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Digital Health Funding Down Year-over-Year Despite More Deals

January 6, 2017
by Rajiv Leventhal
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In 2016, there were more, albeit smaller digital health deals and 8 percent fewer dollars invested than in 2015, according to San Francisco-based Rock Health’s year end funding report.

The report to close out 2016 noted that digital health funding started off strong in early 2016, with January setting a new record for funding. In fact, more venture dollars poured into digital health companies in the month of January than all of 2011 combined. This included half of the largest six deals of the year (Flatiron Health, HealthLine, and Jawbone), which all announced their latest rounds in the first month of the year.

But while a record number of companies were funded in 2016 (up 8 percent Y-o-Y), the total amount of investment dollars for the year reached $4.2 billion, down 8 percent Y-o-Y. In 2015, the average deal size was $15 million with $4.6 billion in venture funding across 273 deals. In 2016, the average deal size was $13.8 million with 296 total deals.

 The report’s authors wrote, “It may look like digital health’s growth spurt is abating, but it’s important to remember that companies still raised double the amount of dollars compared to just three years ago. Moderation in deal size—the primary driver for the reduction in total invested dollars—is likely an indicator of healthy moderation in startup funding and partly tracks with the larger venture investment picture of 2016.”

What’s more, the six largest deals of 2016 made up 19 percent of all digital health funding. The youngest on the list—Flatiron Health—is just four years old and, over three rounds of financing, has raised the third most of any venture-backed digital health company since 2011. Despite laying off 15 percent of its global workforce, Jawbone, which is now solely focused on its fitness business, raised $165 million in 2016. This confirms its spot as the most funded digital health company of all time at nearly a billion dollars. Analytics vendor Health Catalyst also made this segmented list, raising $70 million in funding last year.

As far as categories go, digital health companies in the genomics and sequencing space “stole investors’ hearts in 2016,” noted the authors. Indeed, digital health companies in this space raised more funding than any other category and anchored by several large, high-profile deals including Human Longevity ($220 million), Color Genomics ($45 million), Seven Bridges Genomics ($45 million), Pathway Genomics ($40 million), and Emulate ($28 million).

Further, the analytics and big data category continued its surge in 2016, reaching $341 million over 22 deals—up 103 percent over 2015. The wearables and biosensing category also had another big year and came in third for most funding, although total funding for this category was down 32 percent from 2015. Telemedicine ($287 million), digital medical devices ($268 million), and population health management ($198 million) all reappeared on the “top categories” list.

There were also 136 M&A deals throughout 2016 worth $6.8 billion in disclosed transaction value, up 9 percent from 2015. Companies that sell to hospitals were popular acquisition targets in 2016, including 10 physician practice management technology companies, 11 hospital administration tools, and 21 companies building electronic health record (EHR)/clinical workflow tools. The most common type of acquirer continued to be other digital health companies, followed by tech companies. Welltok made their sixth digital health acquisition this year (Keas), and Teladoc made their fifth acquisition (HealthiestYou).

Also interestingly, 26 women CEOs received funding in 2016, but men still make up the vast majority of digital health CEOs. Despite recent diversity efforts, men still make up the vast majority (91 percent) of funded digital health CEOs. Of the companies funded in 2016, only 9 percent had a woman CEO, down from 11 percent in 2015, according to the report.

The authors concluded, “There were a record number of companies funded; and while the total amount of dollars decreased from 2015, we remain optimistic in the strength of the sector and the value of the companies improving our healthcare system.”

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