Avelios Raises $31M to Revolutionize Healthcare | Sequoia

Avelios Secures €30 Million to Revolutionize Hospital Systems

A competitive effort is underway to develop a new wave of healthcare software, designed to supersede outdated hospital systems that haven't seen significant updates for years. Avelios, a startup based in Munich, Germany, is aiming to create a novel, comprehensive operating system.

Their approach leverages contemporary tools, incorporating AI and cloud-based services. The company announced on Thursday a successful €30 million ($31 million) Series A funding round, signaling growing traction.

Funding Details and Investors

Sequoia Capital is spearheading the investment from its London branch. Existing investors from Avelios’ initial seed funding round are also contributing, including High-Tech Gründerfonds, Revent, and a group of private investors.

While the company hasn't revealed its valuation, this funding arrives after substantial growth achieved with only €5 million in previous investment. Avelios currently serves 12 clients, all located within Germany.

Key Customer Acquisitions

Among its customers are prominent healthcare institutions, including Sana Kliniken AG, one of Germany’s largest private hospital groups.

The company also partners with the hospital affiliated with Ludwig Maximilians University in Munich and the hospital of Hannover Medical School.

Strategic Plans for Expansion

“Our team has demonstrated remarkable efficiency,” stated CEO Christian Albrecht in an interview with TechCrunch. “We benefit from a highly skilled engineering team, complemented by a dedicated team of 11 medical doctors.”

Albrecht, who established the company alongside CTO Nicolas Jakob and chief medical officer Sebastian Krammer, explained that the new capital will be allocated to further system development and expansion into new geographical markets.

Discussions are currently in progress with a hospital network in Spain, and Avelios is also evaluating opportunities in France and the United Kingdom.

Future Outlook

• Avelios aims to modernize hospital operations with its AI-powered platform.
• The Series A funding will accelerate product development and market penetration.
• Expansion plans target key European healthcare markets.

The Genesis of Avelios During a Pandemic

Avelios is pioneering a comprehensive approach to healthcare systems, targeting a market traditionally characterized by fragmented implementations. These existing systems, designed for specific functions, often require complex integration – frequently with limited success.

However, much like a health concern that begins subtly before escalating, Avelios’s initial vision did not immediately encompass the extensive scope of its eventual development.

According to Albrecht (depicted above left, alongside Jakob and Krammer), Krammer’s experience as a physician during the COVID-19 pandemic exposed the inherent deficiencies within the German healthcare infrastructure.

“He personally navigated hospitals, dedicating the majority of his time to manually tallying patients and subsequently submitting reports to authorities,” Albrecht explained. Following this, Krammer sought the expertise of Jakob, a former colleague, to explore the feasibility of developing a solution for improved reporting and enhanced trend analysis.

“Nico [Jakob] possesses significant expertise in software engineering and particularly in deep learning techniques,” he added. “Their initial efforts involved promising AI research, but they soon encountered a common obstacle: the inability of hospitals’ outdated systems to provide the necessary data for effective AI implementation.”

Albrecht, a previous business partner of Jakob’s, was then invited to assist in streamlining their development process. They quickly recognized that addressing one issue invariably necessitated resolving others – a parallel to the progression of a medical condition.

“We encountered a critical juncture,” he stated. “The choice was whether to address the ‘symptoms’ by creating a targeted solution layered onto the existing complexities, or to tackle the fundamental issues by constructing a completely new hospital information system?”

They opted for the latter, a significant undertaking, acknowledging the increased difficulty and extended timeline. This decision was rooted in the conviction that addressing the root causes would ultimately yield more comprehensive solutions, and subsequently position them uniquely to integrate advanced AI capabilities due to the availability of structured data.

After several years of development, Avelios successfully created an end-to-end system encompassing all administrative functions. This includes EHR (electronic health records), billing processes, clinical documentation, lab results management, patient portals, and collaborative environments for researchers and inter-departmental communication.

Beyond the impetus provided by the COVID-19 pandemic (which spurred government funding for system upgrades in Germany), several other factors have facilitated Avelios’s engagement with healthcare providers and subsequent contract acquisitions.

A key development has been a strategic shift by a major competitor, SAP. As one of the dominant providers in the legacy healthcare IT market (and other sectors), SAP is transitioning its $30 billion enterprise resource planning (ERP) business to a cloud services model.

This transition involves a move away from developing and supporting specialized, long-term solutions for specific verticals, including healthcare. Consequently, over 1,000 hospitals utilizing SAP’s legacy systems will require alternative providers during upgrades. (SAP currently recommends Avelios, among others, as a transition partner, and Albrecht indicated they are actively working to strengthen their position within this referral network.)

Furthermore, the growing demand for AI is playing a crucial role. Healthcare, like many industries, is not only embracing AI solutions but actively seeking them. However, effective AI applications require data that is properly structured and interoperable – a capability often lacking in legacy systems. This creates a compelling incentive for modernization.

Focus on Achievable Successes Attracts Investment

Initial contact with Sequoia Capital occurred through Revent, an early-stage investor in Avelios.

According to Anas Biad, a partner at Sequoia leading the investment, Avelios operated discreetly for four years prior to attracting attention. He expressed considerable surprise upon discovering the extent of their customer base, despite their low profile. “They successfully secured contracts with some of Germany’s largest public and private hospitals, which greatly impressed us and prompted a swift follow-up.”

The investor highlighted Avelios’s pragmatic approach alongside its ambitious goals. Complete system overhauls are rarely feasible for hospitals due to ongoing operational needs and substantial costs.

A 2022 cybersecurity report by the Healthcare Information and Management Systems Society (HIMSS) revealed that 73% of surveyed hospitals utilize “legacy” systems. This included 35% running Windows Server 2008, 34% on Windows 7, 25% employing legacy medical device operating systems, and 21% using industrial control systems OS.

Notably, the report also found that 20% of hospitals were still operating on Windows XP, with 19% using Windows Server 2003 and 19% utilizing Windows Server 2003 R2.

HIMSS emphasized that healthcare organizations often lack plans for the eventual retirement of these operating systems. “All assets have a finite lifespan, and organizations must proactively plan for their end-of-life,” the report stated.

Avelios has therefore adopted a modular strategy.

“We are able to integrate with customers in a phased manner,” explained Albrecht. This could involve initially providing software for documentation management, followed by billing solutions, and then patient portals – or any other sequence. “This is a capability that established legacy vendors cannot match, as they typically propose replacing one large, complex system with another, leading to the risky ‘Big Bang’ approach.”

He further elaborated that such large-scale replacements frequently encounter significant challenges and failures.

Key Advantages of Avelios’s Approach

• Modular Integration: Allows hospitals to adopt Avelios’s solutions incrementally.
• Avoids Disruption: Minimizes operational downtime during implementation.
• Cost-Effective: Reduces the financial burden compared to complete system replacements.
• Compatibility: Works with existing legacy infrastructure.

This strategy positions Avelios as a viable option for hospitals seeking to modernize their systems without incurring the risks associated with wholesale replacements.