100health Scraps Incubator, Pursues Redox, a Tool to Build Health Apps
Less than a year after launching healthtech startup incubator 100health in Madison, WI, the three co-founders have abandoned that business in favor of trying to turn one of the incubator’s ideas into a successful company.
Xconomy chronicled 100health’s inception in February. By August, co-founders Niko Skievaski, Luke Bonney, and James Lloyd had decided to stop operating 100health as an incubator. They cut loose six of the companies the incubator had helped form, Skievaski says, and started pouring all their efforts into growing the seventh—Redox.
The Redox technology is a cloud-based API (application programming interface) that makes it easier for software developers creating healthcare applications to securely access and incorporate electronic health records into their apps.
100health’s co-founders—former employees with Epic Systems, the electronic health records software leader based near Madison—have spent the past few months developing Redox’s software, drumming up potential customers, and pitching to investors.
100health recently closed a $350,000 seed funding round from a group of about 10 Madison-area angel investors, including Byron Frenz and Mark Bakken, who is leaving his post as CEO of Epic software consultant Nordic Consulting to start a healthtech venture fund. 100health has also applied for a $70,000 state loan, Bonney says.
With Redox, 100health is trying to solve a problem that vexes virtually everybody building Web-based software that interacts with electronic health records, Bonney says. “It was a problem that kept coming up” while working with the incubator companies, he says.
100health’s “goal has always been to lower barriers that impact healthcare IT entrepreneurs,” Bonney adds. “That’s still very much our vision.”
Meanwhile, some of the entrepreneurs the incubator helped are moving forward with their businesses, while others are “in a holding pattern” or have been scrapped altogether, Skievaski says.
100health’s co-founders struggled to make the economics of their experimental incubator model work, Skievaski says.
The idea was for 100health staff to research and identify healthcare problems that could be solved using technology tools. Then 100health would form startups that would build software to fix the problems. Its staff would serve as founding team members to help entrepreneurs develop the initial product, and the companies would pull from a pool of entrepreneurs in 100health’s network to further staff the startups as they grew.
100health didn’t intend to invest funds in its portfolio companies, instead taking a 5 percent equity stake for every four months that a startup remained in the incubator program, Skievaski says.
One of the problems, Skievaski says, was that 100health was working with companies at the earliest stages, meaning it could take years for 100health to see a return on its equity. “We don’t have a backstop of income to support us during this time period,” Skievaski says. “We thought we could raise money to do that.”
But as 100health started talking to investors, thorny questions were raised about how the investors would get paid when 100health portfolio companies exit, Skievaski says.
100health’s structure also didn’t provide enough incentive for the startups’ founders. “The founders we were bringing on the projects were seeing themselves as teammates on the projects, not leaders,” he says. “We were putting way too much time into” running the companies, “in comparison to a typical accelerator.”
“We realized this model was very fragile and kind of weird,” Skievaski adds.
At the same time, 100health’s leaders saw an opportunity with Redox. “We started seven companies. Five of those companies we realized would need to integrate with electronic medical records at some point in order to be successful, to have some sort of scale,” Skievaski says.
Once 100health decided to focus its attention on building Redox, the plans for the software-as-a-service business model and the strategy for winning customers and investors came together quickly, Skievaski says. “It was kind of just this moment of clarity that came upon our team all of a sudden. We knew we were on the right track.”
Of course, 100health wasn’t the first to have this epiphany. It’s getting into an increasingly crowded sector that includes big incumbents like Cambridge, MA-based InterSystems and startups like Moxe Health and, to a certain extent, Catalyze—the latter two also based in Madison.
“The market is big enough that we can all succeed in this,” Skievaski says. “We have a lot of competition here because this problem is so prevalent.”
Bakken—who has invested in 100health, Moxe, and Catalyze—agrees. “There’s such a need out there that there’s plenty of room for two, three, four, maybe even half a dozen [companies] with similar solutions,” he says.
U.S. hospitals and clinics have invested heavily in the digitization of medical records in recent years, driven in part by federal government incentives. Much of that data is communicated between healthcare providers’ various software programs using a system called Health Level Seven International (HL7).
The problem for healthcare app developers is that data—from scheduled doctor appointments to basic patient information—isn’t stored or communicated uniformly across health systems, Bonney says. “If you think of HL7 as a language, each health system kind of had its own dialect. They’ve tweaked and modified it over time.”
100health will set up a secure data tunnel between Redox and a given health system’s software, learning how that system’s HL7 language is different from others. Then it will translate the data into a format that’s compatible with app developers’ software, Bonney says. That way, the app developers “get data the same way they’d get data from a Facebook API or a Google API,” Skievaski says.
The plan is to hit the market with Redox around late January and sign agreements with 20 health systems in the first year, Skievaski says.
100health is working on ensuring Redox is secure, he says, which is always a top concern when working with sensitive patient data. 100health is consulting with healthcare security and legal experts, and the company has hired Brooklyn, NY-based Aptible to host Redox data, Skievaski says. Aptible specializes in cloud hosting that’s compliant with HIPAA rules.