When we last sat down with Eric for our founder spotlight, he was solving “clinical data disorder” with his team at Diameter Health, a digital health company he co-founded in 2013. The company was acquired in 2022, but Eric hasn’t slowed down. Writer Amy Hourigan got the scoop on his latest venture, Conduce Health.
Thinking About a Rebrand? We’ve Got You Covered
Your customers, your prospects, your employees and your investors want to know what your company stands for. Branding helps you achieve that goal. But what if something shifts? Here’s how one venture-backed company is tackling a rebrand, along with expert advice if you’re considering one yourself.
Founder Spotlight: Dr. Reid Waldman
When we first spoke with Reid Waldman, M.D., his company, Veradermics, was developing a revolutionary new treatment for common warts. Writer Amy Hourigan sat down with the dermatologist and founder to get an update about the treatment’s progress and ask about the other first-in-class candidates in the company’s pipeline.
“This Meeting Could Have Been an Email”
How plain language can strengthen communication—both inside and outside your organization
If your company builds robots for advanced manufacturing or develops novel biotherapeutics to cure rare diseases (or anything similarly complex), you may struggle when trying to describe your work to a non-technical audience. But using plain language is a smart move—and not just because it can help you avoid unnecessary meetings. Kate Goggin, a communications consultant to the federal government whose clients have included the National Oceanic and Atmospheric Administration (NOAA) and the U.S. State Department, among others, explains why this tool is so beneficial. Even better, she tells us how to use it.
Connecticut Innovations: Thanks for agreeing to share your expertise, Kate! You have extensive experience translating jargon and tech talk into clear writing, but our readers are mostly tech entrepreneurs and investors who often communicate with other technical people. Can plain language benefit them?
Kate Goggin: Absolutely. Plain language is a method or way of writing focused on reader results, so they can:
- Quickly find what they need.
- Understand what they read the first time.
- Use what they read to fulfill their needs.
Those goals are shared by businesses from every industry and sector. It’s a direct way of communicating, so employees spend less time explaining their messages to people, therefore saving time and money. Additionally, plain language, also known as plain English or plain writing, can improve customer service/user experience and increase brand trust.
More business and technical leaders are embracing plain language because they know those benefits quickly translate to bottom line results like increased sales, improved reputation, and decreased complaints. Also, I want to note that plain language writing strengthens internal communication. You know the saying, “this meeting could have been an email.” That’s very true, especially if it was a well-written email. Think about it, people know you first by your writing now. Between COVID and the rise of remote work, chances are high that you will “meet” virtually through your emails, prospectus, or project charter long before you actually meet a hiring manager or board member in person.
CI: Great point! A common misconception is that plain language simply dumbs down communications. Can you set the record straight?
KG: Plain language is not an oversimplification or “dumbing down” of important text. Also, it is not less precise, and it does not leave out necessary technical or legal terms. What it does eliminate, however, is unnecessary complexity and jargon.
I will be the first to agree that jargon is an important tool among peers inside a sector or field. I have worked with diplomats, scientists, lawyers, engineers, and computer experts who must use the same professional terms to establish credibility, compare results, or advance projects. But while jargon can expedite communications between peers, it can frustrate outside readers. Every employee needs to communicate clearly outside of their office, up and down the chain of command. Whether briefing stakeholders, the company president or new employees, plain language methods are the fastest way to communicate with everyone to get the results you want.
CI: Is there ever a case where you wouldn’t recommend plain language?
KG: No, every communication product can include plain language. The body of the document or online content may require using specific terms, acronyms or abbreviations known to the technical audience, but every product will also be read by non-technical audiences.
Typical sections for inserting plain language into a technical document include: the introduction, executive summary, recommendations and conclusions.
Ask any entrepreneur or contractor and they will tell you that often the executive summary is the only section busy decision-makers have time to scan these days. The experts know a well-written summary can be the difference between a funded or unfunded program or a positive or negative review. Technical peers may dive down into the details, but the media, the public or the board of directors will not.
CI: Are there different plain language guidelines for websites, press releases, software manuals, etc., or are the principles largely the same?
KG: Plain language principles are largely the same for different communication products. I train government and business clients, and I recommend the five steps to plain language outlined by the Center for Plain Language.
- Define your audience.
- Structure the content appropriately.
- Write in plain language with everyday words.
- Use information design.
- Review, test and design the content.
I also want to clarify, the plain language writing method is not the same as a style guide, such as the Associated Press style guide. Every organization can write text in plain language and then apply their own style guide or one required for distribution.
CI: Is plain language something you plan for, or is it an editing process after the fact?
KG: You can plan an original communication in plain language, but as you can see from your credit card policy, medical release form or cybersecurity manual, many organizations do not start with a plain language approach. That means there is a growing demand for training as well as editing services.
I encourage businesses to be proactive and improve staff skills now before the company web content, financial data or scientific report is misunderstood. Make clear communications a priority and reap the rewards.
CI: Anything else you want to mention to our readers?
KG: Plain language has become an important tool regarding access to information, citizen rights and a more inclusive culture. Access can include reaching non-native English speakers and people with cognitive disabilities or low literacy skills.
- Many local, state, federal and international organizations and governments now equate access to information as a citizen right, and plain language is the preferred method.
- In a related development, plain language usage is now also associated with ethical behavior because plain language documents help people act on their rights as consumers, patients or voters.
