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June 17, 2008,
by volcanic

Ramping up for a high-value exit

MedeAnalytics was a fast-growing, bootstrapped business, whose founder decided that he could achieve far more with the right investment partner. When Kennet's US team came across MedeAnalytics, then MedeFinance, in 2004, it was a near-perfect fit with our investment focus. The company was bootstrapped and had a strong, ambitious founder at the helm. MedeAnalytics' software is used to analyse hospital invoice and remittance data to improve collections and shorten the healthcare payment cycle. This managed service addresses a huge source of lost revenue for hospitals - the gap between the fees they book from patients and what they actually collect from insurance companies. At the time of Kennet's initial discussions with the company in 2004, MedeAnalytics had just completed a year with $5 million in revenue. Kennet US partner Javier Rojas understood that MedeAnalytics was operating at the confluence of several exciting market trends. The company was using analytic software to identify operational inefficiencies, which customers perceived as having very rapid payback on investment. MedeAnalytics was delivering its software as a managed service which kept barriers to customer adoption low and increased revenue visibility. Finally, the company was addressing a key pain point in a healthcare market that was seeing rapid increases in overall spend levels. While the market drivers pointed to strong potential growth, MedeAnalytics also faced the typical challenges of a bootstrapped business:

  • While the existing management was already stretched, the company did not have the capital or the market profile to recruit a professional management team and board who would be able to lead it through the next phase of growth.
  • The company had a top-notch product offering, but its investment in the technology platform was limited to the excess cash generated from customer contracts.
  • Founder Jim Quist was seeking some liquidity for his shares so that he could feel confident in re-doubling his efforts to drive growth.

These factors created the perfect timing for a Kennet investment. MedeAnalytics' founder knew that smart money was key: "We selected Kennet because they knew how bootstrapped businesses operate, and they understood our motivations and desires for partnership and growth. We also trusted that they would spend time advising and helping us to scale the company, providing resources even beyond capital. These resources have been essential to our growth." During the relationship-building process, Kennet partner Javier Rojas demonstrated an understanding of how the needs of a bootstrapped business differ from traditional VC-backed companies. He also complemented the founder's level of ambition with an expansive view of how the business could increase its market opportunity by broadening its product portfolio. In addition, Javier showed how MedeAnalytics could raise its profile with potential acquirers and the public markets. In April 2004, Kennet invested $7 million, of which a portion was used to purchase ordinary shares from the founder and the remainder was used to fund growth. Javier joined the board and quickly set about working with the founder to improve the scalability of the business. Since then, Kennet has led board debate on key topics:

  • Improving sales force productivity - Javier is working closely with the founder to ensure that the company's sales force is productive and can scale to multiple territories across the US;
  • Strengthening the executive team - including the hiring of a VP Sales, a head of business development, and a head of finance & strategic planning;
  • Building a strong board of directors - including help in the recruitment of three non-executive directors with relevant industry and operational experience; and,
  • Keeping the entrepreneurial focus exclusively on healthcare - despite temptations to develop an products for adjacent markets.

Since Kennet's investment MedeAnalytics has become the market leader in revenue analytics for healthcare providers, and is leading innovation in financial analytics for health insurance companies. The company has increased its revenues by a factor of more than 10x and has successfully entered the European market.