Venture investments in digital health continue to set records

It’s been another record raise for digital health companies in the first quarter, with $1.8 billion in venture capital.

It’s the latest sign that the convergence of healthcare with digital technology continues to demonstrate incredible potential. The continued funding surge is no fad. VCs now believe that digital health will emerge as a top performer across the venture investment landscape throughout the next decade.

This first quarter funding data comes from StartUp Health, a global entrepreneurship development company for transformative healthcare chaired by former Time Warner Chairman and CEO Jerry Levin and backed by prominent investors Steve Case and Mark Cuban.

As recently as 2011, digital health attracted less than $1 billion in venture capital. But in 2015, digital health venture startups raised a record $4.5 billion according to Rock Health, up from $4.1 billion in 2014.

Why is this happening? Until recently, healthcare remained stubbornly behind other industries in the adoption of modern information technologies. But that is starting to change. We are seeing ample evidence that digital health not only is increasing the quality and efficiency of healthcare but also helping consumers to demand the best value for their healthcare dollar. Healthcare providers and insurers know consumers now readily make decisions by simply touching their smartphones. Because of the web and the mobile web, changing healthcare providers and/or healthcare insurance carriers has never been easier.

Of the money raised in the first quarter, Oscar Health, a Web-centric health insurance company, landed the most capital, raising $400 million. While I like its concept of an online, consumer-focused health plan, the company’s valuation is hard to support given its current membership and the hyper-competitive nature of the insurance business. Its investors must foresee explosive growth in membership and a solid plan to reduce medical expenses.

Stephen Krupa
Steve Krupa, managing partner, Psilos Group. Photo courtesy of the firm.

Although not a portfolio company of ours, I believe that Oscar Health can succeed and prove to be a consumer-focused health insurance model that will be of great benefit to many.

Other digital health companies that raised at least $100 million were oncology analytics company Flatiron Health, genomics sequencing company Guardant Health, consumer health information business Healthline Media and MindMaze, which uses virtual reality to treat neurological disorders.

Digital therapeutics, a newly expanding category of healthcare companies, is also coming on strong. Among the quarter’s winners in this sector was young startup Pear Therapeutics, which focuses on treatment of substance abuse with digital therapeutics. Pear has raised more than $20 million in venture capital.

Among the biggest digital health investors in the first quarter was University of Pittsburgh Medical Center, which made four investments. Among the companies in which it invested were Lantern, which uses technology to integrate mental health into primary care, and Health Catalyst, a big data analytics company. UPMC invests in four areas: clinical tools, population health, consumer centric healthcare and business services and infrastructure.

Companies I believe will get great traction over the coming years are CareSync, a family health record that collects, organizes and stores health information on a secure, privacy-oriented platform; Zipnosis, a startup that provides virtual care platforms that recently raised $17 million in its Series A; and HealthReveal, a company that’s leveraging advanced analytics and bio-monitoring for early detection and diagnostic and treatment guidance to preempt the advance of disease.

Another of my favorites is HealthMine, which is a Psilos Group portfolio company. HealthMine offers a personal clinical engagement platform that has delivered more than $100 million in healthcare savings to more than 1.4 million users. Its program has been shown to reduce hospital readmissions by 50 percent and also sharply improve the likelihood of identifying undiagnosed chronic conditions.

It will take time for digital health companies to fully realize their potential. But prospects are strong because American healthcare is finally on a path to improving healthcare outcomes while simultaneously lowering the cost of healthcare, which has been Psilos’ investment strategy since 1998. Fortunately, other venture capitalists recognize this potential and will continue to aggressively finance it.

Steve Krupa is a CEO and managing partner of Psilos Group, a New York-based digital health growth investor. Tablet with stethoscope. Photo © iStock/JPC-PROD

Photo of tablet with stethoscope courtesy of © iStock/JPC-PROD