- Corporate America is quickly seeing the benefits of plain language usage to bolster sales, but also to expand access to inclusive programs such as:
- diversity and inclusion programs (and recruiting)
- corporate social responsibility programs (and outreach)
- financial literacy programs (and customer service)
- health literacy programs (and regulatory compliance)
CI: Thanks, Kate! We can’t wait to put your tips to work.
To review Kate Goggin’s List of Quick and Easy Plain Language Resources or Justification Resources for Plain Language Training, click here.
CI’s Newest Fund Seeks Companies Addressing Climate Change
The devastating impacts of climate change are all around us, but the news isn’t all doom and gloom. Recognizing the role investors play in bringing about positive change, as well as the potential outsize returns that come with solving global challenges, VCs around the world, including Connecticut Innovations, are stepping up their investments in climate tech. Through its newest investment vehicle, the $100 million ClimateTech Fund, CI is backing promising new companies as well as other VCs that are working to solve critical challenges like pollution, soaring energy prices, and diminishing natural resources.
Managed by Konstantine Drakonakis, P.E., an entrepreneur and venture partner who focuses on climate and adaption technology, the fund will invest anywhere from $250,000 to $5 million in a wide range of companies. Its goal: to advance green technology and green jobs, and to support Governor Lamont’s commitment to reducing greenhouse gas emissions to net zero by 2050. Drakonakis is particularly interested in technologies that address the circular economy, electric vehicles, advanced materials, and mobility apps. Fuel cells, which he says have applications for long-haul trucking, are also a target, as are technologies related to hydrogen, waste and sustainability, and energy and water.
Drakonakis said he’s proud of the way the state has rallied around this newest sustainability initiative. “We’ve joined forces with our sister agencies to create a strong syndicate,” he said. “Together with the Department of Economic and Community Development, the Connecticut Green Bank, the Department of Transportation, the Department of Labor, the Department of Agriculture, and the Department of Energy and Environmental Protection, we’re building a pipeline of interesting companies that are a good fit for the state, in terms of them thriving here based on their needs, having a market primed for their products or services, and the programs that the agencies are promoting as their part of the climate-change solutions strategy.”
The ClimateTech Fund is not this state’s first foray into sustainability. Connecticut established the nation’s first green bank and ranks fifth in the nation for fuel cell patents. It also has a growing clean energy sector with a large employment footprint. “Connecticut is a special place,” said Drakonakis. “One of our many advantages is that we’re a one-phone-call state. We have leading academic institutions, high-caliber materials sciences engineers and public health experts, and an industrial military manufacturing base of companies with the assets and expertise to partner with and help build and commercialize climate and clean technologies. We can get answers quickly and have become highly efficient in helping companies grow and scale.”
The Best Business Books for Entrepreneurs
We asked our extensive network to recommend one book that should be on every entrepreneur’s must-read list. Whether you need advice, a dose of inspiration, or a gift for your co-founder, we’ve got you covered.
The 4 Disciplines of Execution: Achieving Your Wildly Important Goals by Chris McChesney
Recommended by Alex Bryce, co-founder at WeInvoice
Why: This book “helps you get clarity on the concept and practice of execution,” Bryce says. “Since execution is one of the critical components of brand building, this book has to be on every business leader’s list.”
The 5 Second Rule: Transform Your Life, Work, and Confidence with Everyday Courage by Mel Robbins
Recommended by Deborah Sweeney, CEO of MyCorporation
Why: “This book is about how to avoid unintentionally holding yourself back in life and in business. Reading it helped me focus on taking action,” says Sweeney.
The 7 Habits of Highly Effective People by Stephen R. Covey
Recommended by Yoel Gabay, CEO of FreedomCare
Why: “A lot of hard work and commitment goes into bringing an idea to fruition,” says Gabay. “Success is not handed to you on a silver platter. This book gives you the tools.”
The Art of Non-Conformity: Set Your Own Rules, Live the Life You Want, and Change the World by Chris Gillebeau
Recommended by Stephen Curry, CEO of CocoSign
Why: “Most entrepreneurs try to follow what everyone else is doing. This book…helps them break away from the toxic entourage,” says Curry.
Atomic Habits: An Easy and Proven Way to Build Good Habits and Break Bad Ones by James Clear
Recommended by Adam Rossi, CEO of TotalShield
Why: “A must-read for every entrepreneur, [this book] will shed light on how small changes to your daily routine will have a huge impact on your life,” says Rossi.
Rich Dad’s Cashflow Quadrant: Guide to Financial Freedom by Robert T. Kiyosaki
Recommended by Wes Niemiec, CEO of Landmark Home Solution
Why: This book “will give you a new outlook on wealth and risk management,” says Niemiec.
Fierce Conversations: Achieving Success at Work and in Life, One Conversation at a Time by Susan Scott
Recommended by Laura Weisberger, CEO and chief alchemist, Fervor Candle Company
Why: “This book is an essential tool for developing and refining communication skills. It has been immensely helpful in my own interactions with customers, suppliers and employees,” says Weisberger.
First, Break All the Rules: What the World’s Greatest Managers Do Differently, from Gallup
Recommended by Ari Shpanya, CEO and co-founder of LoanBase
Why: “It’s a great compilation of secrets and out-of-the-box knowledge for almost every entrepreneurial situation you could imagine,” says Shpanya. “Learning how successful managers treat people and what they do differently gives you a new perspective on how to tackle your own issues. I don’t like inspirational books or fairytale-like messages, but this book truly leaves you inspired to see challenges from a new perspective.”
