With New Debt Round, Madison Startup Kiio Passes $5M in Funding

Most people are familiar with the concept of performing a series of rehabilitation exercises after having surgery. But far fewer have likely heard of “pre-habilitation” exercise regimens, which are assigned to patients before they go under the knife. The idea has gained traction due to changes in how the government reimburses hospitals and clinics for the care they provide.

One startup seeking to position itself to take advantage of this growing trend is Kiio. The Madison, WI-based company develops software for healthcare providers and insurers that’s aimed in part at helping patients understand and adhere to physical and occupational therapy programs.

Kiio recently raised $600,000 in debt financing from seven investors, according to a document filed with federal securities regulators. The company has now raised a total of nearly $5.5 million, according to SEC filings.

Dave Grandin, who co-founded Kiio in 2011 and serves as its chief executive, says his company spent its initial years in research-and-development mode, and the new money will primarily go toward scaling up Kiio’s sales and marketing efforts.

“We’ve spent a lot of time building something that we know is attractive and desirable by a potential customer set,” Grandin says. “Looking forward, most of the funds that we’ll be raising will be for commercialization of the product.”

Kiio, which currently has 15 employees, plans to expand its sales, marketing, and customer service teams, Grandin says.

He declined to say which groups or individual investors participated in the debt round, but says “they were mostly existing investors.” Previous backers of Kiio include Wisconsin Investment Partners, a group of angel investors based in Madison, and Toronto, Canada-based International Capital Management, according to a 2015 report by the Wisconsin State Journal.

Kiio plans to raise another round of debt funding in the coming months, Grandin says, and then a larger round—$5 million to $6 million is the target range—which would likely involve one or more venture capital firms.

Kiio was formed as a spin-off of LifelineUSA, a company formerly based in Madison that sold exercise equipment. (Chicago-based Pivotal 5 acquired Lifeline USA in 2013 for an undisclosed amount.)

Early on, Kiio’s main focus was on creating sensors and software-enabled exercise cables, Grandin says. These bands were designed to be able to provide resistance while patients performed rehabilitative exercises, and give an indication of patients’ strength to their therapists.

Grandin says his startup has since changed course, however, and its software is now designed to be used in three distinct areas: rehabilitation, chronic care programs, and surgical “bundles.” (For the record, Kiio does still make hardware, but Grandin says “the focus is really on software.”)

The surgical bundles Grandin describes are part of a broader category, known as bundled payments, that the Centers for Medicare and Medicaid Services recently approved. The idea is for Medicare and other insurers to establish target prices for certain procedures—hip and knee replacements, for example—in advance, which in theory incentivizes doctors and those whom they work with to try to keep costs down.

The bundled-payment model took effect in January, but it is just one piece of a broad industry transition from fee-for-service payment models to value-based care.

Grandin says Kiio has been paying close attention to this shift, and he feels the company has an opportunity right now to get its software inside the walls of health systems striving to provide high-quality, low-cost care under the new rules.

He says that requiring a patient who is set to undergo a comprehensive joint … Next Page »

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