Health Cost IQ is raising a Crowd SAFE at a valuation cap of $10 million with a discount rate of 10%. Considering the $610,000 in revenue mentioned on the raise page, the startup has a revenue multiple of around 16x — meaning the company is valuing itself at 16x more than its most recent year’s revenue. That revenue multiple is  very good for a software company in particular. However, using listed revenue from the Form C results in a multiple around 22.4x, which is still reasonable. In comparison to other early stage startups raising capital online, Health Cost IQ’s valuation is right around average. However, it is made more attractive by the 10% discount rate, a boon that reduces risk for early investors. Due to all these factors, Health Cost IQ’s price rating is its highest across all five metrics.

The global healthcare analytics market was valued at $25.9 billion in 2019. It is expected to grow at a moderate pace of around 7.5% per year. However, much of the market’s growth is attributed to the use of big data and predictive technology in reducing costs and managing risks. Health Cost IQ is directly participating in that trend, which is a boon to the company. Additionally, the US makes up more than 50% of this market, so the startup is operating in the geographic area with the most market potential. While Health Cost IQ will face established competitors as it expands, the market is primed to receive technologically advanced solutions. If the company can deliver on its promise to reduce costs through analytics, it will be in the right place at the right time. As a result, Health Cost IQ’s market score is above average.

Health Cost IQ founder and CEO Jude Odu was inspired to start the company based on his PhD research into disproportionate health care costs. Odu has been working in healthcare and healthcare-adjacent industries since starting with United Healthcare as a health information manager. He received his Master’s of Science in health science from George Washington University, then conducted PhD research at Cleveland State University. During that time, he founded and ran Health Data Intelligence until its acquisition by TrendShift, where he became chief product officer. Just before working with his co-founder to create Health Cost IQ, Odu co-founded Junna Software, an adult life care planning provider. His career experience in healthcare and software are boons to Health Cost IQ, as is his past exit experience.

Co-founder and CSO Dr. Lawrence Lubbers is a board-certified orthopedic surgeon. After receiving his medical degree from the University of Louisville, he has been in practice for more than 40 years as a founding member of Hand and Microsurgery Associates in Ohio. Dr. Lubbers is the former president of Columbus Orthopedic Surgery and has some prior experience in startups as co-founder of Hyperion Motors, a hydrogen-powered car company. Overall, Dr. Lubbers’ impressive resume also lends relevant experience to Health Cost IQ.

The co-founders have supplemented their leadership with a chief revenue officer, a vice president of operations, and a number of technical roles. While relevant experience is present on the leadership team, there aren’t as many engineers on the team as would be ideal for a software company. Additionally, it lacks a chief technical officer and data scientist. Balancing the co-founders strong experience with the key team’s weakness, Health Cost IQ receives an average team rating.

The Health Data IQ platform is designed to provide value in population health, predictive cost and risk modeling, pharmacy opportunity discovery, and business decision analytics. The platform accomplishes this through a trademarked, three-step methodology: predict, interpret, and act. Pricing is determined using a per employee per month model, depending on the size of the business. While Health Cost IQ holds trademarks for its three-step system, nothing is patent-protected.

There are many established competitors with services that are similar to Health Cost IQ’s. Advanced Plan for Health has been offering actionable insights since 2004 through predictive modeling and precise data. However, Health Cost IQ’s platform is easier to use and offers more features than that of Advanced Plan for Health or many of its other competitors. The company has also shown significant savings for some of its existing clients — as much as $2.5 million for one customer. That’s a major advantage over the competition. Software-as-a-service offerings of this kind are not easily replicable, which provides the company with some amount of defensibility. Due to these factors, Health Cost IQ receives a decent differentiators score.

Health Cost IQ generated $446,524 in 2020 revenue — a decrease from $553,768 the year before. These details are somewhat inconsistent with what’s on the raise page, which claims 2020 revenue was $610,000. The business has built up to monthly recurring revenue of $52,000 as of June 2021. It has onboarded 1,500 companies and organizations through its lifetime. 

Health Cost IQ has garnered recognition from Jumpstart Foundry, a Nashville-based investment fund. It has also secured a partnership with Johns Hopkins University and integrated its ACG system into the Health Data IQ platform. The business’s most boastworthy proof of concept is $2.5 million in savings for a professional employer organization.

Health Cost IQ’s numbers are acceptable given its phase of development, but some clarification on revenue numbers would better answer existing questions. In addition, figures on customer retention, and not just total numbers, would reduce concern on the long-term viability of the business. Health Cost IQ earns a below-average performance rating due to an apparent decrease in year-over-year revenue.

Health Cost IQ offers a low risk profile for potential investors. The main areas of concern are time and financials. Health Cost IQ operates as a business-to-business software provider. The company’s sales cycle will naturally be long, meaning that customer acquisition efforts are key for success. It will take the company time to scale and expand, and this longer timeline adds risk for investors. If the company fails to grow quickly enough or encounters other issues as it expands, investors could find themselves waiting a long time to see any form of return. Health Cost IQ also needs to grow its revenue significantly in the future. Currently, its annual revenue does not exceed the company’s total debt — just over $540,000 — which is concerning.

Health Cost IQ’s product offering is necessarily niche. Ideally an organization with high-quality healthcare offerings doesn’t require Health Cost IQ’s services to keep costs down as much as possible. The customer retention risk is significant here. Once Health Data IQ has cut a business’s healthcare services costs to the fullest extent possible, there is a question of whether or not  a customer will be motivated to stay with Health Cost IQ for further, marginal savings.

Assuming the business does see the kind of success projected on its raise page, it also has defensibility concerns. A lack of patent protection and defensibility means competitors could readily duplicate the factors that lead to Health Cost IQ’s success. As of now, the startup doesn’t seem on track to address these concerns.

Health Cost IQ has significant potential as an acquisition target in the coming years. Demonstrated product-market fit could render the software an attractive prospect for HR providers that already provide business-to-business solutions. The challenge in reaching this position requires further product development to build on accumulated data. If the software can be further honed to provide demonstrable benefits over competing options and defensibility concerns can be addressed, Health Cost IQ could be well-positioned for an acquisition even without achieving its lofty revenue projections.

Health Cost IQ is providing healthcare management software for medical management companies, public school districts, health systems, and other organizations. The Health Data IQ software uses predictive models and analytics to identify risk and provide solutions. Since launch in 2018, 1,500 companies and organizations have been brought onto the platform. The business has established a partnership with Johns Hopkins University for use of its ACG system. As of June 2021, its monthly recurring revenue is around $52,000.

The startup is raising at an appealing valuation considering its status as a software company. In addition, its target market is growing, and its offering is in demand. The founders are experienced in healthcare and data science. However, some concerns keep Health Cost IQ from becoming an automatic deal. The Health Data IQ software is not strongly defended, and the team has some gaps on the development side. In addition, customer retention data is not available, and the software’s particular niche could lead to problems in that regard. However, the business has potential to become an appealing acquisition in the coming years. Therefore, Health Cost IQ is a Neutral Deal.

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com.

Analysis written by Benjamin Potts.