You listen to these phrases all the time. Innumerable articles or blog posts (in this article, listed here, here) enumerate the several metrics that can quantify the progress of your business. This short article attempts to go just one step even further and colorize these fundamentals within the context of health-tech. Caveat: the underneath reflects our views and the facts we see really feel no cost to get it with a grain of salt!
1) Metrics for Immediate-to-Buyer (i.e., affected person-dealing with) Styles:
Take-away: at before phases (in the absence of LTV/CAC), concentrate on engagement. The stickier your product, the improved. As you accrue info, concentrate on optimizing your LTV:CAC ratio.
- Actions per session // Typical session length: these replicate engagement more clicks with extended session length (on the purchase of minutes rather than seconds) is favorable
- Daily / Regular Active People (DAU / MAU): a measure of engagement the increased the frequency of engagement, the superior: DAU:MAU preferably will be ~1:3 (astounding but we not often see this), whilst ~1:5 is a lot more common among the firms we search at
- Lifetime Price (LTV) to Shopper Acquisition Expense (CAC) ratio: a greatly cited metric, this a number of demonstrates the normalized web earnings (not profits) for every buyer for each individual dollar invested into acquisition (sales, marketing and advertising, and so on.). Preferably, it will be ~3:1 although bigger multiples are even additional pleasing for a mature corporation, at the seed phase we get worried that may perhaps show you are leaving income on the desk (i.e., you would very likely advantage from investing a lot more into promoting)
2) Metrics for B2B (i.e., advertising to Companies, Companies, or Payers) Designs:
Choose-absent: at early stages (in the absence of profits figures), target on product sales cycle and agreement price. If you have a extended revenue cycle, then purpose for larger agreement values (and extended contracts). As pilots and MOUs (see down below) mature, try to transform one-time revenues into recurring contracts
- Income Cycle: it is usual to have extensive revenue cycles in healthcare (9mo for vendors, up to 18mo for payers, and even for a longer period for pharma). We favor when founders are in a position to realize 3-6mo sales cycles (irrespective of whether by means of hustle and willpower, networks, or sheer luck)
- Overall deal value (TCV) and agreement size: generally contracts are 20%/30%/50% around 3 many years if you are equipped to secure a stickier 5 yr deal, it’s a major positive
- Bookings / Contracts: the range, benefit, and terms of contracts / pilots vary significantly at the seed phase whilst some seed-stage startups have managed to close with 1-2 dozen having to pay company customers (despite the fact that this is a lot more usual of Sequence A corporations), we’ve invested in providers that have but to close their to start with offer (even now at the “memorandum of understanding” phase)
- Yearly (Recurring) Profits: Sequence A startups typically (preferably) have >$1M in once-a-year revenue. At the seed stage, 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).