You listen to these conditions all the time. A great number of article content (listed here, here, in this article) enumerate the numerous metrics that can quantify the advancement of your organization. This short article tries to go 1 step more and colorize these fundamentals in just the context of overall health-tech. Caveat: the underneath displays our opinions and the details we see truly feel absolutely free to choose it with a grain of salt!
1) Metrics for Direct-to-Consumer (i.e., individual-going through) Types:
Get-absent: at before levels (in the absence of LTV/CAC), concentration on engagement. The stickier your product, the much better. As you accrue knowledge, target on optimizing your LTV:CAC ratio.
- Actions per session // Typical session duration: these mirror engagement additional clicks with lengthier session length (on the purchase of minutes relatively than seconds) is favorable
- Everyday / Month to month Lively Users (DAU / MAU): a evaluate of engagement the bigger the frequency of engagement, the greater: DAU:MAU preferably will be ~1:3 (incredible but we hardly ever see this), despite the fact that ~1:5 is additional standard amongst the businesses we glance at
- Life time Worth (LTV) to Customer Acquisition Value (CAC) ratio: a extensively cited metric, this multiple demonstrates the normalized net gain (not earnings) for every purchaser for every dollar invested into acquisition (gross sales, advertising, and so on.). Ideally, it will be ~3:1 even though greater multiples are even much more captivating for a mature enterprise, at the seed stage we stress that might suggest you are leaving income on the table (i.e., you would probably profit from investing extra into marketing and advertising)
2) Metrics for B2B (i.e., advertising to Companies, Providers, or Payers) Designs:
Acquire-away: at early stages (in the absence of revenue figures), target on profits cycle and deal worth. If you have a for a longer period sales cycle, then intention for better agreement values (and extended contracts). As pilots and MOUs (see under) mature, attempt to change 1-time revenues into recurring contracts
- Revenue Cycle: it is usual to have extensive revenue cycles in healthcare (9mo for providers, up to 18mo for payers, and even for a longer time for pharma). We desire when founders are in a position to realize 3-6mo profits cycles (whether through hustle and dedication, networks, or sheer luck)
- Total deal price (TCV) and contract length: normally contracts are 20%/30%/50% in excess of three several years if you are ready to safe a stickier 5 12 months deal, it’s a main constructive
- Bookings / Contracts: the variety, value, and phrases of contracts / pilots range enormously at the seed stage when some seed-stage startups have managed to near with 1-2 dozen spending business clients (despite the fact that this is much more usual of Sequence A corporations), we have invested in organizations that have however to close their to start with deal (even now at the “memorandum of understanding” section)
- Once-a-year (Recurring) Revenue: Collection A startups usually (ideally) have >$1M in annual revenue. At the seed phase, revenue is any place 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).