Venture funding played a large part in advancing the work of digital health companies in 2014, accounting for a record-breaking $4.1 billion in investments, according to startup accelerator Rock Health. The level of investment surpassed the total of the three previous years combined and representing 125 percent year-over-year growth from 2013.
More than 250 companies received investments last year, the accelerator reported — it has been tracking startup funding since 2011 — and 295 deals closed with an average investment of about $14 million. The top categories accounted for more than 40 percent of all digital health funding in 2014, with analytics and big data, patient engagement, digital medical devices, telemedicine, personalized medicine and population health management receiving the bulk of the funding.
According to Rock Health, the growth in funding could be because of technological innovations in both genomics and data analysis in recent years. Strong funding also could be a result of changing healthcare legislative and the reimbursement environment. The most active investors in digital health represent a diverse mix of corporate, healthcare, technology and agnostic venture funds.
Disclosed M&A transactions in 2014 were valued at more than $20 billion with enterprise health IT companies the most active acquirers, and five digital health companies going public during the first half of 2014, raising a cumulative $1.7 billion.
Despite the investment numbers reported by Rock Health, a variety of other, sometimes-conflicting investment levels were reported throughout 2014. For example, StartUp Health reported in October that $5 billion had been invested in digital health throughout the first three quarters of last year in its funding report, "StartUp Health Insights: Digital Health Funding Rankings Q3 2014."
And Accenture, in a report projecting future funding levels, said health IT startup funding is expected to reach $6.5 billion in 2017, claiming that nearly $3 billion was used to fund digital health startups in 2013. Differing from Rock Health's projections, Accenture estimated that digital health and health IT startup funding would hit $4.3 billion in 2014.
Accenture's research showed that between 2008 and 2013 startup funding totaled $10.2 billion for digital and health IT solutions, addressing four market segments:
- Infrastructure capabilities: Interoperability and health analytics accounted for about $2.9 billion in startup funding, which was used by organizations to comply with industry changes and federal meaningful use guidelines.
- Engagement solutions: Wearable technology and incentive programs targeting behavioral change among patients received $2.6 billion in startup funding.
- Treatment tools: Technology enabling alternative care channels, such as telehealth, also received $2.6 billion in startup funding.
- Diagnosis technology: Representing a rapidly growing segment of clinical and consumer tools, such as remote monitoring, that provides practitioners with real-time insight captured $2.1 billion in startup funding.
If nothing else, there's a great deal of activity surrounding health IT, and more is expected to come in the near term from investors, perhaps. In previous reports, Rock Health suggested that the industry is in the middle of tech bubble. If it doesn't burst, the accelerator projects telemedicine, digital therapies and healthcare reform efforts to continue shaping the landscape in the coming 12 months.
