Startup, Survival, Scaling: Kareo CEO Dan Rodrigues (Part 5)

Sramana: How much did you raise in your first round?

Dan Rodrigues: We raised $2 million. That was in 2005.

Sramana: What is interesting in healthcare IT startups in that time is that the rest of the market had not figured out that it was a hot space. VCs realize that something is hot at some point and then every VC firm will take a position in that category. It is interesting because from an entrepreneur’s point of view, it can be very uncomfortable being one of the first in a new market.

Dan Rodrigues: It’s not easy being in early. We definitely had our share of challenges early on. When I tell people the story of Kareo, I tell them that if Kareo were a play there would be three acts. The first act would be the startup, the second act would be the survival act, and the third act would be the growth phase, which is where we are now.

In the startup act we raised some venture capital. We raised two rounds from Halsey for a total of $6.5 million. Like other startups we built a team early on and grew to about 30 people which is the base team we felt we needed from a product development, sales and marketing perspective. We were not selling to doctor’s offices initially. We sold to medical billing companies which is the type of company that we had done the consulting work for, which was the genesis of the Kareo story.

Sramana: How many of those companies were there?

Dan Rodrigues: At the time about 33% of doctors outsourced their billing to medical billing companies. That is more or less the same today. There are a few thousand medical billing companies in the U.S.

Since we had developed the software with a medical billing company in mind, we felt that it would be a great channel for us to use to get our software out to doctors. It might be more scalable and an easier road to take when compared to selling to doctors offices directly, one at a time. The third-party billing companies would manage anywhere from 20 doctors to a couple of hundred doctors’ offices at any one time.

We initially marketed through medical billing offices, and they would create accounts on our system for all of the doctors whose billing they managed. It was ultimately a way of selling to the doctors through someone they already had an established relationship with. We thought that segment of the market would be a lot more approachable.

Initially that strategy went pretty well. We did a good job of explaining our vision of cloud-based medical practice management software that a lot of these billing companies were interested in. Early on we signed up a lot of billing companies as clients. The only problem was that we were building a lot of our forecasts around the medical billing companies taking us from one of their clients to all of their clients in a three- to six-month period. In reality, it was taking them close to 18 months to sign up all of their doctors.

This segment is part 5 in the series : Startup, Survival, Scaling: Kareo CEO Dan Rodrigues
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