Healthcare companies enjoyed ready access to capital in 2015, and the digital health sector was no exception. The young market further matured this year and venture capital funding followed suit, according to a report from StartUp Health (PDF), an incubator for digital health companies.
Year-to-date funding for digital health companies through Dec. 15 reached $5.8 billion, below last year's $7 billion but still well above the $3 billion in funding in 2013, the report found.
The number of deals also slowed to 255, down from last year's 378.
However, median deal size remained consistent with 2014 and more companies are raising money at later stages in their development, the report found.
Despite the pullback, digital health companies hit new milestones this year, according to StartUp Health. Zenefits, a San Francisco-based software company for human resource professionals that also serves as a health insurance broker, raised $500 million in venture capital at a $4.5 billion valuation. It has been dubbed one of Silicon Valley's fastest growing companies.
And Oscar Health, a New York-based health insurance start-up, raised $145 million in a Series A round, a record-breaking number for an early-stage healthcare company.
Last year represented a high water mark for digital health companies, and the 2015 numbers should not be interpreted as waning interest but the continued attractiveness of the space despite fears of a bubble, venture fund Rock Health said in its year-end report. About 25% of fundraising deals were late-stage deals.
Digital health also continues to account for 7% of all venture funding, Rock Health noted. On the mergers and acquisition side, digital health companies were involved in 180 deals with disclosed price tags totaling $6 billion.
The digital health sector also saw six initial public offerings, the largest number so far. Companies that went public included FitBit, Teladoc, Evolent Health, Invitae, Natera and MindBody—which also represented the diverse number of subsectors in which these firms operate.
Digital health companies that focus on the consumer or patient experience raised the most money in 2015, or $1.3 billion, after coming in fifth in 2014. Wellness and benefits companies moved into second place from eighth year-over-year, with $1.2 billion raised this year. These firms also had the largest average deal size, or $28.4 million.
In contrast, companies focused on workflow solutions dropped to third from first in terms of the amount of money raised, and medical device companies slid to fifth from second.
StartUp Health also surveyed digital health companies participating in its Academy, or long-term coaching program, and found a mixed outlook for 2016. A total of 24% of CEOs indicated that they believe it will be easier or much easier to raise money in the new year, while 37% believe it will be harder and 39% don't expect much change.
However, the Academy CEOs do expect the market for acquisitions to remain robust, with 68% expecting more or significantly more activity and only 7% anticipating less.
