Approximately $6.5 billion in new funding flowed into the digital health space in 2014, more than double the previous year's haul of $2.9 billion, show data from digital healthcare accelerator StartUp Health. But investors placed their bets on fewer companies. Only 459 companies received funding this year, a drop from the 590 who received investments in 2013.
The decrease in companies financed is one of the “signs of a maturing market,” StartUp Health says. Another sign may be the stage at which venture capitalists and firms are making investments in startups. According to StartUp Health's data, just over 25% of deals were in the seed capital stage, a very early stage in a company's development. That's the lowest percentage since 2010, and indicates that there are relatively fewer funded startup entrants in this year's cohort.
Collectively, investors seem most enthused by big data and analytics, pouring $1.46 billion into 90 deals in 2014. Next was population health, with $1.14 billion invested.
Some of the most pedigreed venture capitalists dominated in the number of deals—Khosla Ventures, Sequoia, Venrock, Andreessen Horowitz and Kleiner Perkins Caufield & Byers all made StartUp Health's investment leader board.
But corporate venture capital also made a strong showing in the sector. Qualcomm Ventures was the most active investor in digital health, according to StartUp Health, with 12 deals in 2014—a dramatic rise from the two deals it concluded in 2013. Other active corporate investors included Google Ventures, Mayo Clinic and GE Ventures, all handling five deals in 2014.
Expect more deals from the corporate cohort in 2015. McKesson Corp. is expected to make an aggressive push into digital health, potentially 15 to 25 deals over the next two to three years, with several hundred million over the next five to eight years, the corporation's venture capital head, Tom Rodgers, has said.
The enthusiasm from venture capitalists for digital health is in marked contrast to life science startups' fortunes as a whole.
According to the most recent data from the National Venture Capital Association, investment in biotechnology and healthcare services has grown slowly of late. About $4.6 billion was raised in 2013 for biotechnology, up 9.5% compared with $4.2 billion in 2012. It's unclear as yet where that sector will end 2014; $3.995 billion has been raised through the third quarter of this year.
Healthcare services, similarly, has grown more slowly, if at all: $336 million in 2012; $217 million in 2013; $280 million through the third quarter in 2014.
The low growth in funding has led to fewer startups in life sciences. According to a June 2014 report by the Brookings Institution, the number of life sciences startups has plummeted. The sector created 2,800 new firms in 1994. That fell to 1,995 in 2011.
Follow Darius Tahir on Twitter: @dariustahir
