In 2015, venture funding of digital health companies surpassed $4.3B and accounted for 7% of total VC funding in the US. Deal sizes are growing and the percentage of later stage deals is increasing signaling a maturing in healthcare investments.
In my first six months as part of the Watson Health team, I’ve observed a few trends such as:
Google’s Investment in India will impact Healthcare
Google announced they will train 2M Indians on Android OS and promote internet use among rural women by 2019. In India, 5% of the population has health insurance (“cash for care”) and over 70% live in rural areas without access to quality healthcare (source). No doubt Entrepreneurs and Engineers will be creating major innovations in this space. Related: IBM and Manipal announcement
a16z is talking about Digital Therapeutics
Behavioral change is an area Startups/Developers/Apps have and will continue to embrace. A positive signal is a16z’s movement into this space asVijay Pande talks about in this interview. In this class of app, Email/SMS/Push Notifications/Phone calls are the engagement mechanisms.
VC Investing has increased == Startup activity is very hot
A few months ago Rock Health published their 2015 Healthcare Funding report, a must read. Combine this funding data with a review of new Healthcare products on Product Hunt,new Healthcare companies raising capital on AngelList and scanning Dan Primack’s Term Sheet or any other funding source and you will have a good grasp of the pace.
Regulation continues to provide opportunities
Today, major Health IT spend is in certified electronic health record (CEHRT) technology needed to comply with the federal meaningful use (MU) program, better security systems, and ICD-10 conversion software. Coming soon, additional legislation from the Protecting Access to Medicare Act kicks in mandating “that starting January 1, 2017, physicians ordering advanced diagnostic imaging exams (CT, MRI, nuclear medicine and PET) must consult government- approved, evidence-based appropriate-use criteria, namely through a CDS system.” (source)
Another helpful way to look at the Healthcare VC space is to think about the trends and contrast with VC investments.
- The Consumerization of Healthcare
- Consolidation of and competition between Hospitals and Integrated delivery systems
- Strategic Investing (ex: Mayo investing in Helix)
- Monitoring and Prevention
- “Obamacare” disruption
Healthcare Funding Categories
- Health IT Software
- Digital Health
- Medical Devices
- Payer Disruption
For further reading, I recommend checking out the various portfolio companies from Rock Health, Kapor Capital, SafeGuard, Arsenal and GV. Also checkout the Accelerator programs like Techstars Cedars-Sinai andMore Disruption Please to get a feel for the early stage. CB Insights is always publishing great insights such as this Healthcare IoT market map.
Here’s a brief sampling of some investments I’ve seen recently in these areas:
- Patient Engagement
- Prescription Management
- Healthcare Analytics
- Genetic Testing
- Elder Care
- Life Sciences
- Medical Devices
- Gene Therapy
- Health and Wellness
- Digital Health
- Health IT
In Health IT software:
Care Coordination: Patientping, HealthLoop
Payer Management: Oration
Data Analytics: Medivo, BeneStream
In Digital Health we see:
- Health coaches (eating, personal trainers, etc)
- Community for X
- Reviews and Ratings
- Connecting Providers (Patientping), Caregivers to Seniors (Honor)
- Crowdsourcing data (Human Dx)
“Monitoring” is a huge category including:
- “smart devices”, watch, smart phones
- insights, behaviorial analytics
- personal health and nutrition assistants
- DNA and other self testing (23andme, Helix, uBiome)
Health and Wellness Platforms like ShareCare, Welltok and Omada Health.
Products like monthly food (Birchbox) and care packages (Citrus Lane).
Content like articles, daily emails and health guides (HealthSherpa)
Dev Tools like HIPPA data stores (TrueVault, Aptible, Catalyze.io) and IoT data streaming (Sense360).
In Biotech we see…
Biorepository, Genetic Analysis, Cellular Models, Regenerative Medicine, Bioinformatic Analytics.
Startups are using new techniques to harden defensibility into their business models such as creating Developer Ecosystems and baking in data network effects. A good example of data network effects at work is Recombine, a genetic testing company. They have built a network of partner clinics that administer its tests; with each new test, Recombine gathers more DNA data which (with appropriate consent) it can run machine learning on to improve its tests and nimbly develop new ones (therefore gathering more data). Recombine uses Machine Learning tools to find and learn patterns in historical data and uses these patterns to generate predictions. Recombine is 4 years old and has raised $3.3M.
I hope this post gets your brain spinning on all of the opportunity and innovation that’s happening in healthcare.