XRHealth is raising capital via common equity and is valued at $81 million. XRHealth brought in $399,475 in revenue for the most recent fiscal year, making for a 202x revenue-to-valuation multiple. The industry average for healthcare and pharmaceutical companies is 3x to 6x. Based on recent financial performance, the company is extremely overvalued. An $81 million valuation is also above average when compared to other growth stage startups raising capital online. XRHealth’s price is not particularly favorable in this round.

Domestically, the market for augmented and virtual reality in healthcare was approximately $500 million in 2021.The global market was valued at $2 billion. While XRHealth is incorporated and primarily operates in the US, the company does have clinics in Israel and Australia, making the global market more directly applicable. 

With the COVID-19  pandemic, 2020 unsurprisingly saw a massive spike in market value both in the US and around the world. This growth was followed by a small decline in 2021, though the current value of the market is still higher than pre-pandemic years. Still, the domestic market for augmented and virtual health services is relatively small. The global annual growth rate, however, forecasts massive near-term adoption at 27.2%. This impressive growth rate indicates that augmented and virtual reality health is an emerging market. XRHealth is well-positioned to take advantage of these trends and grow alongside the market. 

XRHealth is led by founder and CEO Eran Orr. Orr is a veteran of the Israeli Air Force and serves as a member of the Forbes Technology Council. He has a master’s degree in business administration from Ben-Gurion University of the Negev. 

CTO and co-founder Miki Levy has a similar background and is also a veteran of the Israeli Air Force. Levy holds a degree in chemical engineering and is president of the Tel Aviv chapter of the VR/AR Association. CFO Deepa Javeri has a strong background in finance with past experience at Merrill Lynch and Morgan Stanley. Her experience should significantly help the company as it continues to grow.

Neither founder has direct health industry experience, and both are first-time entrepreneurs. The company, however, has a total headcount of 75. The co- founders have stacked the team and advisory board to make up for any gaps in expertise and experience. Board members include Hillel Bachrach, founder of 20/20 Healthcare Partners, and Gilad Meiri, director for Third Eye Systems. 

The XRHealth founding team is untried, and neither founder has expertise in health services or in augmented and virtual reality. However, they have focused on building out a team that can compensate for their inexperience, and this drastically improves XRHealth’s prospects.

Very few, if any, companies compete directly with XRHealth in a clinical setting. XRHealth appears in many ways to have a first-mover advantage. Though several other augmented and virtual reality solutions within healthcare exist, few are taking a dual business model approach by offering clinics direct-to-consumer as well as licensing technology to partners. Additionally, many of XRHealth’s applications have gamified treatment plans — particularly for pain management and physical therapy — making it significantly differentiated from traditional treatments and exercises. The team has also created a massive defensibility moat with three approved patents and 21 pending. The virtual reality app has also been cleared by the FDA, creating another hurdle for competition. 

Management also reports high levels of patient satisfaction. Nearly three-quarters of XRHealth users claim positive differences in symptoms. The company also has a high net promoter score. These statistics bode well for XRHealth’s ability to establish itself in the market and develop customer loyalty.

XRHealth has a first-mover advantage as a company offering augmented and virtual reality health services. The company has a unique business model, and its usage of gamification sets it apart from traditional pain management and physical therapy providers. It has also built an impressive defensive moat through numerous patents. Overall, XRHealth is strongly differentiated and defended at this time.

XRHealth has made massive headway in capital raising efforts and proof of product. To date, the technology has been used to treat 2,000 patients. Management has filed 21 patents — with three approved so far — and launched eight FDA-registered applications. XRHealth currently has four operational virtual clinics in Massachusetts, Michigan, Israel, and Australia, and it plans to open another in Florida in the near future. 

Revenue for the first three quarters of 2021 came in at $1.1 million, up from just under $400,000 for 2020. However, the company’s monthly burn rate is very high at $610,000. While this makes sense for a tech company that’s been focused on product development, XRHealth will need to improve its operating efficiency to reduce risk for itself and investors. 

