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New seed fund aims to make Indiana a hotbed for digital health startups

May 4, 2013

Betting that digital health will produce the next wave of breakthrough innovations, two Indianapolis entrepreneurs are working to raise a $2 million investment pool and form a series of partnerships to make Indiana a hot spot in the space.

Kristin Eilenberg, a former Eli Lilly and Co. executive, has teamed up with Michael Cloran, the former CEO of Boston-based Interactions Corp., to launch the Infuse Accelerator.

Eilenberg Eilenberg

Indianapolis-based Infuse will make “seed-stage” investments in 12 to 15 digital health startups every year and run them through training and testing inside an 8,000-square-foot office next to DeveloperTown, a business incubator in Broad Ripple.

Their timing is pretty good. Venture capitalists poured $1.4 billion into health information technology companies last year and look to put even more money in this year.

There’s a confluence of factors driving that interest. The 2009 federal stimulus bill included billions of dollars in incentives—and the threat of reduced future funding—to get doctors and hospitals to digitize their medical records.

The 2010 health reform law and budget challenges since then have threatened to squeeze payments to doctors and hospitals—which has forced them to turn to information technology to become more efficient.

At the same time, the enthusiastic embrace of iPad tablet computers by doctors, improvements in wireless networking, and new kinds of software make the potential for digital health businesses greater than ever.

“In the last five years, you’ve seen the advance of all the necessary technology tools,” said Cloran, a founder of DeveloperTown who will work part time at Infuse as a coach to startups.

The Infuse Accelerator will solicit large life sciences companies, hospital systems, universities and health organizations for real-life problems they’re struggling with and then put money and know-how behind teams of IT entrepreneurs to solve those challenges. A second way the accelerator will work is to help entrepreneurs with promising ideas to connect to large organizations that can help them scale up.

Once a digital health solution is ready, the large organizations would commit to try the solution on a broad scale within their organizations.

Cloran Cloran

Eilenberg and Cloran hope the scale of the large organizations helps overcome the challenges presented by Indiana’s small marketplace. The only partner officially signed up so far is Angie’s List, which wants to offer digital health programs to complement and expand upon its health care rating service.

Eilenberg and Cloran figure that if digital health solutions get created and scaled up here first, Indiana companies have a better shot at raising further capital and making their solutions successful nationally and globally.

“We want people to run after this like they run after the X Prize,” said Eilenberg, CEO of Infuse, who also runs her own consulting firm called Lodestone Logic. But, she added, the support of the accelerator should help make more of the companies successful than they would be on their own.

“We’re trying to address the problem of many companies not succeeding because they don’t have support,” Eilenberg said.

Infuse plans to make investments of $115,000 in each company it selects, in exchange for a 13-percent ownership stake. Each company will pay Infuse $40,000 of that grant for the accelerator’s services.

Infuse also can make $100,000 follow-on grants once a company graduates from the accelerator.

Each of the Infuse companies will be housed in the accelerator for six months, with the first crop set to start in January.

In 2000, Eilenberg was part of the founding team of the eLilly division inside the Indianapolis-based drug giant. She later founded Maaguzi, which developed software for drug researchers. It was later sold for $11 million.

Cloran founded Boston-based Interactions Corp. in 2002 to provide virtual self-service customer-care solutions for large companies. Interactions raised $35 million in venture capital before Cloran left in 2009. The company still maintains an office in Carmel.

David Johnson, CEO of the Indianapolis-based life sciences development group BioCrossroads, said Infuse will finally help fill a void in Indiana of digital health startups—even though the state has significant health information technology assets, such as the Regenstrief Institute Inc. and the Indiana Health Information Exchange.

“What we were missing were the startups, the HIT-related startups, that were pretty common in a lot of other places,” Johnson said. “That’s what Infuse is really designed to do. It’s a very attractive proposition for the community to have something like that.”•

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