Digital Health Funding Sets Record in 2014

The most popular categories funded in digital health include analytics and big data, health care consumer engagement and digital medical devices.

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Last year was an all-time record for total dollars raised in digital health, with more than $4 billion pouring into the space, according to a report from Rock Health.

The digital health accelerator recorded around 120 percent growth year over year (YoY) for total dollars invested in the market, with an absolute growth of over $2.2 billion.

With a fast start in January, venture funding for digital health companies was set to reach new heights, and by the end of the second quarter, it had already surpassed the entire 2013 funding total.

The compound annual growth rate over the past four years is 44 percent, according to the report, and more than 287 companies have been funded last year—107 more than last year, representing 58 percent YoY growth.

The most popular categories funded in digital health include analytics and big data, health care consumer engagement, digital medical devices, personalized medicine, telemedicine, and population health management.

"A significant amount of the funding is going towards solutions that are directly consumer-facing, not to be confused with being paid for by consumers. I don't think anyone would argue that our healthcare system has not existed to serve consumers, or patients, or members, or employees depending on your frame of reference, for a long time," Malay Gandhi, the report’s author, told eWeek. "Many of the funded companies are changing that by developing products and services consumers actually want to use—those that help them select a health plan or a doctor, gain access to treatment conveniently and from their home, better manage their conditions, and generally live healthier and happier lives."

Digital health companies from over 30 states received funding in 2014, with Bay Area- based companies accounting for 25 percent of all 2014 funding, and California-based companies raised $1.8 billion, nearly as much as total funding in all of 2013.

Boston and New York metro areas experienced rapid growth in dollars raised since 2011 (303 percent and 136 percent) and over the past four years, the top three states that saw the most growth in deal volume were Illinois, Pennsylvania, and Tennessee.

"We're not surprised New York is rapidly catching up to Massachusetts in terms of funding, similar to overall technology funding trends," Gandhi said. "It is not beyond reason that New York would pass Massachusetts overall next year in terms of aggregate funding. No other predictions for 2015 beyond California maintaining a commanding lead."

Categories the company believes will continue to see significant growth in 2015 include telemedicine, payer administration, and personal health tools and tracking, digital therapies, health care consumer engagement, and hospital administration.

In 2014, there were 344 dabbling investors (one or two deals per year) compared to only 121 back in 2011—a nearly three-fold increase.

The report also indicated there’s a growing group of serial investors (three or more deals per year) establishing themselves in the space, with 55 percent of the serial investors of 2013 continuing to do three or more deals in 2014.

The most active investors in digital health represent a diverse mix of corporate, health care, technology, and agnostic venture funds, according to the report.

In addition, five digital health companies went public during the first half of 2014, raising a cumulative $1.7 billion, and the report also found with the continued pressure on funding for medical device companies, digital health has for the first time overtaken medical devices in aggregate venture funding.