Finally, XRHealth has received more than $20 million to date from angel investors, crowdfunding, venture capitalists, and grants. This high level of funding indicates that investors see potential in XRHealth’s ideas. With revenue increasing and positive signs of growth in patients and clinics, that confidence looks justified. 

Risk associated with an investment in XRHealth is slightly elevated. This risk mainly comes from the company’s financial standing. XRHealth has $750,000 in long-term debt and is burning approximately $610,000 on a monthly basis. These figures are not cause for immediate alarm, as medtech companies often have to commit ample capital upfront to developing their products. However, it will be crucial for XRHealth to improve its operating efficiency over time. Thankfully the signs point towards growing financial health. XRHealth’s revenue numbers are on the rise, and management has raised plenty of outside funding. Given the company’s rapid early growth, the burn rate will likely slow over time. Should revenue numbers continue to increase, the company may reach profitability in the coming years. At this point, however, this high burn rate contributes significantly to financial risk. 

Additionally, operating in the healthcare technology space is inherently risky. New technology is often subject to FDA compliance, and patient privacy is always a concern. Regulatory measures will be a constant hurdle with future product additions and iterations.

At $81 million, XRHealth is very overvalued from a revenue standpoint. The company made around $400,000 in revenue for 2020 and has reported that it’s seeing $1.1 million for the first three quarters of 2021. Even taking this year’s recent revenue, the company is offering a revenue-to-valuation multiple of around 80x. That’s far higher than industry averages. Additionally, the company is burning large amounts of cash. Monthly burn for the most recent fiscal year was approximately $610,000. Finally, XRHealth is operating in a highly regulated market and will continually face regulatory hurdles that could slow product expansion and require more legal expertise down the road. 

XRHealth has impressive performance metrics. Management has raised more than $20 million in outside capital, eight applications have FDA clearance, four virtual clinics are established, and three patents have been granted. As reported on the raise page, revenue for the first three quarters of 2021 was $1.1 million, up from approximately $400,000 for all of 2020. Very little competition exists in the space, and management has created a large defensibility moat with patents and FDA approval. 

By approaching the market with business-to-business and business-to-consumer offerings, the team has both differentiated the company and created multiple revenue streams. The global market for augmented and virtual reality in healthcare is growing at an enormous rate of 27.2% annually. The market growth was partially fueled by the pandemic but shows no signs of slowing. XRHealth should continue to benefit from trends supporting telehealth as well as augmented and virtual reality health services. Finally, the company already has a global footprint, with clinics in both Israel and Australia, significantly expanding potential market capture.

XRHealth uses virtual reality (VR) and augmented reality (AR) to provide at-home care and treatment for a variety of health concerns. The business combines VR and AR technology, advanced data analytics, and clinician expertise to provide a comprehensive therapeutic experience. 

As with any healthtech startup, regulatory hurdles are a risk. XRHealth is overvalued at $81 million. The company’s financial position is not optimal. Management is burning $610,000 on a monthly basis, which could quickly prove unsustainable. Both founders are first-time entrepreneurs with little direct experience in healthcare technology.

However, XRHealth has a definite first-mover advantage in an increasingly popular and demanding market. The pandemic has only accelerated the need for virtual healthcare alternatives. While the founding team lacks experience, it has built out a strong advisory board and team to cover any expertise gaps. Performance metrics are also strong across the board. To date, XRHealth’s technology has been used to treat 2,000 patients. Management has filed 21 patents and launched eight FDA-registered applications. Additionally, the team has already secured $20 million in outside funding. Revenue numbers for the first three quarters of 2021 have already surpassed 2020’s totals, hitting $1.1 million. Finally, XRHealth has a clear vision for product expansion and has proven existing offerings on a global scale. For these reasons, XRHealth has been rated a Deal to Watch by the KingsCrowd investment team.

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

Analysis written by Olivia Strobl, December 7, 2021.