Benchmarking Your (HealthTech) Startup? A Framework Around Metrics
You hear these conditions all the time. A great number of articles or blog posts (below, listed here, right here) enumerate the different metrics that can quantify the advancement of your business. This short article tries to go 1 move further more and colorize these fundamentals in just the context of wellbeing-tech. Caveat: the underneath reflects our thoughts and the info we see feel absolutely free to consider it with a grain of salt!
1) Metrics for Direct-to-Purchaser (i.e., affected individual-facing) Products:
Take-absent: at before levels (in the absence of LTV/CAC), concentration on engagement. The stickier your solution, the better. As you accrue facts, focus on optimizing your LTV:CAC ratio.
- Actions for each session // Average session length: these reflect engagement more clicks with extended session length (on the order of minutes somewhat than seconds) is favorable
- Day by day / Every month Energetic Buyers (DAU / MAU): a evaluate of engagement the better the frequency of engagement, the greater: DAU:MAU preferably will be ~1:3 (incredible but we almost never see this), despite the fact that ~1:5 is much more regular among the firms we seem at
- Life time Worth (LTV) to Customer Acquisition Price (CAC) ratio: a greatly cited metric, this multiple demonstrates the normalized net earnings (not profits) per shopper for each and every dollar invested into acquisition (income, promoting, and so forth.). Preferably, it will be ~3:1 even though better multiples are even much more pleasing for a mature enterprise, at the seed stage we get worried that may possibly point out you are leaving dollars on the desk (i.e., you would very likely gain from investing far more into marketing)
2) Metrics for B2B (i.e., selling to Employers, Companies, or Payers) Types:
Just take-away: at early levels (in the absence of revenue figures), focus on product sales cycle and agreement worth. If you have a for a longer period profits cycle, then purpose for greater deal values (and for a longer period contracts). As pilots and MOUs (see under) mature, attempt to convert a person-time revenues into recurring contracts
- Income Cycle: it is normal to have very long gross sales cycles in healthcare (9mo for vendors, up to 18mo for payers, and even lengthier for pharma). We prefer when founders are ready to comprehend 3-6mo product sales cycles (whether or not as a result of hustle and perseverance, networks, or sheer luck)
- Total contract value (TCV) and agreement duration: typically contracts are 20%/30%/50% about a few decades if you are ready to safe a stickier 5 calendar year deal, it’s a big good
- Bookings / Contracts: the amount, price, and terms of contracts / pilots differ considerably at the seed phase when some seed-phase startups have managed to near with 1-2 dozen paying enterprise consumers (though this is far more regular of Sequence A companies), we have invested in corporations that have yet to close their 1st deal (nonetheless at the “memorandum of understanding” phase)
- Yearly (Recurring) Income: Series A startups normally (ideally) have >$1M in yearly profits. At the seed stage, earnings is anywhere 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).
