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Summary:

Investors continue to fund digital health startups at a healthy clip, but growth is slowing, reports San Francisco-based startup accelerator Rock Health.

health funding

Funding for digital health startups is on the rise, but growth is slowing overall, startup accelerator Rock Health said in a mid-year report on the industry.

On Monday, the San Francisco-based program for health technology startups, which tracks digital health investments that are more than $2 million, said startups in the field attracted $849 million in the first half of the year. That marks a 12 percent increase over the same period last year but suggests growth is slowing down: last year, funding climbed 73 percent in the first six months of the year, the accelerator said.

Rock Health’s report only includes data for three years and digital health is a relatively young industry, so it’s too early to say if this decline is truly an indicator of a broad investment trend. It’s also worth noting that Rock Health is fairly conservative with its definition of digital health and excludes seed rounds (which it says are too difficult to track systematically), so it will be interesting to see what other forthcoming industry reports reveal. But it’s still interesting to see that investments may be coming in at a slower pace.

Even if digital health funding is decelerating, the field is in a better place than traditional life sciences and the venture capital universe overall. As Rock Health points out, PricewaterhouseCoopers reports that, in the first quarter of 2013, medical device funding declined 29 percent and biotech funding dipped two percent. According to PwC, venture capital funding across all fields fell six percent in the first quarter of the year.

In digital health, Rock Health says that the biggest themes – which account for nearly half of the funding tracked – are remote patient monitoring, analytics and big data, hospital administration and electronic health records. That’s consistent with monthly reports from the New York-based health technology academy Startup Health.

The report also notes that while crowdfunding is emerging as a powerful platform for early-stage health startups, the health-specific platforms haven’t gained the same traction as general crowdfunding sites. (In June, we reported that Health Tech Hatch, a crowdfunding and codesign site for health startups, teamed up with Indiegogo after realizing the challenges of crowdfunding in healthcare.)

Rock Health also reported that The Social+Capital Partnership was the most active investor, with five digital health investments, followed by Norwest Venture Partners. In total, 146 investors participated in 90 deals that were more than $2 million. Of those companies, 31 percent are in California, 9 percent are in Massachusetts and 8 percent are in New York.

  1. It’s troubling when “digital health records” is still an early stage investment category – of any kind (Seed, A, B, C – take your pick) – anywhere.

    There are over 400 EHR companies with at least one customer that’s attested under “meaningful use.” There are 200 more w/out any “meaningful use” customers. If that doesn’t qualify as a saturated market – what will?

    Also, the “meaningful use” dropout rate (post Stage 1) is at a staggering 17%.

    Jusy sayin’ ….

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  2. How much of an impact would a seed accelerator like Health Wildcatters, http://healthwildcatters.com/, make?

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