 million and hold a 1x non-participating liquidation preference. Assume investors elect to receive their preference rather than convert into common stock, and there are no other claims or transaction expenses.

The remaining $5 million is distributed according to the rights and ownership of eligible common shareholders. It is not necessarily all paid to the founder.

Under those assumptions, only $5 million remains for the common shareholders.

A founder’s actual proceeds would depend on their ownership of the remaining common equity and the rights of other shareholders.

More complex terms, including participating preferred shares or senior liquidation preferences from later financing rounds, can further change how proceeds are distributed.

That’s why a $50 million exit isn’t necessarily better for founders than a $30 million exit with a different capital structure.

Before signing a term sheet, understand:

• Who receives proceeds first in a sale?
• What liquidation preferences apply?
• Do investors have participation rights?
• Are certain investors senior to others?
• What happens to founder proceeds at several realistic acquisition prices?

What I advise founders in our incubator is to model an exit waterfall at multiple potential sale prices before accepting financing terms.

For example, what would you personally receive if the company sold for $10 million, $25 million, $50 million, or $100 million?

You should work with qualified legal and financial advisors who understand venture-backed companies.

The most important number isn’t necessarily the valuation on your latest term sheet. It’s the amount of value you could actually receive under different outcomes.

4. Employment vs. ownership: know what happens if you’re no longer CEO

Physician founders often assume that because they created the company, their ownership is permanently protected.

That assumption can be expensive.

Your position as CEO and your rights as a shareholder are related, but they’re not the same thing.

As your company grows, the board may decide to appoint a different CEO. You may step away from day-to-day management, return to clinical practice, or take another role in the organization.

None of those events automatically determines what happens to your equity. The answer depends on your agreements.

Some founders have shares subject to vesting requirements. Others may face repurchase provisions, termination-related restrictions, or agreements that distinguish between different reasons for leaving the company.

One of the most important questions I encourage founders to ask is: If I stopped being CEO tomorrow, exactly what would I still own?

And then ask:

Under what circumstances could your ownership be reduced, your shares bought back, or your rights to those shares lost?

These are not questions to leave until a difficult board conversation or leadership transition.

Review your vesting schedule, shareholder agreements, repurchase rights, and termination provisions with experienced counsel early in the company’s life.

The company may eventually need a different leader to reach its full potential. That doesn’t mean your contribution to creating the business disappears.

But protecting the economic value of that contribution requires understanding how your ownership is structured.

What I advise founders in our incubator

At Startup Physicians Incubator, we work with physicians who are translating their clinical expertise into scalable healthcare ventures.

One of the things I emphasize is that raising capital is not the ultimate goal.

Building a valuable, sustainable company while protecting your ability to participate in that value is what matters.

Here are three habits I encourage every physician founder to develop before their first fundraising round.

1. Build evidence before adding cost.

Validate your market, business model, and customer demand before significantly expanding your team or operations. Tie spending to clear, measurable milestones.

2. Model your future equity and exit proceeds together.

Understand not only how much of the company you will own after raising capital, but also what you could actually receive under different exit scenarios. A higher valuation doesn’t always translate into a better financial outcome for founders.

3. Know what happens to your equity if your role changes.

Understand your vesting schedule, repurchase rights, and termination provisions. Know which rights you retain if you step away from your executive role.

These habits won’t guarantee that your startup succeeds. But they can help you avoid costly mistakes and make informed decisions about the risks you’re taking.

As physicians, you’ve spent years learning how to evaluate evidence, understand risk, and make decisions under uncertainty.

Those same skills are extraordinarily valuable in entrepreneurship.

Apply them to your capital strategy, too.

Creating a successful healthcare company is one achievement. Making sure you participate in the value you create is another.

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