Health Care IT Raises $293 Million in Venture Capital for Q2 2012

Venture capital interest is increasing in health care IT, and investors are making deals with companies involved in health information management, telemedicine and personal health records, a report by Mercom reveals.

The venture capital funds are flowing into health care IT, according to a new report by communications and consulting firm Mercom Capital Group.

VC funding in health care IT reached $293 million in the second quarter of 2012, compared with $66 million in six deals for the second quarter of 2011. In the first quarter of 2012, health care organizations raised $184 million in 27 deals.

Mercom released its report "Healthcare IT Funding and M&A" July 23.

Health information management (HIM) companies received the most funding during that period, Mercom reported. HIMs collect, organize, store, track and maintain health information, according to Raj Prabhu, managing partner at Mercom Capital Group.

Of health IT companies striking venture deals, Castlight Health raised the most funding in the second quarter with a deal of $100 million. Castlight offers both a Web-based marketplace and mobile app that allows patients to comparison-shop for services from doctors, hospitals and medical procedures.

The uptrend in VC funding for health care IT has increased for four consecutive quarters since the second quarter of 2011, said Prabhu.

"There are over a 100 investors that have invested so far this year, more than all of last year," Prabhu told eWEEK in an email. "This demonstrates significant momentum and interest in the investment community as they see health IT to potentially be a very large market."

Other areas that secured the most funding included telemedicine, at $19 million in three deals, and personal health records, with $16 million in four deals.

In addition, revenue cycle management companies raised $6 million for one deal, and mobile health companies received $5 million in one deal.

In mergers and acquisitions, one of the top deals was private equity firm Veritas Capital's purchase of Thomson Reuters' health care unit. The company provides data analytics to hospitals, health plans and pharmaceutical companies, Reuters reported.

"Most mergers and acquisitions were strategic in nature, but private equity firms were very active this quarter and were involved in five M&A transactions," said Prabhu.

Web-based electronic health record (EHR) provider Practice Fusion raised the second largest amount of VC funding, according to Mercom.

Valence Health, which develops clinical integration, data collection and analysis software, was also among the leaders in funding earned, with $30 million.

Other top recipients of funding were cloud data management company Liason Technologies, health services provider Carena and Aware Point, which provides real-time location system (RTLS) services for health care.

"Most of these funding deals were for growth and expansion of products and services," said Prabhu.

For the second quarter of 2012, health care IT companies closed an average of $10.5 million in VC deals, according to Mercom.

The rise in health care IT VC funds countered the trends in health care overall and in all industries, according to a July 20 Dow Jones VentureSource report. U.S.-based companies raised $8.1 billion through 863 VC deals during the second quarter of 2012, a 9 percent decline in capital and a 3 percent decline in deals over the same period in 2011, Dow Jones VentureSource reported.

In the second quarter of 2012, health care companies received $1.5 billion for 161 deals, a 33 percent drop in investment from the same quarter in 2011.