Four Thousand Weeks: Time Management for Mortals by Oliver Burkeman
Recommended by Ouriel Lemmel, CEO of WinIt
Why: “This is an insightful book about time management that’s also reassuring,” says Lemmel. “It’s a pleasure to read, and so practical, I keep it within easy reach so I can refer to it for advice. It’s a great addition to the bookshelf of anyone in a position of authority, because it demonstrates [how] to lead with grace and empathy.”
The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers by Ben Horowitz
Recommended by Stefan Chekanov, co-founder and CEO of Brosix
Why: “This is one of the rare, brutally honest books about running a business in Silicon Valley,” says Chekanov.
Humor, Seriously: Why Humor Is a Secret Weapon in Business and Life by Jennifer Aaker and Naomi Bagdonas
Recommended by Paige Arnof-Fenn, founder and CEO of Mavens & Moguls
Why: “The authors…make a compelling argument for how and why incorporating humor in your business and as a leader can be very powerful,” says Arnof-Fenn. “Humor helps achieve business objectives, build more effective and innovative organizations, cultivate stronger bonds and capture more lasting memories. We’ve all been through a lot the past few years; it’s nice to balance the intensity of the pandemic with a light and fun read.”
Hyper Sales Growth: Street-Proven Systems and Processes. How to Grow Quickly and Profitably by Jack Daly
Recommended by Christopher Sioco, COO of Tax Robot
Why: “This book is for entrepreneurs who are looking for more insights on selling their products and promoting their business,” says Sioco.
Killing Sacred Cows: Overcoming the Financial Myths That Are Destroying Your Prosperity, by Garrett B. Gunderson
Recommended by Jeroen van Gils, founder and CEO of LiFi
Why: “I’m not a fan of financial books, but this one piqued my interest,” says van Gils. “What I love the most is its focus on creating value instead of reducing costs. It resonates with me as someone who runs several businesses.”
Leaders Eat Last: Why Some Teams Pull Together and Others Don’t by Simon Sinek
Recommended by Haris Bacic, co-founder and CEO of PriceListo
Why: “As with many outstanding leadership books, Leaders Eat Last is inspired by military ideas,” says Bacic. “The notion is: Senior commanders eat after their troops, placing their subordinates’ demands ahead of their own. Sinek argues that putting people first enables crews to feel supported and valued. These feelings, in turn, motivate employees to go above and beyond expectations.”
The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses by Eric Reis
Recommended by Ryan Fyfe, COO of Workpuls.com
Why: “The Lean Startup teaches entrepreneurs how to test their business ideas cheaply and quickly, measure customer feedback, create prototypes, and make decisions based on data rather than intuition,” says Fyfe. “Implementing the principles from this book can help entrepreneurs avoid wasting time and money on doomed projects and increase their chances of success.”
Mastering Inbound Marketing: Your Complete Guide to Building a Results-Driven Inbound Strategy by Elyse Flynn Meyer
Recommended by Amy Aust, senior account manager, Adler Public Relations
Why: “This book is focused on helping business owners and leaders better understand every aspect of the inbound marketing methodology, including the revenue-generation trifecta of marketing, sales and the customer experience,” says Aust.
Mentor to Millions: Secrets of Success in Business, Relationships, and Beyond by Kevin Harrington and Mark Timm
Recommended by Daria Maltseva, head of Product at KeyUA
Why: “This is a perfect addition if you need mentoring support to achieve your goals,” says Maltseva.
Never Lose a Customer Again: Turn Any Sale into Lifelong Loyalty in 100 Days by Joey Coleman
Recommended by Laura Rike, Pinterest expert, laurarike.com
Why: “This book shares how to use social media and other outlets to truly wow your customers and clients to ensure they become raving fans,” says Rike.
On Becoming a Leader by Warren Bennis
Recommended by Angela Blakenship, CEO of Best Neighborhood
Why: “Dubbed the ‘Dean of Leadership Gurus’ by Forbes, Bennis has argued persuasively that leaders are not born but created,” says Blakenship. “His landmark work, On Becoming a Leader, which delves into the attributes that define leadership, the people who exemplify it, and the tactics that anybody can use to achieve it, has provided a source of critical knowledge for countless readers. [The] masterfully produced stories of remarkable leaders and their unique pathways to power are guaranteed to inspire future leaders to go on an exciting journey of self-discovery.”
The Power of Positive Thinking by Norman Vincent Peale
Recommended by Sam Sweeney, founder of Trivvy
Why: “I love this book because it tells you to think positively because positive thinking will make positive things happen,” says Sweeney.
Red Team: How to Succeed by Thinking Like the Enemy by Micah Zenko
Recommended by Sharon Winton, co-founder and director of marketing at Gomontana
Why: “This book will change the way you think. You’ll find out that thinking like the enemy will make you succeed,” says Winton.
Remote: Office Not Required by Jason Fried and David Heinemeier Hansson
Recommended by Adam Hempenstall, CEO and founder of Better Proposals
Why: “Before remote work became cool, these two set the foundation for remote companies. [The book] not only talks about the benefits of the remote business framework, but also stresses the importance of structure, setting goals, hiring the right people and much more,” says Hempenstall.
