Memorandum

Rock Health releases digital health funding report; 2015 funding flat with 2014 at $4.3 billion – December 18, 2015

Executive Highlights

  • According to Rock Health’s just-released Year End Funding Report, digital health saw $4.3 billion in investment in 2015, flat with 2014. Rock Health positioned the flat trajectory in a very positive light (2014 was a highly record-breaking year), though it could suggest any number of things: neutral or declining investor enthusiasm for the field; more companies going public or out of business; or a saturation in digital health startups.
  • Five digital health companies went public in 2015, with three out of the five trading above their IPO price. Fitbit is leading the pack with $732 million raised in public markets in 2015 and a $6.1 billion market cap with Teladoc, MindBody, Invitae, and Evolent Health also newly public.
  • A major theme of 2015 was “consumerization” of healthcare. The categories of healthcare consumer engagement (e.g., ZocDoc – doctor reviews) and personal health tools and tracking (e.g., 23andMe – genetic testing) accounted for 23% of total funding.

On Monday, Rock Health released its fifth annual Year End Funding Report detailing digital health funding in 2015. This year, $4.3 billion flowed into digital health, matching the record-breaking total of 2014 (which represented 100% year-over-year growth from ~$2 billion in 2013).

Rock Health positioned the flat growth in a very positive light (2014 was so record-breaking that it was impressive to even match it), though it could suggest any number of things: neutral or declining investor enthusiasm for the field; more companies going public or out of business; or perhaps a saturation in digital health startups. Digital health did continue to account for 7% of total venture funding in 2015, and the average deal size reached a new high in 2015 at $15.6 million (vs. $14 million in 2014). There were also more late-stage deals in 2015 (25% of all deal volume), potentially indicating the maturation of digital health companies.

Five digital health companies went public in 2015, raising a total of $1.4 billion. Three of the five are currently trading above their IPO price – Fitbit ($732 million; activity tracking), Teladoc ($158 million; telemedicine), and MindBody ($101 million; appointment booking for class-based business like yoga) – while Invitae ($102 million; genetic testing) and Evolent Health ($195 million; value-based care) are trading below their IPO price. Fitbit in particular had an epic year, raising $732 million in its IPO. Its current market cap of ~$6.1 billion makes it the third largest publicly traded digital health company (behind Cerner and IMS Health) – see our 3Q15 coverage, where revenue more than doubled to $409 million. Interestingly, the 26 publically traded digital health companies in Rock Health’s report actually underperformed the overall market this year (-5% vs. +14% for the S&P).

According to the report, a major theme of 2015 was “consumerization” of healthcare. Indeed, the categories of healthcare consumer engagement (e.g., ZocDoc – doctor reviews) and personal health tools and tracking (e.g., 23andMe – genetic testing) accounted for 23% of total funding this year. Overall, digital health funding continues to be incredibly robust, but growth has flattened considerably. It remains to be seen whether this plateau is the result of a digital health bubble or other factors. We also wonder about the implications for diabetes – companies like Fitbit and 23andMe have lots to offer diabetes, though it remains to be seen how they will engage.

  • The six largest deals of the year totaled ~$1 billion, and were closed by:
    • NantHealth: $200 million; bioinformatics, mostly for cancer as far as we can tell
    • ZocDoc: $130 million; doctor reviews
    • 23andMe: $115 million; genetic testing
    • Helix: $100 million; genetic testing
    • Virgin Pulse: $92 million; employee wellness
    • Collective Health: $81 million; health insurance
    • Notably, two of these companies are consumer-driven genetics companies (23andMe and Helix), indicating continued growth and investor interest in genetics services. We continue to wonder if genetics in diabetes will make it easier to personalize therapy. For more on this topic, see our interview with Dr. Anne Peters.
  • In 2015, the top six categories accounted for 51% of total digital health funding. Payer administration was a new category this year.

Category

2015 Digital Health Funding

Largest Deal

Healthcare consumer engagement

$613 million

ZocDoc ($130 million)

Wearables and biosensing

$489 million

Jawbone ($300 million)

Personal health tools and tracking

$407 million

23andMe ($115 million)

Payer administration

$252 million

Collective Health ($81 million)

Telemedicine

$234 million

Doctor on Demand ($63 million)

Care coordination

$208 million

TigerText ($50 million)

  • With respect to investors, firms that were most active in 2014 continued to invest in digital health in 2015, with Rock Health (13 new deals), Venrock (8 new deals), NEA (8 new deals), and Google Ventures (8 new deals) leading the pack. As expected, companies in the San Francisco Bay Area were responsible for ~40% of all digital health investments.
     

-- by Ava Runge, Adam Brown, and Kelly Close