EHR Company Funding Risks – Seed Funded EHR Companies

In my post called The Current Health IT & EHR Bubble a good conversation was started about the way EHR companies are funded and how many of them are at risk of running out of money. Obviously, this should be a concern to anyone selecting an EHR software. Once an EHR company runs out of money, it’s almost never pretty for their users. The EHR software is usually sold to a larger EHR vendor or other EHR competitor and you can imagine which EHR that vendor chooses to sunset.

Here’s a look at how I define the various funding for EHR companies and the risks associated with each EHR funding situation: Seed Funded, Well Funded, Positive Cash Flow, Large EHR Company, and Large Company Backed EHR. I’m sure some of these categories could be divided other ways too. Plus, some EHR companies fall into the middle of 2 categories. However, hopefully you can use these categories to get an idea of how the EHR software you have or are looking at getting is positioned as far as EHR funding.

Over the next couple weeks, I’ll take each category (Seed Funded, Well Funded, Positive Cash Flow, Large EHR Company, and Large Company Backed EHR) and discuss how I define each category and some of the characteristics and risks associated with each type of EHR vendor. First up is Seed Funded EHR companies.

Seed Funded EHR Companies
This is the relatively new EHR company. In most cases, these EHR companies have a very small set of basically beta EHR users. Most people see these companies as the most risky and that’s probably true. Small funding and small user base means you have less revenue and less cash in the bank. However, most of these companies also have smaller staff and burn through money much slower than large companies.

The question with seed funded companies is can they get to either the next round of funding (the more likely option) or enough users before they run out of money. This is often a hard question to answer. In the current EHR investment market, it seems most EHR companies in this stage have gone and gotten the next round of EHR funding while the funding market is good.

Some physicians love these companies. As one of their beta users, your feedback is heard and incorporated into the product. Plus, it’s exciting for many of us to see something build out over time. This is particularly true when the small EHR software company is doing something innovative and unique. The good part for the EHR market is that if a company like this runs out of money, only a few practices are affected. Plus, those practices that are affected usually knew what they were getting into when they chose the small EHR company.

If a seed funded EHR company is able to build a user base with just their seed funding combined with some good boot strapping, a number of them will be able to kick and scratch their way to profitability with a much smaller group of customers. Although, once they do that, they move from this category into the Cash Flow Positive category of EHR companies

Next up, we’ll look at Well Funded EHR Companies. Read all the posts in the EHR Company Funding Risks series.

About the author

John Lynn

John Lynn

John Lynn is the Founder of the HealthcareScene.com, a network of leading Healthcare IT resources. The flagship blog, Healthcare IT Today, contains over 13,000 articles with over half of the articles written by John. These EMR and Healthcare IT related articles have been viewed over 20 million times.

John manages Healthcare IT Central, the leading career Health IT job board. He also organizes the first of its kind conference and community focused on healthcare marketing, Healthcare and IT Marketing Conference, and a healthcare IT conference, EXPO.health, focused on practical healthcare IT innovation. John is an advisor to multiple healthcare IT companies. John is highly involved in social media, and in addition to his blogs can be found on Twitter: @techguy.

6 Comments

  • Cannot agree with you more; I am impressed by the way you chose the topics and the knowledge/research on each of these topics. The categories are mostly right although some might straddle couple of categories. There is enough room for a few EMR companies to grow and transition themselves into Health IT Solution providers including PHR, Physician Portal, HIE and so on. Constant innovation is the key to staying current and that requires investment either through positive cash flows or external funding. These are exciting times and we are lucky to be at the right place at the right time.
    Not many industries or opportunities come along with a government/regulatory body mandate combined with incentives. Its a great opportunity; once in a lifetime opportunity I should say. Through my journey, I had come across some good EHR companies started by talented individuals in the early 2000; many of them shut down prior to the mandate and incentives for lack of adoption by Physicians.
    Compared to those times, the current state of affairs are much better.
    And the investment climate for the Cloud Based EHRs are not that bad and I am sure we’ll see quite a few companies disrupt the status quo.

  • Great stuff as always, John. Checking Hoovers is the new first step to selecting a EMR vendor. Many vendors are folding quicker than the USFL or World Football Leauge did. Just too many vendors and not enough buyers to go around. It will be marketing, not features and fuctionality, that propels one EMR over another.

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