Building a Capital Efficient Healthcare AI Venture to $20M: Deepak Gaddipati, Founder and CTO of VirtuSense (Part 3)

Sramana Mitra: When you raised angel financing, did you already have these nursing homes working with you on the pilot?

Deepak Gaddipati: No. First, we developed the product. We looked for the biggest physical therapy conference. There was one conference in Vegas within three days. They had a booth open, so we bought it. We wanted to present at this conference to see if the product sticks. We hustled. On the spot, we sold a couple of systems. We said we were going to deliver within three months.

One person said wanted to pay by credit card right then. Both of them were universities – heads of physical therapy programs. They took it and started doing research and started publishing data. That took about a year and a half by the time it was published. In the meantime, we sold to a few other universities. We just started with the senior living market. That’s where we saw that this was working and there are revenues. We didn’t have to raise money at that point. The revenue stream was good enough.

Sramana Mitra: Was $10,000 the average deal size?

Deepak Gaddipati: Close to $30,000.

Sramana Mitra: How many rehab centers did you have?

Deepak Gaddipati: I can’t remember the exact number. We sold probably 20 to 30 of these systems.

Sramana Mitra: What year was this?

Deepak Gaddipati: 2015 to 2016.

Sramana Mitra: While you had revenue, you just raised the money.

Deepak Gaddipati: We got it to a few hundreds of thousands in less than a year. Then we started getting into nursing homes. We needed to find a better business model rather than selling one time. There were months when we sold $400,000. One month is completely dry. It’s up and down.

Sramana Mitra: You were not selling subscriptions?

Deepak Gaddipati: This was 2015. Healthcare never did subscriptions back then. I didn’t even know subscription back then.

Sramana Mitra: That’s not true, but your point is well-taken.

Deepak Gaddipati: I didn’t know what subscription was back in 2015. In 2016, we started tapping the nursing homes. They wanted the product, but they couldn’t afford $30,000. That’s when we thought about chopping it into smaller portions every month and creating a subscription model. It was initially hard because we were used to selling upfront for $30,000. It came down to about a thousand bucks a month.

The first year was a little hard, but when we built that momentum, it helped us sell quicker. Rather than selling it one-time for $30,000 or $40,000, we had a recurring stream. We renewed every three years. Our churn rate through these years is less than 0.5%. The lifetime value of the contract was way higher.

Sramana Mitra: What is the go-to-market strategy that worked for you? Were you doing telesales?

Deepak Gaddipati: We did a lot of trade shows. We didn’t have a huge sales team.

Sramana Mitra: Do the nursing homes comes to the trade shows?

Deepak Gaddipati: They do. During that time, our CEO has a basketball buy. A lot of professional sports teams contacted him saying, “Your technology is so cool. We want to use this for athlete injury prevention.” We sold to a bunch of NFL and NBA teams.

Sramana Mitra: But your core market remains the elder care market?

Deepak Gaddipati: Exactly. In 2017, we made the call of doubling down on the senior living market rather than going for athletes. We still support some of them, but we’re no longer selling in any athlete markets.

This segment is part 3 in the series : Building a Capital Efficient Healthcare AI Venture to $20M: Deepak Gaddipati, Founder and CTO of VirtuSense
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