Rich Dad Poor Dad by Robert T. Kiyosaki
Recommended by Vaibhav Kakkar, CEO of Digital Web Solutions
Why: “Rich Dad Poor Dad is my all-time favorite business book,” says Kakkar. “It looks at the author’s two ‘dads’ in terms of wealth management; his best friend’s father is the rich dad, while his father is the poor dad. The book covers themes from making your money work for you to the necessity of financial literacy. It’s a must-read for executives, but I’d recommend it to everyone interested in improving financial literacy.”
Shoe Dog: A Memoir by the Creator of Nike by Phil Knight
Recommended by Christian Velitchkov, co-founder of Twiz
Why: “This book inculcates readers about the importance of feedback and opinions on a business,” says Velitchkov. “The more you consider the feedback of your peers and customers, the better you can optimize your business.”
Social Engineering: The Science of Human Hacking by Christopher Hadnagy
Recommended by Kristen Bolig, CEO of SecurityNerd
Why: “This book addresses topics like cybersecurity and the importance of managing a business’s online presence,” says Bolig. “Being a security-conscious business leader is critical because nothing sets back a company’s revenue, productivity and reputation like a cyberattack.”
Strengths Based Leadership: Great Leaders, Teams, and Why People Follow by Tom Rath and Barry Conchie
Recommended by Kyle MacDonald, director of operations, Force by Mojio
Why: “This book is about the importance of learning, understanding and highlighting your own personal leadership style,” says MacDonald. “When you purchase it, you receive an access code to an online assessment that tells you your top leadership strengths. The book then becomes like a manual into your own leadership style because it goes into each strength and talks about what kinds of leaders you work well with, how you can lead well with that strength, and more. I became a much more confident leader after learning how to take advantage of my personal strengths instead of trying to adopt other strengths that just weren’t my style.”
Thinking, Fast and Slow by Daniel Kahneman
Recommended by Dean Kaplan, CEO of Kaplan Collection Agency
Why: “I’m a keen reader of business books and set aside time every day to read. Entrepreneurs need to assess situations and make decisions, to evaluate outcomes and make necessary adjustments. Kahneman’s book made me appreciate that not all thinking is the same,” says Kaplan. “The difference between rigorous and sloppy thinking is often the difference between success and failure. Unfortunately, fast and sloppy thinking is all too common in business.”
Trillion Dollar Coach: The Leadership Playbook of Silicon Valley’s Bill Campbell by Eric Schmidt, Jonathan Rosenberg and Alan Eagle
Recommended by Tim White, CEO and founder of MilePro
Why: “I love this book because it shows how a lot of concepts from the world of sports are perfectly applicable to the business world,” says White. “For example, should managers and business leaders hire employees that are the best in their respective fields regardless of how well they fit in the team, or should they prioritize cultural fit over competency? Trillion Dollar Coach discusses these extremely relevant [issues] and important questions for me as a CEO. A quote from the book resonated so powerfully with me that I wrote it down. It goes as follows: ‘Todd Bradley, a former HP executive who worked extensively with Bill [Campbell], says that the biggest lesson he learned from him was about “the humanity of winning,” by which he means winning as a team (not as individuals) and winning ethically. Whether in business or in sports, it’s amazing what can be accomplished if you don’t care who gets the credit.’”
Who Moved My Cheese by Spencer Johnson
Recommended by Katie Lyon, co-founder of Allegiance Flag Supply
Why: “This unique book uses a parable to explain the truth about dealing with change,” says Lyon. “As an entrepreneur, you deal with change constantly. Instead of letting it stress you out, you can alter your attitude and allow changes to impact you in a positive way. It’s brief but powerful, making it perfect for business leaders who are short on time.”
How to build your finance team as your company grows
By Mary Wisenski
As a company grows, so does its financial team. But not all companies have the same finance needs. Which roles should you prioritize? And how do you know when it’s time to fill them?
Most companies start with a bookkeeper. Depending on the size of the company, this might be a part-time position, at least to start with. But taking care of basic tasks like payroll and expenses is a must. Then, if you run into a need for skills the bookkeeper doesn’t have, such as filing taxes, you can outsource that work.
As the company grows, the next role it will need to fill is usually a controller. Sometimes you’ll need a senior accountant as well as a controller. You might, at this stage, be able to eliminate the bookkeeper position in favor of an accountant with a broader knowledge base. For example, if you’re starting to experience significant sales, you’ll need someone who’s able to account for revenue and generate financial statements for the company founders to review.
In most cases, the next role to hire is a CFO. The CFO is in charge of fundraising, forming relationships with banks and driving metrics. As the company grows, it’s increasingly important to have someone on board whose focus is fundraising.
Company needs determine roles
Depending on the rate of growth, you might also need clerks or accountants to handle specific functions within the company. If there’s a high volume of transactions being processed daily, you might hire clerks who focus only on accounts payable or, conversely, accounts receivable.
It’s wise to avoid having a one-person shop once you accumulate significant revenue and bills to process. There are two reasons for this. If the volume of transactions continues to grow, it may be too much for one person to handle. And it can be risky, from a security standpoint, to put all your eggs in one basket. It’s better to limit each person’s duties and access so they’re only working with the information they need for their particular job.
Timing is key
The CFO sits at the top of the financial team and, in addition to fundraising, is usually responsible for a higher-level review of the controller’s work. This includes financial statements, cash-flow analysis and cash-flow forecasting.
