Kareo Raises $15 Million In Debt Financing

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Irvine, CA-based practice management vendor Kareo announces that it has raised a $15 million debt financing round provided by Escalate Capital Partners. After launching in 2004, the company became one of the first to offer a free web-based EHR system, competing alongside other freeware EHR vendors like Practice Fusion, Hello Health, and OpenEMR. Kareo differentiates itself from the others by offering an advertisement-free EHR system that comes with both desktop and tablet apps, customer support, and online training. Rather than monetizing from ads or upfront licensing fees, Kareo generates revenue by selling premium add-on services to complement its core EHR. The company sells both billing and practice management solutions that allow practices to automate all aspects of their operations within the Kareo platform.

As consumers become increasingly more aware of how heavily data is used to deliver target advertisements, the “premium services” monetization strategy has had a resurgence as of late. Last year, analysts saw revenue generated from freemium services double on the iOS ecosystem, and triple in Android’s app store. A separate study compared revenue returns between companies charging upfront licensing fees and companies operating under freemium business models. The analysts found that freemium startups had generated more revenue by the end of their second year in business.

While the strategy works for some business types, Kareo  seems to be struggling to reach financial sustainability. The latest funding round is its ninth, following a $30 million Series G round raised in January 2014. In total, the company has raised nearly $100 million in funding since its 2004 launch. However, like other freemium businesses in recent years, momentum seems to be shifting in Kareo’s direction. The company reports that it has realized a 550 percent increase in revenue over the past three years, and that it is expanding its customer base by 500 providers per month. Most of this new business is likely attributed to the kickoff of the Meaningful Use EHR incentive program in the US, rather than the growing consumer acceptance of freemium business models, but time will tell once Meaningful Use-related revenue dries up and Kareo has to maintain its new momentum on its own.


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