Startup, Survival, Scaling: Kareo CEO Dan Rodrigues (Part 4)

Sramana: You were working as a consulting developer for a small company to develop a medical front office management and billing solution. Did you decide to spin that out as a new company?

Dan Rodrigues: As that project grew in scope, I started getting more and more excited about healthcare. I learned that the healthcare market is 20% of domestic GDP. All of the growth trends, for the next several decades, favor healthcare. I was the lead consultant on the project so I got into the weeds of medical billing. I learned how doctors get paid and how insurance companies manage their offices. It was so inefficient, and there were so many problems to be solved.

Through that consulting relationship, I got to meet a lot of doctors and see the technologies they were using in their offices. It seemed to me that the healthcare industry was about 10 years behind the progressive areas of the technology industry. When I looked at everything and put the pieces together, I felt that I could make a difference in this industry. That is when I decided I could create a business in this space.

Sramana: What year was that?

Dan Rodrigues: The year was 2004.

Sramana: Healthcare IT was not hot yet.

Dan Rodrigues: Not at all. In fact, I have some interesting stories about that as well. I started Kareo in 2004, and I did that by leaving my consulting business with my partner. I was able to acquire the IP that we had developed for that customer, and I turned around and signed them up as our first customer. I convinced them to do that because the scope of the software was starting to increase. They were a relatively small business and they could not afford to invest hundreds of thousands of dollars into development, let alone something that could potentially top a million dollars.

I bootstrapped the company for the first year, primarily on the revenue of that first initial customer. I hired a small team of five software developers to take that custom software application and productize it so that it could be sold to other companies. In early 2005 we launched the product officially. At that time I did not think that I was going to raise any capital for Kareo. I intended to bootstrap the company the whole way. However, I started talking to some of the investors from my first days, and a few of them really encouraged me to approach Silicon Valley investors about it.

Rob Reid was a former venture capitalist and the CEO of Listen.com. He encouraged me to put together a deck and a pitch. He set up a bunch of meetings for me and I went up to Menlo Park for a week. I met with 10 investors over the course of that week. Health IT was not hot at the time. A bunch of the VCs I talked to were scared to death of healthcare. They felt doctors were tough to sell to, and that they had invested in scores of healthcare companies of the years and they had scores of tombstones from past failures. They loved the idea but were scared.

There were a couple of folks who kept an open mind. Halsey Minor, the founder of CNET, was a early investor of Salesforce.com and he had a successful exit. I met him right on the heals of that win. He was high on “on-demand” software, which is now known as SaaS. He was fascinated by the healthcare industry. He invested in the company and he called me up and presented an entrepreneur-friendly term sheet.

This segment is part 4 in the series : Startup, Survival, Scaling: Kareo CEO Dan Rodrigues
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