It’s important to hire a CFO at the right time. If the company is new and needs financing, or equity financing, you’ll need someone with the expertise to go out and raise money. In that case, the CFO might be hired at the same time as a controller and a senior accountant.
But C-level talent can be expensive. One option for companies that need fundraising expertise but can’t support a full-time CFO is a fractional CFO, or vCFO. This person can commit their network, knowledge and creativity without committing all of their time.
HR and payroll
As the company grows, it’s helpful to increase the segregation of duties—for example, you might want someone who handles payroll, but (as with the early role of bookkeeper) it could be a fairly limited role.
You might not need a full HR team unless you have a large hiring budget and you can forecast bringing on enough personnel to justify having someone to manage new hires, terminations, 401k plans and health insurance. If you don’t expect a lot of growth and don’t have a large hiring budget, it’s possible that the accounting manager can run payroll.
Get it right from the beginning
Your first financial hires are crucial because you’ll have fewer reviews and controls in place. The last thing you need to deal with as you scale are mistakes in the books or tax returns from the company’s early days.
You need financial statements you can rely on from the beginning. That level of trust frees you up to focus on your product or service and on growing your company.
Mary Wisenski is a partner at the accounting and advisory firm Fiondella, Milone & LaSaracina LLP (FML CPAs) with five offices in Connecticut, including Stamford. She can be reached at mwisenski@fmlcpas.com or at 860-657-3651.
Stock-Based Accounting Considerations for Startups
If your business offers stock-based compensation, also known as share-based compensation, as a benefit of employment, Kei Morita has advice. A principal in the Los Angeles office of HCVT, a top 30 CPA firm, Kei has extensive experience providing audit and assurance services to closely held private companies, particularly those in the tech industry. Here, he answers our pressing questions.
Connecticut Innovations: Thanks for agreeing to this interview, Kei. Let’s dive right in. What are the common ways you see tech startups structure stock-based compensation?
Kei Morita: Restricted stock units and stock options with service conditions are the most common. Even with plain-vanilla features, accounting analyses for share-based compensation can get complex.
CI: Do you have tips for choosing the best type of SBC, from an accounting and reporting standpoint?
KM: The easiest SBC arrangement from an accounting perspective is one that contains no performance conditions, such as EBITDA [earnings before interest, taxes, depreciation, and amortization] target vesting, or market conditions, such as MOIC [multiple on invested capital] target vesting. If you include put [redemption] or call [repurchase] features in an SBC arrangement, those may complicate accounting analyses even further.
CI: Are there common mistakes you see early-stage tech companies making when they offer stock-based compensation?
KM: I occasionally see early-stage companies offer SBC awards without considering the tax implications—payroll tax withholding requirements, taxable awards, etc. This often results in the company owing back taxes and penalties. I strongly advise early-stage companies that offer SBC awards to consult with their tax advisors when structuring these awards. I also see startups repurchase vested or unvested SBC awards when employees leave. With that practice, SBC may need to be treated as liability-classified awards, which would need to be fair-valued in each reporting period—that is, every time the financial statements are prepared.
CI: How can early-stage startups with limited resources better prepare to handle complex accounting and financial reporting for stock-based awards?
KM: Until GAAP-based financial reporting becomes a requirement, many early-stage companies won’t account for SBC awards under GAAP. However, it is imperative that companies maintain complete records from the beginning to avoid any tax or legal issues. Depending on the number and frequency of SBC awards they issue, it might be a good idea for these companies to use a cloud-based equity management platform to track the SBC award activities for accounting and legal purposes. It often gets too complicated to maintain SBC awards in spreadsheets, especially when the awards are issued frequently, or features differ from award to award.
CI: Why did the FASB and the Private Company Council issue new guidance on share-based awards last year?
KM: In general, SBC needs to be fair-valued at the grant date using a valuation technique such as an option-pricing model (e.g., Black-Scholes), which requires various inputs, including the fair value of the equity shares underlying the award. Based on its outreach and the feedback it received, the Private Company Council (PCC) learned that determining the current price input used in an option-pricing model is typically the most difficult task for private companies. Since private company shares are not actively traded, there are no observable market prices for those shares, so the PPC decided to provide private companies with a practical expedient to ease the cost and complexity of applying accounting guidance for all equity-classified SBC awards under ASC 718. The FASB issued ASU 2021-07 to allow private companies to elect this practical expedient in 2021.
As a practical expedient, a nonpublic entity is allowed to determine the current price input of equity-classified SBC awards using the reasonable application of a reasonable valuation method. This includes a reasonable valuation performed in accordance with the U.S. Internal Revenue Code, also known as a 409A valuation.
CI: What has been the result?
KM: Many private companies historically obtained a 409A valuation for tax purposes and adjusted the valuation for ASC 718 accounting if subsequent events or transactions changed the valuation.
As a result of ASU 2021-07, some private companies may have reduced cost or complexity, as the PPC intended. However, since many private companies had already used a 409A valuation with or without adjustment before this ASU came out, and since other ASC 718 accounting complexity still exists, I have not seen many private companies consider the practical expedient a game-changer under ASU 2021-07.
CI: At what point is a company required to become GAAP-compliant? How can it do so?
KM: Prior to obtaining outside financing, many technology startups and other early-stage companies simply ignore the accounting for SBC awards. But as companies raise larger funding rounds—typically in the Series A or B round—they will need to be audited and must become GAAP-compliant. Before raising a Series A, an early-stage company should implement GAAP accounting even when GAAP reporting is not required. Many companies with a Series A retain a CPA consultant or a future auditor to assist them in making their books GAAP-compliant soon after Series A is raised.
