Digital Health Funding Tops $1.9 Billion in 2013

Investors spent $146 million on digital medical devices—hardware or software designed to treat a specific disease or condition.

Digital health funding surpassed $1.9 billion in 2013, up 39 percent compared with the previous year and more than doubling since 2011, according to a report from Rock Health, which funds and supports startups in the health care technology space.

There were six major themes that comprised almost half of all digital health funding this year: electronic health records (EHR) and clinical workflow, analytics and big data, digital medical devices, wearables and biosensing, population health management and health care consumer engagement.

The report noted EHR and clinical workflow, which consists of surround applications including support for clinical workflow, pulled in $245 million in funding, while $161 million was spent on data aggregation analysis to support a wide range of health care use cases.

Investors spent $146 million on digital medical devices—hardware or software designed to treat a specific disease or condition, while wearable consumer devices that measure specific biometrics netted $136 million.

Finally, population health management, which consists of comprehensive platforms designed to manage the health of populations under the shift to risk-based payment methods, scored $126 million in investments, while consumer tools for the purchasing of health care services or health insurance (B2B and B2C) accrued $119 million in funding.

In 2013, 186 companies each raised more than $2 million, and nearly 20 percent of all funding last year came from the biggest six deals. In addition, the report found the increased volume of early stage deals is the primary driver of year-over-year growth.

"This is not an ephemeral trend. We are perpetually surprised by the ingenuity of the entrepreneurs who choose to work in health care," the report noted. "As digital companies develop cash-generating business models that can threaten (or entrench) incumbents, it seems venture investors, public markets and acquirers are beginning to agree."

Just more than 300 separate investment firms or notable angels completed digital health deals in 2013, and 27 venture firms did three or more deals in 2013, as compared to just eight in 2012.

On a geographic basis, California has established itself as the digital health hub of the United States—digital health companies based in the Golden State raised $686 million last year, representing one-third of all funding in 2013.

Last year also saw two major IPOs that have generated more than $5 billion in market value, and the report projected that in 2014, it is possible that eight name brand digital health companies could raise well over half a billion dollars.