You listen to these terms all the time. A great number of articles (in this article, in this article, here) enumerate the many metrics that can quantify the expansion of your small business. This report attempts to go just one action further and colorize these fundamentals within the context of wellness-tech. Caveat: the under reflects our viewpoints and the data we see really feel cost-free to get it with a grain of salt!
1) Metrics for Direct-to-Client (i.e., client-struggling with) Types:
Take-away: at previously stages (in the absence of LTV/CAC), aim on engagement. The stickier your item, the far better. As you accrue information, focus on optimizing your LTV:CAC ratio.
- Actions per session // Ordinary session length: these reflect engagement extra clicks with longer session period (on the order of minutes relatively than seconds) is favorable
- Day by day / Monthly Lively Consumers (DAU / MAU): a evaluate of engagement the greater the frequency of engagement, the far better: DAU:MAU preferably will be ~1:3 (astounding but we almost never see this), though ~1:5 is extra usual amongst the organizations we appear at
- Life span Worth (LTV) to Shopper Acquisition Expense (CAC) ratio: a broadly cited metric, this many displays the normalized internet profit (not revenue) for each consumer for every single greenback invested into acquisition (gross sales, advertising, and many others.). Preferably, it will be ~3:1 even though better multiples are even extra captivating for a mature organization, at the seed phase we fear that may show you’re leaving money on the desk (i.e., you would most likely advantage from investing far more into marketing)
2) Metrics for B2B (i.e., selling to Companies, Vendors, or Payers) Versions:
Acquire-away: at early stages (in the absence of earnings figures), concentration on revenue cycle and agreement worth. If you have a for a longer period revenue cycle, then goal for greater contract values (and for a longer period contracts). As pilots and MOUs (see below) mature, attempt to change one particular-time revenues into recurring contracts
- Product sales Cycle: it is normal to have long revenue cycles in health care (9mo for providers, up to 18mo for payers, and even for a longer period for pharma). We favor when founders are able to know 3-6mo product sales cycles (whether by hustle and resolve, networks, or sheer luck)
- Whole contract benefit (TCV) and contract size: ordinarily contracts are 20%/30%/50% more than 3 years if you’re capable to secure a stickier 5 12 months contract, it is a main beneficial
- Bookings / Contracts: the quantity, value, and phrases of contracts / pilots vary drastically at the seed stage while some seed-phase startups have managed to shut with 1-2 dozen paying organization purchasers (while this is far more typical of Sequence A businesses), we’ve invested in businesses that have yet to near their initially offer (nonetheless at the “memorandum of understanding” stage)
- Once-a-year (Recurring) Income: Sequence A startups normally (preferably) have >$1M in once-a-year earnings. At the seed phase, income is anyplace 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).