CI: What are some of the critical stock-based compensation accounting and reporting considerations a company should be aware of?
KM: At a high level, a company should be aware of two classifications: one, liability-classified awards, and two, equity-classified awards. Liability-classified awards need to be remeasured at fair value at each reporting period, whereas equity-classified awards do not require remeasurement unless SBC awards are modified.
Various features embedded in an SBC award, such as put and call options, may cause the SBC award to be liability-classified. Also, depending on vesting conditions, the amount and timing of SBC expense may differ. SBC awards with service conditions without performance or market conditions are expensed over the requisite service period. SBC awards with performance conditions are recognized only when it is probable—about 75 percent likelihood—that the conditions are satisfied, and therefore, SBC awards vest. SBC with market conditions requires a complex valuation model, such as a Monte Carlo simulation model, to value, and are typically recognized regardless of achieving such conditions.
CI: What can companies that aren’t GAAP-compliant do to prepare for larger rounds, exits, etc.?
KM: Common accounting challenges in many tech companies are related to revenue recognition, leases, equity and debt arrangements, and SBC. Accounting analyses for these areas may require significant time and effort to become GAAP-compliant. Thus, it’s advisable to retain a CPA or a future auditor for GAAP conversion as soon as a Series A is raised, rather than waiting until GAAP reporting is required.
In a typical transaction, a buyer requires two- or three-year comparative GAAP financial statements from the seller that have been audited by a nationally recognized accounting firm. Generally, when the seller’s books are GAAP-compliant, a single-year audit process takes two to three months, and a two-year audit process takes three to four months. When the books are not GAAP-compliant before an audit begins, it can take several more months to get the books ready for audit. Larger rounds may come with a tight due diligence period—for example, three months—so if books are not GAAP-compliant when a Letter of Intent is signed, it can be challenging to complete the audit process within the expected timeline.
CI: Anything else you want to mention to our tech entrepreneurs?
KM: SBC awards vary from company to company, and there is no one-size-fits-all solution from an accounting perspective. Suppose a company does not have a GAAP-experienced CPA in its accounting department and it needs to account for SBC awards under US GAAP. In that case, the company should consider retaining an outside consultant sooner rather than later to track SBC awards correctly and to account for them properly under ASC 718. Generally, tech companies are C-corporations. There are likely other transactions, such as convertible debt, SAFE [simple agreement for future equity], and preferred equity instruments that come with GAAP implications. I suggest early-stage companies obtain help with accounting analyses for these debt or equity instruments, since they can be even more complicated than SBC accounting.
CI: Great advice, Kei. Thanks for sharing all that with our audience.
KM: My pleasure.
Toward a More Sustainable Future
Cleantech Startups Are the MVPs of CI’s Newest Fund
The investment team at Connecticut Innovations believes that clean technologies are poised for exceptional growth. But that’s not the only reason CI’s newest fund is green. Connecticut leaders know that environmentally friendly products and services can help combat critical issues like climate change, soaring energy prices, pollution and diminishing natural resources. CI’s Konstantine Drakonakis, an environmental engineer, entrepreneur and investor who is overseeing the fund, tells writer Amy Hourigan about this exciting new initiative and some of the promising companies already in the portfolio.
Amy Hourigan: Thanks for your time, Konstantine. CI has been investing in renewables and other environmentally friendly companies for years. Why create a new fund?
Konstantine Drakonakis: You’re right. CI has been investing in cleantech for years. We have several companies in our portfolio that are focused on high-potential innovations like better battery storage, fuel cells and clean financing. This new fund is timely, though, given the environment—both literally and figuratively. We need to do more to address climate change now, so that future generations can thrive in a healthy and stable environment. We also want to support Governor Lamont, who is committed to reducing greenhouse gas emissions to net zero by 2050 and is committed to creating a climate-tech-driven economy. There are funds available to help us with these efforts through President Biden’s American Rescue Plan. CI applied and earmarked $50 million for climate tech deals through its new Climate Fund.
AH: Can you tell us what you’re looking to invest in?
KD: We’re looking for new ideas to improve public health and our business and community infrastructure. We want a healthy pipeline of diverse companies that have market-ready solutions to support a green grid, waste management systems, and agricultural and commercial products and services.
AH: Have you funded any companies yet?
KD: Yes. We’ve funded two “proof of concept” initiatives. The first one, NANOIONIX, is located in Farmington. It’s part of the University of Connecticut’s Technology Incubation Program. It’s an early-stage advanced materials company that has developed a family of engineered self-disinfecting ceramic materials that, when added to things like paint, asphalt shingles and aggregate, reacts with the sun to clean the materials. It gets rid of viruses, bacteria and dirt, kind of like what OxyClean does for your clothes. It’s effective and it doesn’t harm the environment, so it’s very exciting.
We’re also closing a deal with Zone Flow Reactor Technologies in Windsor. They’ve developed a hydrogen production technology that improves the efficiency of steam methane reform systems. It makes hydrogen production from natural gas much more environmentally friendly. It’s a transition technology for the hydrogen economy.
AH: So you’re looking for really early-stage deals?
