Outcome Health raises over $500 million

There was a time when Rishi Shah and Shradha Agarwal couldn't get anyone to invest in their idea to deliver health information to patients via TV screens in doctors' offices. Now they have to turn investors away. Their company, Outcome Health, raised more than $500 million from investors, led by Goldman Sachs, Pritzker Group Venture Capital and Google's parent company, Alphabet.

It's one of the biggest deals ever for a Chicago technology company.

When the deal closes in a few weeks, it's expected to raise about $600 million and value Outcome (formerly called ContextMedia) at $5.5 billion or more, the highest for any Chicago venture-backed company in the past decade, according to PitchBook, a Seattle-based research firm. The only company to raise more money in a single round was Groupon, which landed $950 million in early 2011 at a $4.8 billion valuation, not long before it went public.

Investors are paying a steep price for being late to the table at Outcome Health. The company topped $130 million in revenue last year and has an operating profit margin of about 40 percent. It's doubled sales in each of the past two years.

Raising rounds of $100 million or more from private investors is part of a recent trend among the most promising tech companies. Companies such as Uber and Airbnb have valuations approaching $100 billion but haven't gone public.

Shah and Agrawal were unique in Chicago startup circles in having built a profitable company to $100 million in sales with no outside capital. They retain control of Outcome Health, even after taking in the outsize investment. The financing puts the company on a path to a likely IPO in the next few years, but Shah says it's not the only option.

"It was really important to us to maintain our independence and governance of the business because Shradha and I are motivated by more than just profits," he told me.

Shah declined to go into great detail about the exact structure of the deal but said the investors will get common equity in "the company that will ultimately go public, which has an interest in our operating company." The terms "allow us to continue to be mission-led, and it protects the flexibility of the company to remain private or go public."

The Chicago tech community has long speculated about whether, or when, Shah and Agarwal would do a deal. They didn't have to do anything.

Many of the investors had been pursuing the company for a long time. Matt McCall, a partner at Pritzker Group, began mentoring Shah and Agarwal in 2008, when they were still undergrads at Northwestern University. Shah said he nearly did a deal with Google three or four years ago. Another familiar face was Christopher Dawe, co-head of Goldman Sachs Investment Partners' venture-capital and growth-equity team, which previously invested in Chicago-based SMS Assist and Networked Insights. Also among the backers, he said, are "public-side investors that principally own public stocks; a lot of health care systems and stakeholders."

The deal itself came about relatively quickly, Shah said. "That's the reason we took our first outside round of capital, to bring in investors who share our passion and believe in our mission," he said.

The 31-year-old doesn't lack for vision. He sees the company's core business growing to about 150,000 doctors' offices in the U.S. by 2020, up from 40,000-plus today. He estimates Outcome Health serves about 20 percent of doctors' offices nationwide. "I'm confident we can get to 70 percent," he says.

Outcome Health already had been growing fast when it bought AccentHealth, one of the big, traditional players in the space.

The acquisition made Outcome the largest player in the health care space for digital video networks outside the home, according to PQ Media, a research firm in Stamford, Conn. It's also one of the five largest digital network operators overall. Digital point-of-care networks are the fastest-growing niche, said Patrick Quinn, CEO of PQ Media. One of Outcome's advantages over many competitors, he said, is its ability to micro-target advertising based on location.

Now, with additional capital, it plans to grow faster. "Last year we've had many months in which we've added more than 1 percent of all physicians in a single month," Shah said. He plans to invest in international growth, new products, as well as other health IT companies and startups.

Shah's company started out in 2006, providing health-related video content to television screens in doctors' office. It later added tablets and large video displays in waiting rooms and exam rooms. Physicians use the content to educate patients about treatments for chronic conditions such as diabetes. Pharmaceutical companies pay to advertise alongside the educational content, which allows them to reach potential customers in a more targeted way. Outcome Health generally is able to show advertisers measurable increases in sales at those doctors' offices.

But Shah wants his company to play a much bigger role because it's at the intersection of patients, doctors and data. The company already is trying to better connect patients with clinical trials, which often struggle to locate participants. "We see a vision where every exam room you step into knows you and it knows your clinical data, knows your preference maps, and it has all available information," Shah said. "We just think that's going to be a great business. We think that's going be a very profitable business. But we're going to need to make a lot of investment to build it."

Massive​ Growth

The company has exploded in the past few years, doubling headcount last year from about 250 people to more than 500 before acquiring Accent, which had about 160 employees. It plans to move to a new 400,000-square-foot headquarters next year in River North.

Heady valuation aside, Shah and his investors talk about Outcome Health's potential scale in the context of Facebook. "They've built out this platform that could touch almost every single person in this country," McCall said. "The moment of truth is when doctor and patient are talking to each other. It really is exciting to think through what's possible."

If Outcome Health goes public at the scale Shah envisions, it also could be the sort of flagship tech company that elevates Chicago to the top-tier status it's been seeking since Groupon took off. "It has the ability to dramatically change the Chicago landscape," McCall said. "It's a tentpole-type of company. They want to take it public so it's iconic and around for years to come."

Even if it doesn't get that far, Outcome Health has moved the needle, said Ira Weiss, a partner at Hyde Park Venture Partners. "We need more $5 billion to $10 billion Chicago tech success stories. We have zero."

"Outcome​ Health​ raises​ over​ $500​ million"​ originally​ appeared​ in​ Crain's​ Chicago​ Business.