Why Tundra Angels Invested in Cylerity

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This is the story how Tundra Angels invested in Cylerity.

Sometimes, deal flow surprises you at the most unexpected times.

In August of 2024, I attended a Midwest Founders Community event at a yacht club in Milwaukee.

As an aside, some VCs own yachts. Other VCs have friends that own yachts. Me? I just show up at an event and pay for a Chardonnay just to be near the yachts. 😉 

On a more serious note, I’m also grateful that Angela Damiani, Amanda Daering, Nick O’Brien, and the entire Midwest Founders’ Community team put these events together!

While at the event, I met a University of Wisconsin-Madison student, Aaryush Gupta.

Aaryush was about to graduate from UW-Madison with a double major in Computer Science and Data Science, and a minor in Business. Over drinks, he described the AI-enabled projects he was working on. He shared that he had been working with a company in the healthcare space that processes Medicare, Medicaid, and commercial health insurance claims; that the CEO was a repeat founder; and that they had recently graduated from CDL (Creative Destruction Lab) Risk Stream. He said they were finishing up their institutional fundraise.

As an investor, deal flow sometimes surprises you at the most unexpected times. This was one of those moments.

I was immediately intrigued and I said, “Wait, what’s the name of that company?”

“Cylerity”

I had never heard of it. “And where are you located,” I asked.

“We are in Madison.”

The thought that a repeat startup founder with healthcare experience who had a round closing in was what I needed to learn more. I exchanged business cards with Aaryush and asked to be connected to Ryan Wheeler, Cylerity’s CEO.

How Cylerity’s Initial Email Set the Tone

The first email from Ryan was well choreographed. In his intro email accepting the intro from Aaryush, Ryan’s also sent a longer narrative that was broken down into a few headings with details underneath. It gave a brief overview of the company in bullet point form:

• Problem:

• Solution:

• Headline Numbers: (featuring product traction, customer traction, and fundraise traction with specifics from specific investors)

• Economic model:

At the end, Ryan then threw out some times that he was available to meet via Zoom.

His email had this “no frills” feeling to it and got right into the meat of the company. I liked it a lot.

As an investor, when I look at a pitch deck, or had a passing conversation with an employee in this case, my understanding of what the startup’s current state of play may have embedded assumptions. Assumptions that often times are incorrect, except the investor do not distinguish what is truth and what our minds believe to be true. The email grounded me in the facts of what the company was doing, as well as further heightened my intrigue in the company and previewed the credibility of the founder.

At it’s core, Cylerity helps healthcare providers get paid faster. Their tech platform ingests Medicare, Medicaid, and commercial health insurance claim data, verifies the accuracy of the claims, and underwrites against the claims to advance working capital to the healthcare provider cash within 36 hours. 

Ryan and I proceeded to have a number of Zoom conversations. I then invited him to pitch to the Tundra Angels group. There was strong interest at the pitch. We then ran our due diligence process, took commitments, and invested in the company. Cylerity is our 20th company that Tundra Angels has invested in to date!

Primary Reasons Why Tundra Angels Invested in Cylerity

Non-Obvious Insight: Turning Medicare, Medicaid, and commercial health insurance claims into an asset that could be precisely valued and lent against.

Exceptional founders start with the problem and work backwards. Ryan looked at the facts:

• Providers of reimbursed medical care often wait 30-120 days to be paid by Medicare, Medicaid or commercial insurers. This creates massive cash flow issues for a healthcare provider. 

• Yet, Medicare claims are backed by the U.S. Treasury, just like a U.S. Treasury bond. Medicaid claims are jointly backed by the state balance sheet and the US Treasury.  

• So, if Medicare and Medicaid are backed by the U.S. Government, and commercial health insurers have ample cash reserves, why is there a time lag? Due to the long processing time to adjudicate the claims.

Taking all of those facts together, Ryan realized that if he could use AI to process and precisely value medical claims, this would create an asset class that financial institutions could lend against!

This would give lending institutions the confidence to lend against the claims that they know will be paid out, and allow financial institutions and Cylerity to earn a fee on the spread.

Just as non-obvious insights are, it was a, “Oh my gosh. That’s the future” moment. (Click here to see my article on non-obvious insights.)

Now, I often am super impressed by the surface area of a founder’s solution. Sometimes I play Devil’s advocate and ask myself, “What could have this solution been instead?”

Suppose Ryan were solving a different problem, not regarding cash flow, but the problem of incorrect Medicare claims. Ryan could have developed a SaaS solution that would use AI to take in Medicare claims and give insight to the healthcare provider on where they are leaving money on the table by identifying which claims are being processed incorrectly. He could have sold that to healthcare providers.

Would that be a need? Yes, definitely.

But, would that have been the best use case for the technology? No.

It’s not worth for a startup to solve a mediocre problem. Startups need to solve a Category 5 Hurricane-level problem. If the problem you are solving is not scorching the earth of your customers, you need to find another market problem. See my article here on the depth of market problem.

De-Risked Technical and Market Risk: A Founding Team that was it’s own MVP

Thus, Cylerity not only had de-risked itself technically, but the founders and early investor used their own funds to de-risk the company.

There is a lot of complexity to Cylerity’s model. For complex solutions like this one, my line of questioning targets the risk across these categories such as technical risk, market risk, regulatory risk, etc.