KD: We’re looking for a mix of early-stage and later-stage deals. We’ll invest a target amount of anywhere from $150,000 to $2 million per investment round in a company. We’re also considering investing in a fund of funds that focuses on waste, mobility, the circular economy and resiliency.
AH: OK, good to know. You’re a Yale-educated environmental engineer with years of engineering and investing experience. Does CI have other investors on the team who are also experienced in cleantech?
KD: Yes. Several members of the team have manufacturing and advanced materials experience, and there are people who specialize in biotech and who cross over into advanced tech. We also have investors who are skilled in cleantech software and consumer-facing products and services. It’s a great mix of talent that will ensure we’re funding the right deals.
AH: Anything else you want to mention?
When we think about cleantech, we’re not restricting that to mean any one vertical—it’s not just carbon capture or renewables. We want to invest in technologies that are making an impact on sustainability within the context of climate change as a whole. If you believe your company meets that qualification, or you’re interested in investing alongside us, we’d love to hear from you.
AH: Thanks, Konstantine. Exciting stuff.
KD: My pleasure.
CEO Spotlight
Alex Waldron Joined a Team Set on Improving the Lives of the Millions of Americans Living with COPD. Here’s How It’s Going.
An estimated 25 million Americans are battling chronic obstructive pulmonary disease (COPD), a progressive inflammatory lung condition whose more alarming symptoms include shortness of breath, difficulty breathing and constant coughing. People who have COPD are at increased risk of developing heart disease, lung cancer and a variety of other health problems. Even so, care hasn’t progressed as much as it has for other chronic conditions. With the first fully integrated virtual care system for COPD, Wellinks is changing all that. Alex Waldron, the company’s CEO, took time out of his busy schedule to answer writer Amy Hourigan’s questions.
Amy Hourigan: Thanks for talking with me, Alex. You joined Wellinks about a year ago. What drew you to the company?
Alex Waldron: Sure! Two things: the opportunity to improve care for people living with COPD, and the dedication and passion of the people at Wellinks, who have been on a mission to help COPD patients since 2017. Many COPD patients feel isolated in their disease, and they’re often confused by the complexity of their medication regimen, the devices they’re advised to use to monitor their health, and how to modify their lifestyle to remain healthier while managing the disease. Building a solution that addresses those challenges with a driven team inspired me to join the company.
AH: How is Wellinks’ COPD treatment different from anything else on the market?
AW: While virtual care models have revolutionized care for many chronic diseases, like diabetes, kidney care and musculoskeletal conditions, COPD hasn’t seen the same level of innovation and investment. There is a huge need for an updated model for COPD care, particularly when so many live with the disease, which is the third leading cause of death and fifth most costly chronic condition impacting our healthcare system. Research shows that integrated COPD care can improve outcomes for patients and reduce costs, but too many patients lack meaningful access to such care. At Wellinks, we aim to bring the same innovation seen across other chronic diseases to COPD through virtual-first care that can meet patients where they are and give them the support they need.
Wellinks offers the first fully integrated virtual care system that empowers patients to manage their COPD. It combines virtual pulmonary rehabilitation, personalized health coaching, monitoring through connected devices and an easy-to-use patient app. This activates our members in their self-management and enables providers to close gaps in care. Wellinks is expanding the capabilities of our current healthcare workforce, increasing transparency and improving patient well-being.
Right now, we’re the only solution focused exclusively on COPD, and are investing heavily in developing a strong clinical evidence base for virtual-first COPD care as we lead this charge.
AH: That’s impressive, and it sounds like a lot of work. What has been your biggest challenge as CEO so far, and how did you overcome it?
AW: The biggest challenge coming into Wellinks was one I tackled with the leadership team: How do we evolve a medical device company into one where we provide a full-stack solution for the care and management of COPD? The digital health, and in our case, virtual-first, landscape has been evolving so quickly, catalyzed by COVID and the willingness of patients to use technology and services to better treat disease. Our leadership team looked at all the trends with other virtual-first companies in diseases like diabetes and musculoskeletal health and the way health systems were integrating this new methodology to provide access and care. We then considered what assets we had as a COPD company with over three years’ experience understanding what patients with COPD really needed, and then developed the strategy to transform Wellinks into a company laser-focused on meeting those needs for patients.
AH: That focus paid off. You recently closed a $25 million funding round. Do you have tips or lessons learned from the process that you can share with our network?
AW: Yes. Be persistent and find the right investor for the company you’re funding. In the case of Wellinks, we’re building an innovative virtual-first company in a healthcare landscape that is evolving to be more value-focused and recognizes the need to improve access. While we spoke with a lot of investors in the healthcare space, many have a more traditional investment thesis in assessing companies. We were fortunate to have had Morningside Ventures, an investor with a strong appreciation for the emergence of virtual health solutions and a belief in their adoption into the wider healthcare landscape, lead the round.
AH: I understand the company pivoted. Can you talk about that?
AW: Think of it more as an evolution than a pivot; empowering people with COPD to live fully and breathe freely has been the mission since day one. The approach we are focused on today started in late 2019 as a result of combining two existing Connecticut companies, Convexity Scientific Inc. and Wellinks. In bringing together the virtual health and human-centered product design expertise from the original Wellinks team, and the health tech focus of Convexity Scientific Inc., we set out to reimagine COPD care.
AH: Despite being one of the costliest and most common chronic conditions in the U.S., COPD hasn’t seen much in the way of innovation and investment. Why do you think that is?
