MedeFinance began as a vision to solve a common set of challenges facing healthcare financial professionals in 1994, and launched as a company in 2001 with the release of on-demand analytic software and services for improving financial performance in the healthcare industry. The six-year journey to launch and four-year processional that followed were paved with lessons that can serve as legitimate guidelines for building a successful venture the old fashioned way - bootstrapping through the early years.

We initially opted to take a modest sum of angel investment and instead relied primarily on real customer revenues. This was a novel concept in the late nineties, but one that my 20 years of industry experience assured me would offer the most opportunity, flexibility, and ultimately guarantee the founders could maintain the largest stake in the company.

While the journey took a bit longer as an "accountable" business that actually relied on customer revenues to pay the bills, we realized the success of our bootstrapped path in 2003 when MedeFinance revenues hit $5 million. At that point, we recognized that it was time to raise growth capital if we were going to efficiently scale our sales and marketing organizations - necessary steps for growth.

Within the 24 months following our first venture round, MedeFinance grew into a $30+ million run-rate with all recurring revenue. A key to theour success was raising "smart" capital from experienced investors to finance scaling the business. In addition, we recruited the necessary executive talent to steer the company in the right direction. By using our resources wisely and taking a patient approach to building the business, MedeFinance is now on a clear path to success for its shareholders. During our journey, we identified three important guidelines for successfully bootstrapping a company.

Guideline #1: Before starting a business and taking capital, validate your products with real customer pain

Through my own personal experience, I came to realize that the healthcare system was a large market riddled by dysfunction and a broken claims management system. I started the prototype of MedeFinance to streamline claims administration, however, as with most businesses, the plan evolved as the company began to work with customers to identify their true pain points. Thankfully, we had not raised any venture capital at the early stage of the company, so we had the flexibility to shift directions. My expenses were low enough that we could appoint adequate time to honing on real market needs.

We went through several iterations of the company over the next five years before hitting the winning formula. It was largely a game of trial, error and, eventually, success. Thankfully, because we were not tempted by too much early-stage capital in the beginning, I had maintained the largest equity stake in the company.

The big win for MedeFinance came in 1998. Customers were lukewarm with regards to the claims management business. In fact, we began to see the market as one with declining margins and undergoing heavy consolidation. So we looked even closer and learned that customers did have a keen interest, but in a different area: analytics platform and business process improvement solutions. We quickly responded to market demand and revamped the entire company focus. In the last seven years, we've seen revenues increase by over 100 percent annually.

Guideline #2: Bootstrap for the right reasons, raise capital for the right reasons

MedeFinance raised "friends and family" money that kept the company floating through 1998. This patient capital enabled us to be a nimble company during our formative years. We raised another $500,000 in seed money following the change in direction to a company focused on analytics. During this same period we were able to obtain and retire early $1 million in debt from investors and trading partners. However, as we approached our 10th customer and revenues hovered at $5 million, we quickly realized that we could not scale without more resources and support.

Now, bear in mind that I didn't really feel like we needed the money. We had $1 million in profits and $2 million in cash on the balance sheet. What we did need were smart resources. We needed a strong management team and board that could help grow the company into a $100 million business. I also wanted some liquidity. To scale the business the way we were going to grow it would require more risk, and I wanted to diversify some of my holdings. We also needed cash to grow aggressively, win major deals with partners, and potentially do some acquisitions. It was clear to me that it was time to raise some capital.

Guideline #3: When you decide to raise capital, find good partners to help grow your business

I knew that the right partners, especially our investor, were key if MedeFinance was going to get there with skin in the game. We worked with a consulting firm, Nucleus Partners, to help us present our story and the right information to potential investors. Sal De Trane, a partner at Nucleus, did a great job in making the right introductions. In fact, I liked him so much that today he is MedeFinance's VP of Finance and Corporate Development and a key member of our team.

We looked at almost a dozen venture capital firms and received interest from several investors before narrowing the field down to just two. In the end, we went with the team that we felt would add the most value as board members, a firm that specializes in working closely with bootstrapped companies - Kennet Venture Partners.

We selected Kennet because they knew how bootstrapped businesses operate, and they understood our motivations and desires for partnership and growth. We also trusted that they would spend time advising and helping us to scale the company, providing resources even beyond capital. These resources have been essential to our growth.

Post Investment Results

Hindsight is always 20/20, and in our case we are fortunate that our early vision has led to a great outcome. We have launched many new products and hired several key executives that would have been impossible had we not received outside capital. Moreover, bootstrapping enabled me to retain enough equity that even after the financing I was a major shareholder.

Since raising our Series A round, business has been on a steady growth curve. We have attracted some excellent board members and the executive team has tripled. Our new corporate leaders have made invaluable contributions toward the success of the company.

Perhaps the biggest post-investment change that I have witnessed has been the pace of change in the business. Given our growth objectives, we are in a perpetual state of hiring people to match demand. Perhaps the most rewarding change has been moving from the old model where I "led the charge" on most initiatives, to working with a great team who can independently manage themselves and collaboratively manage the company.

MedeFinance still faces challenges like any business. However, challenges aside, we are a profitable company with a large backlog and a future that predicts revenue growth continuing at the current rapid pace through next year and beyond. Take it from me, patience, hard work, and determination can pay off if you don't lose your vision and you seize the opportunity to finance for growth when the time is right.


Jim Quist is chairman and CEO of MedeFinance . He brings to MedeFinance over 30 years of successful entrepreneurship and business experience and 12 years dedicated to delivering value to the healthcare industry. Jim founded MedeFinance, Inc. in 2001 as a successor company to two Healthcare technology companies which Jim founded in 1994.