What led you and Chris Seib to found your company, what problem were you trying to solve?
In August of 2003, the Medicare Modernization Act was signed. Working at Accenture and consulting with the Department of Treasury and the IRS, I was able to watch how this played out, from a front row seat, as the law went into effect. With the law, came Health Savings Accounts (HSAs). There had been other tax advantaged accounts before, but they had flaws that were addressed by the new HSA legislation. Chris and I saw these new HSAs as a game changer for how money flowed in healthcare, and we recognized the impact it would have on providers and consumers. We were sure that HSAs, combined with the trend of increasing deductibles, would increase consumer healthcare spending, and create a demand for a new, secure payments network.
Can you explain how your company has evolved since you started it in 2004?
The concept was to build a platform for the movement of money and information in healthcare. We spent the first 3-4 years building the technology platform, getting certification and compliance in place and registering with MasterCard and Visa.
The next step was going to market. We had to confront the “Chicken or the Egg?” question. We decided to focus on selling to providers first, so we established credibility and built up the provider side of the network. After getting through this first phase, we began pursuing payers. We were in a position to show them all of the providers they could interact with who were already on our network. We landed United and then won our first Blues plan.
Now we are in the next phase of the business, which we call the network phase. We are connecting consumers, providers and payers in new ways for the movement of money and information. We have providers, credible brand name payers, and have captured nearly 50% of the market. We are approaching a tipping point, where we expect to see adoption accelerate. We believe that in the next phase we will become the place to move money and information between payers and providers in healthcare. We have the advantage of being a first mover, which has put us far ahead in this space and allowed us to build a solid, reliable business that delivers great customer value.
What are some of the specific challenges you’ve faced as the company has grown and how have you successfully addressed them?
At its core, InstaMed is a financial services company and, more specifically, a payments company focused on healthcare. Although we have a sophisticated technology platform, we are not a healthcare IT company. This is an important distinction. Where most customers will grant some leeway to an IT delay, customers have no tolerance when money doesn’t move as it should. When the money doesn’t flow, for any reason, providers and payers can’t run their businesses. If you are a MasterCard or Visa, you have to be flawless. Commerce markets have no patience for hiccups. Security, compliance, and an added level of reliability are incumbent on a payments company and this is something we have had to over-invest in and stay ahead of since the beginning. Earlier in our history, back in 2007, this was a challenge we faced. One of the ways we overcame it was by getting an investment from U.S. Bancorp. They were able to walk us into MasterCard and Visa and get us registered and set up. This accelerated our go-to-market. To this day we are hyper-focused on security, compliance and reliability because a high bar has been set to become the MasterCard of healthcare.
What led to your decision to bring in an equity partner and what are the benefits of working with a group like Carrick Capital Partners?
Carrick had used their thematic sourcing approach to identify the best companies in consumerism and healthcare. That’s how we found each other. From our perspective, Carrick is in a sweet spot. They have enough capital and scale that they can be meaningful and get us to the next stage, but they balance scale and large access to capital with agility, flexibility, and hands-on business experience. We found a great fit with Carrick. Our current stage of the business, the networking phase, is really about sales and go-to-market execution. It is clear from the team’s background that they have an outstanding stable of resources who know how to sell because they have actually done it themselves. Their insights and experience are not limited to academics or previous investments. They actually did it. There is a big difference when you have the chance to learn from someone who has been there themselves. It’s one of Carrick’s many unique attributes that I really appreciate.
What’s your advice for other growing businesses considering private equity?
My advice is that getting the right partner is more important than any other provision on your term sheet. If you are looking at valuation or some other terms, don’t let that outweigh this in importance. Get to know everyone in the fund and get to know the other portfolio companies in the fund. The culture of that fund is going to present itself to you if you meet enough partners and portfolio companies. Start early and take your time. If you raise capital in a shotgun approach you are taking a chance and rolling the dice.
What are you most excited about at InstaMed?
I’m most excited about the phase we are in now and how we are at a tipping point. Network effects have been inherent in creating some of the best businesses in our lives, whether we are talking about PayPal, MasterCard or Visa. We’ve been carefully building our foundation one brick at a time, and as we are achieving significant scale, it’s getting very exciting. Our entire team of employees is thrilled to be a part of this.
Where do you see the business going, what is your vision?
Our vision is transforming healthcare into a nationwide marketplace where money and information flow seamlessly between payers, providers and consumers.