Blue Cross Venture Fund Awards $5 Million To Software Vendor

Blue Cross Blue Shield Venture Partners, a $116 million corporate venture fund recently launched by 11 Blue Cross Blue Shield organizations participating in 14 states, has awarded funding to its first recipient, Initiate Systems, a provider of master data management software.

Initiate Systems, based in Chicago, on Friday said it received a $5 million investment from Blue Cross Blue Shield Venture Partners and Sandbox Industries, the exclusive fund manager of the Blue Cross Blue Shield venture fund, which launched in the summer.

The Blue Cross Blue Shield venture fund also is considering "lots of other deals" to provide funding to companies in the health care arena, said Paul Brown, managing director of the Blue Cross Blue Shield Venture Fund, based in Chicago. Other potential recipients of the fund's investments will include "emerging companies of strategic relevance" to Blue Cross Blue Shield health plans, Brown said.

Five Blue Cross Blue Shield health plans, including some not involved with the new venture fund, use software from Initiate Systems, which was founded in 1995 as Madison Information Technologies and was renamed Initiate in 2003. In addition to the health care and insurance sectors, Initiate Systems' sells its products to other vertical markets, including banking and hospitality.

For companies like Blue Cross Blue Shield organizations, Initiate's software "helps health plans get a handle on all sources of data from disparate systems and presents one truth to be sure you've got the identity of the right member," said Brown. Initiate's software features "algorithms that help reduce health claims that need to be handled manually," cutting administrative costs and improving efficiencies for health plans, he said.

Looking ahead, when it comes to choosing other companies to fund, "we've got a flexible mandate," said Brown. While the fund is open to providing money to "seed-stage to late-growth" companies, "the sweet spot are companies that have real products and services and customers, but aren't necessarily profitable yet," he said.

The fund's investment focus is on "a heavy dose of IT and technology," said Brown. The fund will look at providing funding to companies that offer technology or services related to "health IT, informatics, administration, back-office" processes, and needs of health plan companies. Other potential recipients could include software companies that provide "consumer-driven applications" to help patients make better health decisions, he said.

Despite the uncertain economic climate right now, the Blue Cross Blue Shield organizations involved with the fund are "excited about providing capital, as well as lending strategic value and market experience to companies of emerging and disruptive technologies in the health care space," said Brown.

Some of the Blue Cross Blue Shield organizations involved with the fund, such as Blue Cross Blue Shield of Massachusetts, have provided their own funding to companies in the past. The collective effort is part of a mission to lower costs, improve efficiencies, and provide consumers with information to make better health decisions, said Brown.

While Initiate received $5 million from Blue Cross Blue Shield Venture Partners, "the typical size" of the firm's investment will range from $3 million to $15 million, said Brown.