Software Maker Kareo Sees Big Potential in Small Doctors' Groups [Orange County Business Journal (CA)]

HEALTHCARE: Changes on reimbursements seen as key

Irvine-based healthcare software company Kareo Inc. wants to make it easier for doctors to get paid.

Kareo provides cloud-based practice management and medical billing software over the Internet for solo practitioners or practices with as many as four doctors.

The company is moving ahead with its plans with a chunk of fresh funding. It closed a$10 million equity investment earlier this month.

Kareo plans to use the money to expand its sales and marketing, develop its product lineup, and bolster its roster of suppliers, said Dan Rodrigues, its founder and chief executive.

The money also will go toward new hires in sales, marketing and product development.

Kareo now has about 75 workers; it expects to have 100 by the end of the year and 150 by the end of 2012.

Kareo has raised $20 million since its inception in 2005, including a $9.5 million funding round in September 2010.

Greenspring Associates of Owings Mills, Md., led Kareo’s latest investment.

Other participants included returning investor OpenView Venture Partners of Boston,Western Technology Investment in Portola Valley and Travis Kalanick, an angel investor and friend of Rodrigues.

“We weren’t really looking for capital at the time, but they came and proposed a $10 million investment on very favorable terms,” Rodrigues said.

Kareo, which also has an office in Indianapolis, is on track to see revenue “north of $12 million” this year, he said.


A key to Kareo ‘s business plan is to help smaller medical practices work their way through what is expected to be a rapidly changing landscape on insurance and reimbursements as the healthcare reform law passed in 2009 takes full hold, according to Rodrigues.

“I think that they’re going to need (software) like Kareo … to help them make sense of that change, help them manage their practice through difficult times,” he said.

The focus on small practices is a big market, according to Rodrigues, who said that groups of between one and four doctors make up 60% of the market

Kareo’s software manages both administrative and financial tasks, including scheduling appointments, verifying insurance benefits, managing patient records, sending insurance claims, billing and generating financial reports.

Kareo also sells its software to third-party medical billing companies. Many doctors use third-party biilers on an outsourced basis.

The software is sold online via a monthly subscription. It has levels of security akin to online banking. Its website also includes demonstration videos and pricing information.

Competitors include Athenahealth Inc. of Watertown, Mass., and AdvancedMD, a unit ofRoseland, N.J.-based Automatic Data Processing Inc., or ADP.

Rodrigues raised an initial round of funding for Kareo in 2005 from Halsey Minor, a technology entrepreneur and investor who is perhaps best known as the founder of CNET Technology Inc., now CBS Interactive. Minor invests via Minor Ventures in San Francisco.

“He put out a very entrepreneur-friendly term sheet,” Rodrigues said. “I decided to end up working with Halsey.”

Even then, Rodrigues said that there were some “early tests and challenges” with Kareo, including a move to change its primary market to small doctors’ groups and solo practices rather than billing companies.

“We also went through a lot of pains getting the training and support model right,” he said.

Lean Times

Later on, Kareo had to make itself over a bit when Minor Ventures withheld some funding. Rodrigues stopped taking a salary, and the company cut its work force by about twothirds to seven. It moved to a small executive suite in a bid to preserve its cash.

“Instead of raising additional capital, we just hunkered down and focused on the basics, good cash-flow management,” he said.

Rodrigues said it reached profitability in 2008.

OpenView bought out Minor’s stake in Kareo last year.

Rodrigues – who was raised in North Orange County and attended the University of California, Los Angeles – is a serial entrepreneur.

He started and ran Scour Inc., a dot-com startup that was a precursor of sorts to Apple Inc. ‘s iTunes, in the late 1990s. Scour allowed consumers to search the Internet for free online music and video files.

Scour raised more than $12 million from some high-profile investors, including onetimeHollywood super agent and former Walt Disney Co. boss Michael Ovitz, as well as supermarket magnate Ron Burkle.

But Scour eventually went south amid the dot-com bust and a flurry of lawsuits by entertainment companies. Its assets were sold in 2000 to CenterSpan Communications Corp. of Hillsboro, Ore.


Later on, Rodrigues established an Internet consulting firm that grew to have about 10 engineers and started doing work for various businesses.

“One of the projects we took on was building an Internet-based medical system for a company that outsourced billing (for) doctors’ offices, and that was really my entry into healthcare,” he said. “It was a pretty big transition for me, and I was actually really fascinated by the world of healthcare.”

Rodrigues: latest $10 million came “on very favorable terms.”