Sensate is offering equity at an $18 million valuation. This price seems generally aligned with Sensate’s current level of traction. The company generated $2.8 million in revenue in 2021 (unaudited), so an $18 million valuation implies a 6.3x revenue-to-valuation multiple. That’s pretty fair for a hardware-plus-software company that has already generated meaningful sales. Sensate can grow into this valuation by offering subscription options that bring in stable recurring revenue. The company indicates plans to add that revenue stream in the near future, making this valuation even more fair.

The North American anxiety disorder and depression treatment market was worth $4.4 billion in 2019. Sensate’s market is huge, and growing awareness of mental health helps fuel its expansion. But the market is currently growing at a slow pace, with an expected 2.6% compound annual growth rate until 2027. 

This sluggish growth rate isn’t a great sign for Sensate. The company is already vying for attention in a crowded market of stress and wellness solutions, which range from brand-name apps like Calm and Headspace to prescription medications, therapy, and other options. The proliferation of stress management options may be outpacing the growth of demand for stress treatment. As a result, even though the market is large, it’s unclear if Sensate can obtain a sizable slice.

Sensate was founded by Stefan Chmelik, a British wellness expert. While Chmelik is not a medical doctor, he does hold a master’s degree in healthcare from the University of East London and leads an integrated healthcare team called New Medicine Group. New Medicine Group is located on London’s famed Harley Street, a medical hub of renowned specialists in a variety of disciplines. Chmelik has also founded other wellness companies related to New Medicine Group, including a health food company and a chronic pelvic pain support group. 

Chmelik does not appear to work full-time on Sensate, given his commitments to New Medicine Group and other ventures. That’s likely why Sensate brought in Anna Gudmundson, who began as a board member and is now billed as the co-founder and CEO of the company. Gudmundson began her career as an information technology engineer but later held several management roles at a variety of companies in the UK. Gudmundson brands herself as a “turnaround executive” — a professional known for restoring ailing companies and bringing them back from the brink of failure. She previously served as the CEO of a struggling fitness tracker business, which seems to have failed.

Chmelik and Gudmundson are the primary leaders of Sensate. The only other team members are more junior and focused in specific areas like social media. This team seems a bit too small to sustain ongoing growth. Although they have complementary skill sets, neither Chmelik nor Gudmundson are medical doctors, and neither has experience successfully scaling a wellness company. Sensate would benefit from recruiting a larger and more specialized team.  

Sensate claims to be the only product for bone conduction targeting the vagus nerve. This nerve is integral to the parasympathetic nervous system, which helps the body save energy and digest. It works opposite of the sympathetic nervous system, which sets the body up for physical reactions like fight or flight. Sensate’s approach to stress management seems unique when compared to other devices or meditation apps. Its technology is patented, which adds another layer of defensibility.

However, Sensate is indirectly competing against a wide range of other stress management solutions. Stress sufferers could seek therapy or psychiatry to begin medication. If they’re interested in wearable devices, they have options. Apollo Neuro and Fisher Wallace each offer a device aimed at soothing stress. Though at $249, Sensate’s device is cheaper than Apollo’s ($329-$349) and Fisher Wallace’s ($449). An average consumer might try out several of these options, testing for the approach that works best for them. While Sensate has strong customer reviews and positive press mentions, so do other stress relief competitors. Consumers may also be deterred by Sensate’s upfront cost and could instead opt for meditation apps, like Calm or Headspace.

Even though Sensate is a unique device, it is still vying for the same pool of consumers as a number of other companies in the wellness and stress management space. Sensate lacks any particular competitive advantages that would help it capture the most market share.  

Sensate achieved strong growth between 2020 and 2021. The company generated $583,559 in sales in 2020, according to unaudited financials, but revenues skyrocketed to $2.8 million last year. Sensate also received more than $3 million in backing from venture capitalists, including TenOneTen and Unlock Venture Partners. 

