Investment in Health Care IT Sector Continues at Blistering Pace

Venture capital (VC) funding in health care IT sector continued at a record pace with $858 million raised in 163 deals, a 154 percent increase compared to the $337 million raised in Q4 2013--the highest dollar amount raised by the sector in a single quarter to date, according to global communications and consulting firm Mercom Capital Group.

The company’s report on funding and mergers and acquisitions (M&A) activity in the health care IT sector for the first quarter of 2014 found health care practice-focused technology companies received half of all VC investments in the first quarter of 2014, with $460 million in 60 deals.

The largest disclosed transaction was the $4.4 billion acquisition of MultiPlan, a company that manages claims processing and provides healthcare cost management solutions through its network and analytics-based technology platform, by Starr Investment Holdings, an investment firm focused on long-term investments, and Partners Group, a private markets investment management firm.

Two health care IT initial pubic offerings (IPOs) in Q1 2014 raised a combined $304 million. Castlight Health, a provider of healthcare transparency solutions, brought in $204 million through its IPO in March and Everyday Health, a provider of digital health and wellness solutions launched an IPO that raised $100 million.

There were 65 early-stage deals under $2 million, including 29 accelerator/incubator deals in Q1. Investments going into early-stage deals (less than $2 million) were more consumer-focused compared to deals of over $2 million, which were going towards practice-focused technology companies, the report found.

There were 188 VC investors and eight accelerators/incubators that participated in Q1 2014. There were 19 investors that participated in multiple rounds, with Khosla Ventures the most active with three deals.

U.S.-based health care IT companies accounted for 87 percent of all deals, however, the report noted there is more health care IT activity globally, with 15 other countries recording at least one funding deal.

Within the United States, California continued to be the most active state accounting for 42 deals, followed by New York with 13, Maryland with 10, Massachusetts with nine, and Florida with six.

Among cities, San Francisco led with 13 deals followed closely by New York with 11. In terms of dollars, Tampa led with $78 million, followed by San Luis Obispo with $50 million and New York with $44 million.

"Funding into the health care IT sector continues at an astonishing pace. Venture capital funding in health care IT has reached almost $5 billion in about 1,000 deals since 2010," Raj Prabhu, CEO and co-founder of Mercom Capital Group, said in a statement.

Areas that received the most funding under the health care IT category were practice management with $124 million in eight deals, health information exchange with $78 million in two deals, and data analytics with $43 million in seven deals.