You hear these phrases all the time. A great number of articles (here, listed here, here) enumerate the several metrics that can quantify the advancement of your enterprise. This article tries to go a single move more and colorize these fundamentals inside of the context of overall health-tech. Caveat: the beneath demonstrates our thoughts and the info we see feel free to take it with a grain of salt!
1) Metrics for Immediate-to-Buyer (i.e., individual-struggling with) Types:
Acquire-absent: at previously phases (in the absence of LTV/CAC), aim on engagement. The stickier your products, the much better. As you accrue facts, target on optimizing your LTV:CAC ratio.
- Actions per session // Average session size: these reflect engagement a lot more clicks with more time session length (on the order of minutes alternatively than seconds) is favorable
- Day-to-day / Month-to-month Active End users (DAU / MAU): a measure of engagement the larger the frequency of engagement, the superior: DAU:MAU preferably will be ~1:3 (remarkable but we rarely see this), though ~1:5 is more usual among the corporations we glance at
- Life span Worth (LTV) to Customer Acquisition Charge (CAC) ratio: a commonly cited metric, this many reflects the normalized net income (not earnings) for every shopper for just about every dollar invested into acquisition (revenue, marketing and advertising, and many others.). Preferably, it will be ~3:1 whilst better multiples are even extra pleasing for a mature enterprise, at the seed stage we get worried that could indicate you’re leaving revenue on the table (i.e., you would likely profit from investing additional into marketing and advertising)
2) Metrics for B2B (i.e., selling to Businesses, Companies, or Payers) Models:
Get-absent: at early stages (in the absence of income figures), concentrate on sales cycle and contract price. If you have a lengthier product sales cycle, then intention for better agreement values (and extended contracts). As pilots and MOUs (see underneath) mature, try to transform 1-time revenues into recurring contracts
- Sales Cycle: it is usual to have extended product sales cycles in healthcare (9mo for companies, up to 18mo for payers, and even for a longer time for pharma). We desire when founders are ready to notice 3-6mo profits cycles (whether or not by way of hustle and willpower, networks, or sheer luck)
- Complete contract value (TCV) and contract duration: commonly contracts are 20%/30%/50% around three several years if you’re equipped to protected a stickier 5 year deal, it’s a important optimistic
- Bookings / Contracts: the range, price, and conditions of contracts / pilots fluctuate greatly at the seed stage while some seed-phase startups have managed to shut with 1-2 dozen paying enterprise consumers (despite the fact that this is more typical of Collection A businesses), we have invested in corporations that have nonetheless to shut their initial deal (however at the “memorandum of understanding” phase)
- Annual (Recurring) Profits: Series A startups normally (preferably) have >$1M in once-a-year profits. At the seed stage, revenue is any where 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).