Easy Rider: Circulation Case Study

The sale of Circulation, which was a Flare Capital portfolio company, closed two weeks ago. The company successfully deployed a leading patient-centric transportation exchange for non-emergency medical rides (“NEMT”), leveraging a virtual national transportation provider network anchored by Lyft and Uber. This announcement was concurrent with CareMore Health’s announcement of the results from its two-month Lyft pilot, which were nothing less than startlingly positive. CareMore is an integrated health plan with over 100,000 members; the cost savings were so significant that they were able to offer 28,000 rides at no additional cost to the plan. Rides were 39% less expensive with meaningfully shorter wait times and much greater member satisfaction.

NEMT

It was a terrific outcome for the team and investors. Flare Capital was the largest investor, having seeded the company less than two years ago. Upon reflection, there were a handful of critical elements to the Circulation story which may be applicable to other healthcare technology start-ups that are attempting to scale in these complicated times.

  • An Unfair Advantage: Quite clearly the founders and team were special. It is an easy observation to make, and it is one that is often made too freely. But the Circulation team was unique. One of the co-founders (CEO, Robin Heffernan) and I had worked together multiple times over many years. The other co-founder (John Brownstein, Chief Innovation Officer at Boston Children’s Hospital) had a deep understanding of the clinical need, and as importantly, was Uber’s healthcare advisor, affording him a privileged set of insights and relationships that were unrivaled. The CTO and third co-founder (Jared Hawkins) is a rock star, who built a product on-time, below budget. This was clearly a unique asset of the company and one that no other emerging competitor has. And they had been successful together in a prior company.
  • Enormous Market Opportunity: The NEMT market is estimated to be $6 billion. It is hard to build a big company in a small market. And there were no shortages of use cases for the Circulation platform once it was operational. One of the great frontiers in healthcare is the home and Circulation nicely “connects” the home to the healthcare system. NEMT is also a market in transition. Legacy transportation brokers are under siege by the “gig economy” players like Uber and Lyft, and are looking for greater functionality in their products, which led to the next success factor.
  • Contextual “Moment in Time”: In addition to the NEMT market being in transition, there were a number of adjacent developments which underscored and validated the power of a virtual transportation and delivery network like the one Circulation built. Transportation, delivery and logistics are being redefined in every sector. A cursory review of the business headlines quickly confirms that: SoftBank’s announcement with Toyota to deliver healthcare services and meals to the aging population in Japan in self-driving vehicles; Amazon just announced the purchase of 20,000 vans to build a captive delivery network; Walmart launched Spark Delivery, its response to Amazon; Careem, the largest transportation provider in the Middle East just raised $500 million and acquired Commut in India; then rumors spread that Uber was going to acquire Careem; and, Grab, a leading provider in Southeast Asia, announced the NEMT rides was one of its fastest growth categories – and that was all just in the past few weeks.
  • Role of Strategic Investors: Perhaps most particular to healthcare, strategic investors can be powerful advocates and sources of product validation when they are an early investor in a start-up. Often there is a perspective to engage strategic capital later in the journey as a way to price a growth stage financing. Circulation wisely included five leading strategic investors in the Series A, all of which brought unique use cases to the company. In fact, one of them pre-emptively acquired the company. Embrace the strategics.
  • Business Model: Flare Capital tends to gravitate toward business models that lower costs in the near term (months or quarters) on a fully attributed basis, as well as improve quality and outcomes in the medium term (few years). This is by no means a hard and fast rule but companies that can claim success along those two dimensions, in healthcare, are able to raise significant additional capital at attractive valuations. Circulation clearly addressed both of those conditions. Furthermore, the revenue model aligned well with customers and contemplated a value sharing component. Additionally, the product and commercial milestones were well-understood and straightforward.

Uber Cool

  • “Be Cool”: Circulation was a “buzzy” company, in large measure due to its partnerships with Lyft and Uber. There is a very clear sense of mission, which made recruiting easier and built great culture. Who cannot be excited about disrupting a massive market and in the process drive down missed appointments from mid-20% to low single digit percentage points. Or get the frail and elderly better connected to the healthcare system.

Interestingly and not immediately related, there was other news in the transportation sector that should be considered in many of the emerging “gig economy” businesses. Fortune magazine recently published the results of a J.P. Morgan Chase Institute study which concluded that over the past five years ride-hailing drivers’ monthly income dropped by 50% to an average of $762. The success of many of these companies have been, in part, predicated on unnaturally low labor costs. At a time when Amazon just increased its lowest minimum wage to $15 per hour, and with unemployment below 4%, there will be pressure on transportation providers to service more valuable rides like those in the NEMT sector.

1 Comment

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One response to “Easy Rider: Circulation Case Study

  1. robmccray

    Michael – I also commend the founders on recognizing the right time to capture a return for themselves and their investors.

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