When I met Ryan for the first time, it was clear that Ryan had already crossed several bridges of risk. Several billion dollars of medical claims had already been processed and those insights were successfully adding value to customers. (See Asymmetric Intel section). That is, they didn’t lead with, “Trust us, I think we can do this for Medicare claims.” 

Additionally, Ryan and a small cadre of investors had supplied funds to essentially act as their own credit facility to advance funds to healthcare providers. 

Taken together, this gave our investors confidence that Ryan could do what he said he would do. Because they had already processed billions of dollars in claims and advanced millions of dollars of his own funds to prove the model worked.

Asymmetric Intel: A Customer Reference with a Key Insight

In any due diligence process, I’ve found that there is often one or two key insights that make an investor have conviction that this is why this startup is worth investing in. I got one of those moments in a customer reference conversation in our due diligence process.

I asked Ryan for a connection to one of Cylerity’s early customers. Ryan put me in touch with Lisa. Lisa ran a healthcare provider that billed health insurers for reimbursed medical care. It was a great conversation. But, one piece surprised me… 

I asked Lisa how her company started working with Cylerity. Lisa went on to describe that they would have been working with Cylerity earlier, but their data was not quite ready. That was an odd comment.

But Lisa went on to reveal that Cylerity’s technology identified that her company was billing some healthcare claims incorrectly, leaving a lot of revenue on the table and exposing them to compliance risk. Lisa had no idea this had been happening. She used Cylerity’s intelligence to address this issue with her billing team and rectify it.

With this comment, the scope of Cylerity's value proposition suddenly expanded in my mind. It suddenly was an end-to-end solution for healthcare billing, way beyond the already-incredible value of the advanced funds for working capital. That was a “Wow” moment.

I went on to also learn that Cylerity not only flags improperly coded claims but furthermore acts as a source of truth for the latest payer policy updates. In doing so, it flags claims that need to be resubmitted due to recent policy changes that the provider’s billing team may have missed.

Ultimately, we saw that Cylerity acts as the immediate source of truth for how Medicare, Medicaid, and commercial health insurance claims should be billed. 

This solution isn’t just about advancing working capital. It’s a fundamental need for anyone who bills in healthcare, period.

Business Model: A Waterwheel on the River of $4.5 Trillion of Healthcare Payments

I don’t think many founders appreciate how business models are one of the most powerful forces in business. See this article that I wrote about business models.

✅ The right business model in the right market can be a check-mate move, very quickly. ✅

As we analyzed how Cylerity was getting to market, I initially assumed that they were trying to go one-to-one to the end customers, healthcare providers that bill to Medicare. As most of us know, healthcare sales cycles are a solid nine months best case scenario. It would identify building an targeted audience of CFOs at different tiers of customer types. It would likely require vetting with IT, and on and on.

But what startups often don’t realize is that there are other ways to address the market problem than just head on.

✅ I’ve seen that often some founders choose to attack the problem head on.

But sophisticated founders also look for leverage points both upstream and downstream from the actual problem dynamic. Then, they try to find a wedge to manipulate circumstances, align incentives, etc. of the actual problem dynamic to solve the problem. ✅

That’s the brilliance of Cylerity’s approach. Instead of going direct to the end user and selling to them, Cylerity goes upstream to the clearinghouses becoming an embedded partner. With a new value-add tool in their sales bag, the clearing house then gets their end customers to opt-in to the Cylerity solution. 

In so doing, Cylerity avoids the draconian sales cycles in healthcare. (To the contrary, Cylerity’s process is so polished that a qualified lead can progress through underwriting, contracting to funds advanced in less than 36 hours.) 

Additionally, by going upstream to the third-party clearing houses, Cylerity built a water wheel on a healthcare payments river with $4.5 trillion flowing each year.

Team: Ryans’ Earned Insight and Experience

A problem as complex as this cannot be solved by outsiders. Cylerity had right team clearly in place.

Ryan has founded, worked at, and angel invested in startups across all aspects of healthcare—from supply chain, revenue cycle, tele-rehab, tele-diagnostics, Insurtech, prior to co-founding Cylerity as an embedded Fintech. He had raised more than $40 million in venture capital previously. He had startup execution nailed. 

His co-founder, Bill Lanzen, ran a large healthcare payments group for Chase in New York City, understanding cash management policies and practices adopted by one of the most respected banks. His third co-founder, Kenneth Penkowski, an architect by training, brings a Zen aesthetic to the product's financial reporting.

Closing Thoughts

I love startup investing in general. But with some investments, you’re helping the good guys win. We’ve likely all seen news reports of hospitals or healthcare systems shutting down due to cash flow challenges. That’s so unfortunate.

Since closing on the investment, I’ve elevator-pitched Cylerity to different people in my network. I’ve been met with a resounding, “Oh my word, that’s a huge problem in healthcare. That’s an amazing solution.” It feels euphoric to invest in companies that are solving problems that society is broadly aware of.

Cylerity has layers of complexity involved in their solution to solve the working capital challenge in healthcare. But there is also a level of beautiful simplicity.

It’s not changing anything about Medicare, Medicaid billing, etc. It’s using the data to re-frame how these claims are viewed in the eyes of lending institutions. In so doing, it transforms something that has always been an asset, healthcare accounts receivable, into an asset class.

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