You hear these phrases all the time. Plenty of content articles (in this article, here, in this article) enumerate the various metrics that can quantify the development of your business. This post tries to go just one move further more and colorize these fundamentals inside of the context of overall health-tech. Caveat: the underneath displays our thoughts and the facts we see experience free of charge to take it with a grain of salt!
1) Metrics for Direct-to-Purchaser (i.e., patient-experiencing) Types:
Choose-away: at earlier phases (in the absence of LTV/CAC), concentrate on engagement. The stickier your product or service, the superior. As you accrue data, concentration on optimizing your LTV:CAC ratio.
- Actions per session // Typical session size: these replicate engagement more clicks with more time session period (on the get of minutes fairly than seconds) is favorable
- Day by day / Regular Active Consumers (DAU / MAU): a evaluate of engagement the higher the frequency of engagement, the superior: DAU:MAU ideally will be ~1:3 (awesome but we not often see this), even though ~1:5 is a lot more usual amongst the companies we appear at
- Life span Value (LTV) to Shopper Acquisition Price (CAC) ratio: a widely cited metric, this numerous reflects the normalized web income (not revenue) for every purchaser for every dollar invested into acquisition (gross sales, internet marketing, and so forth.). Ideally, it will be ~3:1 whilst greater multiples are even much more attractive for a mature business, at the seed phase we fear that may well indicate you are leaving money on the desk (i.e., you would very likely profit from investing more into internet marketing)
2) Metrics for B2B (i.e., providing to Companies, Providers, or Payers) Designs:
Consider-absent: at early phases (in the absence of income figures), focus on profits cycle and contract value. If you have a longer revenue cycle, then goal for better agreement values (and for a longer period contracts). As pilots and MOUs (see down below) mature, try to change just one-time revenues into recurring contracts
- Sales Cycle: it is typical to have extensive sales cycles in health care (9mo for vendors, up to 18mo for payers, and even for a longer period for pharma). We desire when founders are equipped to recognize 3-6mo gross sales cycles (regardless of whether by hustle and perseverance, networks, or sheer luck)
- Whole deal benefit (TCV) and agreement size: ordinarily contracts are 20%/30%/50% around three a long time if you’re able to protected a stickier 5 yr contract, it’s a key beneficial
- Bookings / Contracts: the quantity, benefit, and phrases of contracts / pilots fluctuate greatly at the seed stage though some seed-phase startups have managed to close with 1-2 dozen having to pay company clientele (although this is additional normal of Collection A organizations), we’ve invested in businesses that have nevertheless to near their initial deal (still at the “memorandum of understanding” stage)
- Once-a-year (Recurring) Revenue: Sequence A startups commonly (ideally) have >$1M in annual income. At the seed phase, income is everywhere from $ to <$1M we frequently see figures in the low hundreds of thousands, although many startups are still in the free pilot phase. For obvious reasons, recurring annual revenue (ARR) is preferred over one-time revenues
- Churn Rate: the lower the better single digits per year is really good (aspire for this) not much to add here, we see numbers across the map
3) Benchmarks Regarding Start-up Valuation:
Save for capital and resource intensive sub-sectors of healthcare like biopharmaceuticals, much of the health technology space operates on similar valuation terms as general tech. We’ve expounded on this table below in another article.
|Stage||Key Proof Point||Dilution||Valuation as function of amount raised|
|pre seed||powerpoint||N/A – convertible 15-20% discount||N/A – cap that is 3-5x amount raised|
|seed||early seed = prototypelate seed = pipeline of customers||20-30%||3-5x|
|series A||product-market fit||15-25%||4-7x|
|series B||business model taking off||15-20%||5-7x|
In general, the “sweet spot” for seed-stage health tech companies is to raise at a post-money valuation of 3-5x – for example, raising $2M on a $10M post-money valuation. For context, at Tau, we generally find founders are successful when raising $2-5M at valuations ranging from $6M up to $20M
Raising at too high of a valuation (i.e., raising $1M at a $12M cap) may be tempting as a founder, however be careful not to underestimate the risks. If you (the founder) are unable to deliver on such high expectations, you run the risk of a weaker future fundraise (i.e., a flat-round or down-round where your valuation either remains constant or declines, respectively). Given the inherent role of speculation and signaling bias in this industry, these scenarios can be devastating.
Raising at too low a valuation is concerning not only for the founders, but also the investors (severely diluted founder equity and limited upside can frequently lead to founding teams rupturing).
Of course, the norms (raising valuation, terms, and time taken) vary widely based off geography and market timing (i.e., right now in July 2022).
Primary author is Kush Gupta. Originally published on “Data Driven Investor,” am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gldr — good length did read). Many of my writings are at https://www.linkedin.com/in/amgarg/detail/recent-activity/posts and I would be stoked if they get people interested enough in a topic to explore in further depth. If this article had useful insights for you, comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are from the author(s).
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