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Kareo: Bringing The Power Of the Cloud to Small Medical Practices

One of the biggest areas where the cloud is transforming business is in small and medium sized businesses--where suddenly, companies are able to leverage software which wouldn't be available, or are too costly for them to implement individually, but where the cloud access suddenly makes it affordable and easy. Irvine-based Kareo (www.kareo.com) is in one of those areas, serving small medical practices, and has turned that into a multi million dollar business with 325 employees. We caught up CEO and founder Dan Rodrigues to learn more.

What does Kareo do?

Dan Rodrigues: Kareo deliver cloud-based software for small medical practices, which we define as a medical practice of fiver or fewer physicians. Most of the solutions in our market are for lots of doctors, and are on-premise solutions, and are really designed for bigger physician groups and hospitals. We're laser focused on small medical practices. We're a one stop shop for clinical and financial management of their practice, including a cloud-based electronic health records solution, letting them manage all of their clinical information, and moving those paper forms to electronic form. We also have a cloud-based, billing and practice management solutions, which enables them to manage all of their internal financial processes, and we also have solutions for billing and cloud-based outsourcing of back office tasks.

What that means, in more simple terms, is we're able to help doctors with scheduling, medical billing, managing health records electronically, with a patient portal, and analytics--really a one stop shop for running their entire practice. It's easy to use, portable, quick to implement, and it's now being used by more than 20,000 doctors, which is five percent of the U.S. doctors in small offices. We use a recurring revenue model, where a customer pays us a few hundred dollars on average. We're generating tens of million in annual revenues today. All of that growth happened in the last three and a half years, and we now have 325 employees based here at our headquarters in Irvine. We've raised around $72 million now in equity capital.

How did you determine this was the market to tackle, and how did you get into this?

Dan Rodrigues: The genesis for the idea actually started in my last business, between the first company I started--which was an Internet startup--and Kareo. For a couple of years, I was the head of a boutique software consulting firm based in El Segundo. I founded that with the former CTO of my first company, Kevin Smilak, who now works at Google. We were small, and had about ten engineers, providing customer solutions for businesses in Southern California. We worked on all kinds of projects, including an online auction site for real estate, kiosks for airports, and music. We were hired by a company that did outsourced medical billing and consulting for physical medicine and rehab doctors. It started as a consulting project and was small in scope, mostly a mobile solution for doctors to keep track of patient visits. We then added a scheduling tool and document routing to handle all basic office tasks, and to interface with clients. As you know, any software project which start small in scope become much more substantial. So, we got to know the healthcare industry. I was really interested in the opportunity. I didn't know much about the healthcare industry, because most of our experience has been in the consumer software and the Internet space. But, coming into healthcare, we noticed three things.

First, this was happening when the economy was still in shambles, but healthcare was still growing by trillions of dollars, a fifth of GDP. That got my attention. As we began to learn the ins- and outs- of the reimbursement model and healthcare, and the complexity around that, we saw that there were lots of problems to solve in that space. As we got out to visit doctor's offices, and saw the technology, it seemed like they were ten years behind. That really caught my attention, because there was lots of problems in the market to be solved, and the whole market was still behind the curve. It's the last major, huge industry in the U.S. that has really yet to be transformed and disrupted by technology. So, I decided to leave consulting and start Kareo.

It looks like you have quite a bit of venture backing. How are you backed?

Dan Rodrigues: Yes, we've raised around $70M in venture funding to date. The three primary investors are Openview Venture Partners, who were the earliest ones in. They're a Boston-based venture capital firm which as started by some ex-VCs from Insight Venture Partners. The second firm, is Greenspring Associates, which is a fund of funds. You may not have heard their name, since they're a fund of funds, but they're a limited partner in a lot of top, Bay Area venture funds like Bessemer, Benchmark Capital, and Accel. They are an LP, which is 75 percent of their fund, but they make direct investments for 25 percent . Their model is that by being an LP, they see the top performers and double down with direct investment. We also have a growth equity firm out of New York, the Stripes Group, which is run by guys like Ken Fox, and his partner, Dan Marriott. Ken was one of the founders of Internet Capital Group, and Marriott was an operator at IAC.

You started on the Internet/consumer side with Scour, how'd you end up on the enterprise/corporate software side of things?

Dan Rodrigues: It was a a really interesting transition I made. My first couple of opportunities of out of college, I worked as a software developer at Visio, the business diagramming tool at Microsoft which is now part of the Office suite. At RealNetworks, I worked on streaming video. When I started Scour, I saw the growth of the Internet era, which was a fun opportunity to see the impact on a user base of millions. When I segued into the consulting businesses, and working with smaller businesses and B2B applications it was a very interesting transition. You started to see what you were working on solve real, concrete business problems, and you could see that they were the key workflow in their business, and the importance was much higher than consumer solutions. It was interesting going through that transition, because the customer we served, small businesses, relied on our platform to run their business for 8-10, to 12 hours a day.

On a completely different note, we see that you were at Scour with Uber's Travis Kalanick in another industry, do you ever think about your divergent paths?

Dan Rodrigues: Travis and I are good friends today. We went to college together at UCLA, and he was one of the early guys at Scour. We've kept in touch, and he's actually a small investor in Kareo. He and I talk, and I've been very impressed with their success. He really has seemed to have caught lightning in a bottle, and I congratulate him all the time for the success he is seeing. Interestingly enough, the other co-founder of Scour I also keep in touch with is going to be joining up with Travis too. I actually remember talking with Travis, prior to Uber, when he was an angel investor. Uber was one of the opportunities he was seeding, and in the early days, he had a beta version of the Uber app he shoed to me, and he had me hire one black car in San Francisco to demo the concept. To see that success worldwide has been really awesome to see.

Back to Kareo--what's next for you?

Dan Rodrigues: We're focused on rapidly growing the company and innovating. We want to become the market leader to provide market solutions for small businesses, and create a big and valuable company. We see an important role, to help small businesses prosper, and make sure they can handle the dynamic and changing healthcare environment.

Thanks, and good luck!