Improving Healthcare Communication: Kryptiq CEO Luis Machuca (Part 7)

SM: You brought in $3 million in the first year and a half of the company. By 2003 you had a product ready. Did you then go out and raise money?

LM: Once we launched the product and sales started to take off, we realized that it was a bigger play. We were approached by VCs and we decided to do a first round with them. We quickly decided that instead of doing a first institutional round, we would co-mingle another $3.5 million to $4 million of VC money with the money we had already raised into a single $7 million round. That was technically our first round, which we completed in 2003.

SM: You gave them the same valuation that you gave your original investors?

LM: Yes. Speed was of the essence. The concession was that the VCs conceded to having equal terms to the existing Kryptiq shareholders.

SM: Who were your VCs?

LM: The leader of the first round was Voyager Capital, which remains our largest shareholder. They are based in Seattle. Along with them came SmartForest Ventures, which at the time was one of the largest VCs in Portland.

SM: What other financing have you raised?

LM: A year and a half after that, we did another $7 million round at about 2.2 times the valuation of the previous round. The environment was a little better, and the market was better because we had growth. We were just on the cusp of getting GE as a reseller at the time we completed the second round. That round was led by Shelter Capital, which was based in LA, and they were the only new entry because the previous investors took the opportunity to invest again.

In 2006 we raised another $7 million. That was at about twice the value of the previous round. We had GE and we were profitable on a provider business, but we raised that round to fund an investment we wanted to make in the health plans side of our business. We decided to expand to cover insurance companies to give us an entire ecosystem play. We acquired a company to help us do that, and as of 2006 we started the health plan side of Kryptiq.

SM: What did that do?

LM: We were able to get 16 insurance companies to buy our product. We developed it on a different platform, and we found that the opportunities for the companies to connect health plans to their own data preceded the opportunity to connect health plans to the ecosystem.

Earlier this year we sold off that unit to a company in Philadelphia called Portico Systems. The primary reason for that was that the growth rate of our provider focused business was on the cusp, in part because of the stimulus. We really wanted to focus on that opportunity. The other opportunity was not far enough along in its life cycle. We created a partnership with Portico that  is focused solely on the health plans business.

SM: Give me a sense of where your revenues are. You have raised $21 million, which is a lot of money.

LM: Our revenues are in the double digits, and we have been profitable on a quarter-to-quarter basis for 13 out of the past 14 quarters. The provider business is doing very well and it is growing. We have recently done a lot of hiring to go after opportunities that present themselves.

SM: How many people do you have?

LM: About 80 employees. Most of them are based in Portland, Oregon.

SM: Any major lessons learned?

LM: Although we came into the market with no experience, that meant we had a completely fresh look, which has really helped us. That being said, we knew we had to get domain expertise so we hired folks with incredible healthcare IT industry experience. We have execs from GE, Allscripts, and other companies.

SM: Congratulations on your success. I wish you all the best.

This segment is part 7 in the series : Improving Healthcare Communication: Kryptiq CEO Luis Machuca
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