Benchmarking Your (HealthTech) Startup? A Framework Around Metrics

You hear these terms all the time. Numerous articles (in this article, listed here, in this article) enumerate the many metrics that can quantify the progress of your organization. This article attempts to go 1 move further more and colorize these fundamentals inside of the context of wellness-tech. Caveat: the beneath demonstrates our opinions and the data we see feel totally free to acquire it with a grain of salt! 

1) Metrics for Immediate-to-Customer (i.e., patient-struggling with) Versions:

Acquire-away: at previously levels (in the absence of LTV/CAC), concentration on engagement. The stickier your merchandise, the better. As you accrue data, concentration on optimizing your LTV:CAC ratio. 

• Steps for every session // Normal session size: these reflect engagement much more clicks with extended session period (on the get of minutes rather than seconds) is favorable
• Day-to-day / Month to month Energetic Users (DAU / MAU): a measure of engagement the higher the frequency of engagement, the improved: DAU:MAU preferably will be ~1:3 (remarkable but we rarely see this), while ~1:5 is extra typical among the companies we search at
• Lifetime Price (LTV) to Buyer Acquisition Price (CAC) ratio: a widely cited metric, this a number of displays the normalized net income (not earnings) for every buyer for each individual greenback invested into acquisition (revenue, advertising and marketing, and so on.). Ideally, it will be ~3:1 although greater multiples are even extra appealing for a mature business, at the seed phase we be concerned that might indicate you’re leaving funds on the table (i.e., you would possible advantage from investing a lot more into marketing)

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

Acquire-away: at early levels (in the absence of income figures), concentration on income cycle and contract worth. If you have a more time revenue cycle, then intention for higher contract values (and longer contracts). As pilots and MOUs (see underneath) mature, try to transform one-time revenues into recurring contracts 

• Product sales Cycle: it is standard to have prolonged income cycles in healthcare (9mo for providers, up to 18mo for payers, and even lengthier for pharma). We desire when founders are capable to notice 3-6mo income cycles (whether as a result of hustle and willpower, networks, or sheer luck)
• Total agreement price (TCV) and agreement length: ordinarily contracts are 20%/30%/50% about three many years if you are equipped to secure a stickier 5 yr agreement, it’s a key favourable
• Bookings / Contracts: the number, value, and terms of contracts / pilots change considerably at the seed phase although some seed-stage startups have managed to shut with 1-2 dozen shelling out business shoppers (even though this is more usual of Series A businesses), we have invested in businesses that have but to near their initial offer (however at the “memorandum of understanding” section)
• Once-a-year (Recurring) Income: Collection A startups normally (ideally) have >$1M in yearly profits. At the seed phase, income 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.

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).