Despite slowdown fears, digital health VC keeps pace

'It would not have been surprising if 2015 was a letdown'
By Erin McCann
10:58 AM
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Venture capital for the digital health market is still holding its own, keeping pace with last year's "record-breaking growth," according to a new report from digital health startup seed fund Rock Health.

In fact, this year's Q2 raked in $2.1 billion from investors for digital health startups, just shy of last year's mid-year number which reached $2.3 billion.

"Now at the half-year mark, investors have spoken," wrote Malay Gandhi, managing director at Rock Health, in a July 6 post, unveiling the numbers. "Digital health isn't slowing down."

Although the number of deals were fewer than last year at this time – 139 deals in 2015 compared to 146 in 2014 – the average deal size was $400,000 bigger this time around.

[See also: 2014 venture cash: Digital health nails it.]

One of the big changes this year was around the most funded digital health category. Last year, the winner was payer administration startups, which collectively scored $211 million. This year, wearables and biosensing companies walked away with the lion's share of funding, at $387 million. However, San Francisco-based wearable company Jawbone accounted for $300 million of that pie.

Analytics and big data came in at No. 2 for most funded digital health category, bringing in $212 million by mid 2015. That represents a $16 million increase in this category from last year's numbers. Salt Lake City-based analytics startup Health Catalyst brought in $70 million.

According to another digital health accelerator StartUp Health's mid-year report, however, analytics and big data came in third place, below wellness/benefits and patient/consumer experience. The company bills itself as the world's largest portfolio of digital health companies. 

One category in Rock Health's report that failed to emerge as top theme last year – EHR and clinical workflow – brought in $74 million this time around. One of those startups, the San Francisco-based Augmedix, which integrates Google Glass with the electronic medical record, earned $16 million of that.

This year, Rock Health officials also tracked digital health IPOs, which "outperformed" S&P 500 by the end of Q2.

"Coming off a record-smashing year for digital health funding, where dollars into the space totaled more than 8 percent of all venture funding, it would not have been surprising if 2015 was a letdown," Rock Health officials wrote in the 2015 mid-year report. "However, 2015 has more or less kept pace with 2014."

But this growth, as they explained, also comes with a drawback. And that's "noise." In other words, it's a tough, saturated market, with a record number of digital health companies "vying for the attention of both the industry and the consumer."