AW: Working for over five years with more than 20,000 people with COPD, the Wellinks team has seen firsthand the frustration that many experience while navigating the current care system. Unfortunately, too often COPD patients who have bad outcomes are blamed for inadequate self-management, when they are navigating a care system that is fragmented and inaccessible and overemphasizes high-cost acute and inpatient care. This has created a negative cycle that is taking a heavy toll on COPD patients. It’s resulted in low engagement, a lack of adherence, and a lack of proactive longitudinal care that’s needed to help patients manage their condition.
We’ve also learned that many COPD patients aren’t aware that it’s possible to improve their symptoms with the right combination of rehabilitation, coaching and behavior change. When the patient community doesn’t understand the benefits that a virtual-first solution can provide, it’s harder to gain widespread traction. There is an element of education that has to happen across patients, payers and providers to demonstrate the possibilities of this innovation.
The onset of the COVID-19 pandemic compelled changes in how we think and deliver care; however, many providers and third-party payers are beginning to embrace technologies that enable a wider variety of at-home care options. We are encouraged by the explosion of virtual-care models that have revolutionized care for other conditions and are confident in our ability to similarly transform COPD care.
Wellinks’s innovative technology empowers COPD patients to better manage their condition.
AH: How are you getting your COPD solution into the hands of more patients?
AW: Wellinks is working with leading academic, research and advocacy organizations to grow the evidence base for virtual-first COPD care; we’re also helping to increase access to necessary care by getting an integrated COPD solution into the hands of more patients. In parallel to those efforts, Wellinks is forming and seeking partnerships with innovative health plans, provider networks and advocacy groups to generate evidence in clinical trial and real-world settings.
We know that health technology innovation doesn’t really matter unless we’re able to get it into the hands of the people who need it, and unless it truly engages them in their health. By using patient-centered design and creating a constellation of care through our integrated model, Wellinks helps increase engagement and improve self-efficacy among people with COPD. For many COPD patients, it can be extremely difficult to access in-person care, both because of a shortage of care availability and as a result of symptoms that limit mobility, which is why the virtual-first model is so important.
AH: Is the virtual-first solution easy for patients who aren’t digital natives to pick up?
AW: The myth that older adults can’t use technology has been busted, so our opportunity now is to prove that the people we are working to serve will meaningfully engage with innovative health delivery tools.
To achieve that, you have to design the solution with your end users in mind and develop full wraparound supports that reflect how they are using the tech. If the solution is simple and intuitive, and there is a real human in the loop that they can use as a resource to guide them, there is a greater likelihood that they will stay engaged. Because COPD is much more prevalent among older adults, we made sure Wellinks had all of these elements and would be accessible for this population. Additionally, our virtual health coaching capabilities give our users personal contact with trusted resources, who guide them not only through their care journey but also through their tech journey, as they familiarize themselves with our app. In fact, recent research published in Journal of Medical Internet Research found that Wellinks effectively engaged older adults at a high rate. With the average age of 80, all studied patients achieved the weekly goal of at least one pulse oximetry reading per week for the full eight weeks, and continued to log medication use, symptoms and spirometry readings regularly for the full duration of the study. Eighty-one percent of participants reported that the Wellinks app was valuable, 94 percent said the app is easy to use, and 100 percent remained engaged at eight weeks.
Given the difficulty of managing this complex, chronic disease, this feasibility study shows older adults will engage with a well-designed virtual-first solution like Wellinks.
AH: Those are impressive stats! Congratulations. So, you studied business, economics, political science and government. How did you get into digital health?
AW: I have spent my career working to evolve healthcare options for patients across many diseases with multiple solutions. While I may have started in traditional pharmaceutics “carrying the bag” as a salesperson, I quickly transitioned into biotechnology in the mid-1990s as I became fascinated with novel ways to treat people with diseases that had previously had few care options. The same can be said for digital health solutions. While pharmaceuticals, biologics and devices can chemically, biologically or physically provide help for patients in need, there are many diseases where changing behavior, providing support and managing the disease via digital health and virtual-first solutions can have a profound and clinical impact on disease outcomes and patients’ lives.
AH: What do you do in your downtime, and how do you avoid burnout?
AW: Downtime is always such a challenging concept when in a startup. You have the privilege to work with such passionate people and, in the case of Wellinks, you get to work on a solution that is badly needed by COPD patients. You always want to be working to help the company succeed and to help those patients get the best possible care. I often remark that the title of the book I’d write chronicling my experience in a startup would be “Exhilarated and Exhausted.” Having said that, I’m always conscious of the need to balance life, work and family. My weekends tend to consist of spending time with my family, and if I’m lucky, exploring a craft brewery with friends in New England.
Wellinks’s easy to use, intuitive app helps COPD patients better manage their care.
AH: What’s next for the company?
AW: Looking to the future, our focus is on building a great company, growing our team, refining our technology and expanding the value we can create for members living with COPD through agreements with health plans and providers.
We also remain dedicated to ensuring that evidence-based research and clinical studies are a core component of the company’s work. In parallel to new clinical research studies examining both the clinical and economic outcomes of our virtual-first solution, Wellinks is forming and seeking partnerships with innovative health plans, employers, provider networks and advocacy organizations to generate real-world evidence in clinical trial and real-world commercial settings.
We’re very excited about where the company is today, and everything we have planned in the coming year.
AH: Thanks for your time, Alex, and best of luck on your continued success.
AW: Thank you.