An introduction to digital health
Just a few years ago, digital health wasn’t even a market. Now, it represents a significant source of innovation within the healthcare and venture capital markets. Rock Health and Startup Health, two organizations that have spearheaded the digital health revolution, both have kept track of digital health funding for the past few years. In the 2015 year, Rock Health reported $4.5 billion of venture funding entering the digital health space, representing 7% of total venture funding. For mid-2016, $2 billion had been invested in the digital health sector, which accounted for 8% of total venture spending. Overall, the previous two years were record years for digital health funding while 2016 has had moderate growth. The graph below shows year-end figures of digital health funding between 2011 to 2015.
In this article, we review changes in funding between 2015’s year-end and mid-2016.
Top digital health funding categories in 2015
The graph below depicts the top six categories that received a majority of digital health funding in 2015.
The top categories were healthcare consumer engagement, wearables and biosensors, personal health tools and tracking, payer administration, telemedicine, and care coordination. A notable entrant into top categories was payer administration, which entered rankings for the first time. As the Affordable Care Act goes into effect and health plans shift their business models to accommodate within a financially squeezed system, strategies and tools to track healthcare payments are a welcome innovation.
Other noticeable areas of funding growth are personal health tools and tracking, care coordination, and life science technologies. Investment in these growth areas may indicate an industry’s desire to cut costs, so digital health may play a key role in leveraging the care of the end-user through improved tools, communication, and coordination.
Top digital health funding categories in 2016
Surprisingly, the chosen categories of funding completely changed from 2015 to 2016. The top categories for 2016 were analytics/big data, wearables and biosensing, population health management, EHR/clinical workflow, and digital medical devices. Personal health tools and tracking was the only category from last year that made it to 2016’s list.
The majority of funding went to analytics and big data, which had secured $300 million by mid-2016. The unlocked potential of large-scale data science in healthcare attracts many investors, as having large sets of data for tracking and personalizing care may help drive down costs of chronic diseases like cardiovascular disease and diabetes. Sub-categories within the category such as artificial intelligence, deep learning, and machine learning will surely drive forward data analytics within healthcare.
Another popular category is consumerization, as two of the top three digital health unicorns—23andMe which provides personalized DNA results and ZocDoc which is a medical scheduling service—are companies that focus on ease and personalization to customers. Interestingly, healthcare consumer engagement didn’t make the top categories for this year although it experienced significant year over year growth. Although it did not make the top mark, RockHealth reports that over a third of adults are enrolled in high-deductible health plans, which demand a higher out-of-pocket deductible before insurance coverage kicks in. This shifts a greater financial burden on the consumer, which leaves a market ripe for disruption that will increase transparency in price, quality, and personalized care.
While deals in digital health were flat from 2014, 2015 saw a greater number of late stage deals in Series C and beyond, indicating that the digital health market is maturing and innovation is closer to reaching the consumer market.
The above graph captures the six largest deals of the year, which totaled a quarter short of a billion dollars, representing 16% of all 2015 funding. As the trend goes, two of the six largest deals were with consumer-driven genetic companies, 23andMe and Helix. These deals indicate that investors are betting that personalized genetic products and services will become a huge market, given that genetic services adoption was only at 7% in the 2015 year.
Deals for this year were more diverse from 2015, when two of the six largest deals were with consumer-driven genetic companies, 23andMe and Helix. Healthline Media and Centauri Health Solutions had their first round of capital from Summit Partners and Silversmith Capital Partners, both growth equity investors. The largest deal of the year—and the largest Series C ever in digital health funding to date—was Roche’s investment in Flatiron. It’s interesting to note that for this deal, Roche directly funded the company instead of through a corporate venture fund. Other notable deals of 2016 include Quartet Health, Pathway Genomics, and Livongo, which each raised around $40 million in funding from various investors, ranging from Google Ventures to Merck Global Health Innovation Fund.
As we wait for the conclusion of 2016’s round for digital health funding, the growing costs, inefficiencies, and missed opportunities provide ample room for entrepreneurs to disrupt the healthcare industry. It is likely that funding will continue to be drawn to the top categories from 2015 and 2016, such as analytics and big data that holds unlocked potential for wiser tracking of one’s health, as well as consumerization tools that are easy to use and offer personalized care. Data and engaging the consumer will likely be the key to decreasing costs within the healthcare industry.