Digital Health Funding Activity in 2017
In terms of shocking moments and surprising fads, 2017 is yet to disappoint. Amidst a sea of fidget spinners, “covfefe,” and unicorn frappucinos, one welcome trend is the unprecedented number of dollars and deals pouring into digital health. With an unremarkable first quarter followed by record-breaking deals in Q2, the digital health funding landscape is poised to have it’s best year yet if the momentum continues.
Accountability for taking health care into our own hands is no-doubt at an all-time high. Despite the uncertain politics surrounding healthcare, consistently maturing companies and investment firms have culminated in an ideal climate for healthcare funding. Recent reports released by Startup Health & Rock Health prove there’s reason to be optimistic that the digital health industry, perhaps the single industry most in need of innovation and resources, will continue to be cemented as a prominent one for investment opportunities. The entrepreneurs, companies and investors working to transform healthcare and its delivery certainly deserve the support for innovation they’re receiving.
Deal size and activity, a record high:
A dive into the reports reveals interesting and promising insights. According to Startup Health, Q2 closed with $6.5B across nearly 300 deals. Q2 was the biggest quarter ever for digital health, with $3.8B in deals. While the number of deals is perhaps unremarkable, we’ve already seen at least 10 mega deals (deals worth over $100M), with ten being the current record for number of megadeals in an entire year. Having already broken the record for most funding by the halfway point of the year, and as mega-deals continue to trend, digital health is in a position to reach an all time high for funding, especially as leading health care professionals begin to understand the mass-market opportunity in the sector.
Sub-sectors, shifting patterns:
A closer look at the sub-sectors being funded sheds light on the shifting patterns emerging in the digital health ecosystem. The top 5 mega deals (Grail’s $914M Series B, Outcome Health’s $500M Series A, Guardant Health’s $360M Series E, Peloton’s $325M Series E, and Modernizing Medicine’s $231M equity financing) indicate the top 5 sub-sectors arebig data/analytics, consumer education, personalized health, consumer experience and digital gym equipment/wellness.
However, since over 60% of total deal activity are early-stage deals, less the inflation due to the largest deals, the subsectors with the most deal activity paint a slightly different picture. Investors seem to have an interest in both consumer and enterprise -focused companies. Interestingly, none of the mega deals were Silicon Valley based, indicating a shift in funding to states like New York and Illinois and a greater distribution of innovation geographically.
Investors, new and old:
As health becomes an increasingly paramount issue, investors seem to be realizing that we are at the forefront of a golden age in health care innovation. Proportionate to the massive market opportunity is the genuine passion of the entrepreneurs working to affect lives and help people in the process of building essential companies. The profile of investors in digital health is changing.
Growth investors have played an important role in the mega-deal fundings, an indicator of a growing pipeline of possible IPOs. A whopping 42% of the distinct investors this year have been unique to the industry. The other 58% of repeat VCs seems to indicate that investment in digital health is here to stay. GV, Khosla, GE Ventures and Accel are the leading investors in deal funding in 2017 YTD.
Massive opportunity also lies in the caregiving economy that provides services to make life easier, and therefore healthier in some cases (Peloton, Blue Apron, Lyft). Politics and digital health investment will continue to be intertwined. As patients demand better care, better care delivery, better health, and lower costs, the critical need for innovation and a total transformation of health care will continue to drive entrepreneurship and investment in the digital health landscape.
Our team at Dreamit Health remains dedicated to supporting the entrepreneurs who are working to transform health care. Our accelerator program is designed to help startups scale their business with enterprise customers in the health care space. The 14-week program includes education, coaching and mentoring, customer immersions with enterprise health systems, and a two-week bi-coastal investor roadshow with top-tier venture investors. If you are interested in continuing the funding momentum in the health care space and playing a role in the future of health care delivery, please consider joining our Fall 2017 program.
By Farrin Katz