But while its revenue growth is attractive, the rest of Sensate’s financials are less promising. The company is burning a significant amount of cash, with more than $3 million in expenses last year. It’s not clear what Sensate is spending so much money on. Marketing and advertising came in at $906,944 in 2021, but general and administrative costs were $2.5 million. Sensate has a very small team, so it doesn’t seem like those millions are going toward salaries. 

The company’s concerning burn rate is also harming its cash position. Sensate had just $159,267 in cash at the end of 2021, almost half its $286,384 on hand in 2020. Such a low cash reserve is extremely risky for a company of this size. It seems like Sensate needs to raise money quickly just to sustain its operations, which is never a good position to be in. 

Other than financials, Sensate does seem to be successful. The company has garnered many positive reviews, with 90.5% of users in a survey stating that Sensate is more effective than alternative solutions. The device has also earned notable approval from wellness influencers. Sensate has also earned favorable mentions in reputable publications like Men’s Journal, Vogue, and Forbes. Plus, Sensate users have spent more than 18 million minutes using Sensate, implying 1.8 million 10-minute sessions. These positive signals indicate that Sensate is finding a decent-sized customer base even though its underlying financials are risky.

Sensate is a moderately risky investment. The company does have a live product that has generated more than $3 million in total revenue so far. Numerous press publications, influencers, and customer reviewers have also endorsed Sensate’s effectiveness. However, Sensate’s financials pose a serious risk. The company is running very low on cash and is spending far too much compared to its revenue. Sensate’s relatively small team, with seemingly only one full-time executive who lacks medical industry experience, is also a concern. 

Sensate is competing in a very crowded space that already offers a wide range of solutions for those suffering from stress. At $249, the Sensate device is quite expensive. Many consumers would likely try out a meditation app first before investing in such a pricey piece of new technology. In addition, Sensate’s technology isn’t clinically proven, which is yet another reason why a dubious buyer may hold off on spending so much money. 

In addition, Sensate’s financial performance is concerning. While the company apparently achieved sizable revenue growth between 2020 and 2021 ($583,559 to more than $2.8 million), expenses also grew dramatically. The company is running very low on cash, which may be motivating this fundraise. In light of these financial facts, investors might consider whether CEO Anna Gudmundson was brought on as a turnaround CEO (a role she’s taken on before, though unsuccessfully). If Sensate is indeed looking to turn around, the company doesn’t offer many details on how it would chart a course to lower expenses and continued growth. 

The mental health crisis in America and beyond is receiving a lot of press, particularly as society emerges from a pandemic that caused a surge in stress, depression, and anxiety across the world. There’s also a massive therapy shortage, so many people are shut out from seeking traditional mental health help. Therefore, there’s never been a better time to introduce effective new ways to relieve stress. 

In addition, Sensate achieved massive growth between 2020 and 2021, according to unaudited financials. Presumably, Sensate improved its marketing presence and achieved a wider reach. It’s not clear whether Sensate is continuing on this trajectory for 2022 thus far, but signs seem promising. Sensate mentions plans to introduce a paid subscription feature for more premium in-app content in addition to its wearable device, which could further expand revenues and provide a more stable recurring revenue source. If Sensate continues to garner more customers, impress them, and then convert them to long-term plans, the company could achieve long-term success. 

Sensate offers a stress relief wearable device that uses bone conduction on the sternum to target the vagus nerve and relax the nervous system. Sensate is highly rated in customer reviews and press mentions and saw a huge boom in sales in 2021. If Sensate can continue to expand revenue beyond the $2.8 million it generated in 2021, it could begin to compete with mainstream wellness companies like Headspace. With Sensate’s fair valuation, investors could earn favorable returns. 

But investors should be aware that Sensate’s financials aren’t stellar. While the company achieved significant revenue growth last year, its expenses also more than doubled from $1.3 million in 2020 to $3.4 million in 2021. It’s not clear what the company is spending so much money on, but that burn rate is having concerning effects on Sensate’s cash on hand, which was very low at the end of 2021 (just $159,267). These financials, combined with a small team and a slow-growing market, pose existential threats to Sensate. Therefore, Sensate has been rated a Neutral Deal. 

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

Analysis written on June 9, 2022.