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The Funding of Digital Health Companies

By October 9, 2015Commentary

Digital health does not relate to the state of your fingers and toes, but you will be able to count on the fingers of one hand the number of these companies that will provide a good return to investors.  Two reports, one from Rock Health, one from StartUp Health, indicate that investors continue to be fond of these companies, even if they don’t know what digital health refers to.  (Rock Health Report)  (StartUp Health)   Rock Health seems to define as digital health any company that claims to in any manner use data in its business.  It says that in 2014 $4 billion of funding was raised by digital health companies, up 125% from 2013.  258 companies raised at least $2 million and the average across all companies receiving funding was $14 million.  But the total and averages are heavily influenced by 6 large funding rounds which raised $1 billion or a quarter of all venture investment in digital health for the year.  The biggest categories were analytics and big data–$393 million; consumer engagement–$312 million; and digital medical devices–$312 million.  Other large categories were telemedicine, personalized medicine and, of course, population health management.  Miss any buzzwords?  Rock Health says there were 95 merger and acquisition transactions in 2014 in digital health, with the announced subset having $20 billion in value.  Their were 5 IPOs which raised $1.7 billion.  Oh, but here is the most relevant stat, every public digital health company is trading below its highs, most substantially below.  The poster child is Castlight Health, which obviously couldn’t stand the spotlight being public cast on its flimsy business model.

StartUp Health focuses on 2015 Q3 and YTD activity.  StartUp must be using an even broader industry definition as it says 2014 had 559 funding rounds worth $6.9 billion and so far in 2015 there have been 312 with a value of $4.7 billion.  There are more B and C rounds this year compared to earlier years, indicating either a greater maturity of companies or that investors haven’t learned their lesson and keep dumping money in.  The average seed round is up, to $1.7 million in 2015 YTD, as is the average A round, now $6.0 million.  Top categories:  patient/consumer experience–$1.1 billion in 62 fundings; wellness $876 million in 32; and personal health/quantified self (my favorite category, since apparently we are all going to merge with computers and become just strings of zeroes and ones).  Other areas include e-commerce, workflow and the ubiquitous big data (generally invested in by people with small brains).  Geographically San Francisco leads the way, followed by New York City and Boston.  Popular disease categories are oncology, diabetes and cardiology.  One good thing I can say is that these companies usually are providing well-paid employment to a lot of people, unfortunately when the bust comes, and it will come, many of them will be back living in the basement and looking for any kind of work.

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