VC cash for health IT sets records

First billion dollar fundraising quarter in 2014
By Healthcare IT News
02:17 PM
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The numbers do the talking. The healthcare IT sector raked in records amount of venture capital cash in 2014, with industry startups walking away with some serious investments.

Quarter 2 proved to be its biggest quarter yet, surpassing $1 billion for the first time ever, with health IT companies raising a whopping $1.8 billion across 161 deals, more than doubling the $861 million raised in the previous quarter.

In yet another record quarter for venture capital, health information technology companies raked in $858 million since January, across 163 deals – a 154 percent increase compared to Q4 2013.

With 10 funding deals for more than $50 million each, this was the most lucrative VC quarter yet, according to Mercom Capital Group. In fact, the $2.6 billion raised so far this year has already exceeded the $2.2 billion raised in all of 2013.

"It was a quarter of several milestones," said Mercom CEO Raj Prabhu, in a press statement. "It was the first billion dollar fundraising quarter for the sector which has now raised almost $7 billion in venture funding since 2010. healthcare IT funding rounds have now crossed 1,000."

Notably, he said, mobile health companies "continue to outraise other technologies," having now raked in more than $1 billion since 2010.

Practice-centric companies garnered 61 percent of all investments in Q2, with $1.1 billion across 61 deals – especially in technology related to practice management, with $220 million in eight deals; analytics at $204 million in nine deals; and population health management raking in $144 million in four deals.

Consumer-facing technology, meanwhile, attracted $678 million in 100 deals, with most going to mobile health ($401 million across 45 deals).

Within mHealth, $129 million went to companies developing apps and $226 million went to firms that make wearables. Personal health companies received $115 million; scheduling, rating and shopping applications got $61 million.

The top VC deals over $100 million in Q2 were $135 million raised by NantHealth; $130 million raised by Flatiron Health; $125 million raised by Alignment Healthcare and the $120 million raised by Proteus Digital Health.

Cash flow in the healthcare IT sector may just have reached its limit in Q2, however. Coming down from a torrid second quarter, Q3 venture capital funding for the sector dropped nearly 50 percent, according to Mercom data.

 

The firm’s Q3 report showed a higher number of VC deals in the third quarter, compared to Q2. But in terms of cash raised, Q3 paled in comparison.

Still, the numbers were hardly disappointing. Q3 marked the second-biggest quarter to date. The health IT sector raised $956 million across 212 deals globally, compared with the whopping $1.8 billion across 161 deals the quarter prior to that, analysts noted. Digital health companies have attracted $3.6 billion in VC cash since 2010.

Mercom officials noted another interesting characteristic of the third quarter: record funding for companies abroad.

"Companies from countries outside of the United States, accounted for a record 21 percent share of the funding," said Prabhu, in a press statement announcing the report. "While consumer-centric companies attracted the majority of the funding this quarter, M&A has been a different story with the majority of the deals involving practice-focused companies."

Consumer-focused technologies, which includes mobile health and telehealth, walked away with the lion's share of capital – 65 percent of all VC cash for the quarter, or $623 million across 140 deals. In Q2, that number stood at $678 million across 100 deals.

Telehealth had its best quarter to date in Q3, raking in $101 million across 16 deals.

Revenue cycle management and data analytics also did well, with $75 million and $71 million respectively.

The five biggest winners in Q3 included China's DXY, which bills itself as the largest healthcare services community group, bringing in $70 million; Proteus Digital Health, which saw VC funding reach $52 million; Teladoc with $50.3 million; China's Chunyu Yisheng, a digital physician consultation app company, with $50 million and payer software company HealthEdge, which brought in $30 million.