June 12, 2024

Watchever group

Inspired by Technology

Benchmarking Your (HealthTech) Startup? A Framework Around Metrics

[ad_1]

You listen to these terms all the time. Numerous posts (in this article, below, in this article) enumerate the many metrics that can quantify the development of your business. This write-up attempts to go one particular move further and colorize these fundamentals inside the context of well being-tech. Caveat: the beneath reflects our views and the details we see feel absolutely free to consider it with a grain of salt! 

1) Metrics for Immediate-to-Client (i.e., individual-struggling with) Styles:

Consider-absent: at earlier levels (in the absence of LTV/CAC), concentration on engagement. The stickier your item, the much better. As you accrue information, target on optimizing your LTV:CAC ratio. 

  • Actions for every session // Typical session length: these replicate engagement extra clicks with longer session period (on the order of minutes relatively than seconds) is favorable
  • Every day / Month to month Active People (DAU / MAU): a measure of engagement the better the frequency of engagement, the superior: DAU:MAU ideally will be ~1:3 (amazing but we almost never see this), despite the fact that ~1:5 is additional common among the providers we seem at
  • Life time Value (LTV) to Client Acquisition Value (CAC) ratio: a widely cited metric, this a number of reflects the normalized net revenue (not income) for every customer for every single dollar invested into acquisition (sales, advertising, and many others.). Ideally, it will be ~3:1 although larger multiples are even much more interesting for a experienced organization, at the seed phase we be concerned that may possibly point out you’re leaving money on the desk (i.e., you would probably benefit from investing more into advertising and marketing)

2) Metrics for B2B (i.e., offering to Employers, Vendors, or Payers) Products:

Get-absent: at early stages (in the absence of revenue figures), focus on revenue cycle and agreement value. If you have a more time product sales cycle, then purpose for larger deal values (and extended contracts). As pilots and MOUs (see underneath) mature, endeavor to convert 1-time revenues into recurring contracts 

  • Sales Cycle: it is normal to have very long revenue cycles in healthcare (9mo for providers, up to 18mo for payers, and even more time for pharma). We favor when founders are able to notice 3-6mo income cycles (irrespective of whether by way of hustle and resolve, networks, or sheer luck)
  • Whole deal benefit (TCV) and agreement duration: usually contracts are 20%/30%/50% about a few many years if you are capable to secure a stickier 5 12 months contract, it’s a big favourable
  • Bookings / Contracts: the variety, benefit, and terms of contracts / pilots change drastically at the seed phase when some seed-stage startups have managed to close with 1-2 dozen having to pay company consumers (whilst this is additional standard of Collection A providers), we’ve invested in firms that have but to near their initially offer (nevertheless at the “memorandum of understanding” phase)
  • Once-a-year (Recurring) Profits: Collection A startups ordinarily (preferably) have >$1M in yearly income. At the seed stage, profits 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
series C+ growth 10-15% 7-10x

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).

[ad_2]

Source link