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Tuesday, October 27, 2015

No Slowing in VC Funding for Digital Health

Venture capital funding for healthcare technology rebounds, investors log $1.6 billion in deals in Q3


Venture capital funding for digital health rebounded in the third quarter of 2015, up 32 percent quarter over quarter with $1.6 billion doled out across 148 deals, according to a new report from Mercom Capital Group. 

VC cash for health IT has hit $3.57 billion in 2015 so far. 

"VC funding into healthcare IT companies bounced back this quarter after a slow start this year," said Mercom Capital CEO Raj Prabhu, in a statement. 

Most of the growth came from funding for technologies aimed at the public. Companies focused on the provider side gathered $357 million in 42 deals (compared to $473 million in 41 deals in Q2 2015). Consumer-focused firms raked in $1.2 billion in 106 deals this quarter compared to ($727 million in 98 deals in Q2 2015).

"Rating, booking and comparison shopping companies had their best fundraising quarter since we began tracking the category," said Prabhu: $728 million in 15 deals. Mobile health companies ranked second with $319 million in 59 deals – apps scored $206 million and wearables got $88 million. Personal health and wellness companies, meanwhile, accounted for $114 million in 17 deals. 

On the provider side, practice management companies attracted $72 million across five deals; telehealth companies raised $65 million in 14 deals, and data analytics firms scored $61 million in 14 deals.

The top VC deal this quarted looked overseas: $394 million raised by Guahao, an online portal for patients in China to book appointments with physicians. ZocDoc, another online booking platform raised $130 million. Practo, which created a physician search engine to book appointments and rate providers, raised $90 million. Kareo, which develops cloud-based medical office software for small practices, raised $55.4 million. Grand Rounds, which matches patients with specialists and connects them for second opinions on a medical diagnosis, scored $55 million. 

"Consumer-focused health IT companies have continued to grab a larger portion of VC funding but have consistently lagged practice-focused companies in M&A activity," said Prabhu. "This quarter, however, M&A activity increased with 18 consumer-focused transactions, the highest number for these companies in a single quarter. It is a very positive trend if it continues because IPOs have not proven to be a sure path to success for the sector." 

On the M&A side, IBM's $1 billion acquisition of Merge Healthcare, maker of imaging technology, was far and away the biggest. Emdeon's $910 million acquisition of payment tool developer Altegra Health was next on the list, follwed by Premier's $400 million buy of CECity, which develops a cloud-based data analytics for performance management.

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