Proving the Business Case for the Internet of Things

Mobile health and telehealth lead VC funding in healthcare sector – Mercom Capital

Steve Rogerson
January 21, 2015

Mobile health (mhealth) and telehealth companies were the biggest attractors of venture capital (VC) funding in the healthcare IT sector in 2014, according to a report from Texas-based Mercom Capital. VC funding in the healthcare IT sector more than doubled in 2014, coming in at US$4.7bn in 670 deals compared with $2.2bn in 571 deals in 2013.
 
The sector also brought in $2.1bn in debt and public market financing including six IPOs (initial public offerings), bringing the total corporate funding raised in the sector in 2014 to almost $7bn.
 
VC funding increased in the final quarter of 2014 with $1.2b in 134 deals compared with $956m in 212 deals in the third quarter of 2014.
 
“The healthcare IT sector had another phenomenal fundraising year,” said Raj Prabhu, CEO and co-founder of Mercom Capital Group. “In the five years since we started tracking funding data, the sector has raised $8.8bn in VC funding and another $3.6bn in public market and debt financings bringing the total to $12.4 billion – largely driven by the Hitech and Affordable Care Act. However, the enthusiasm in the sector shown by the VC community was not quite matched by the public markets when you look at market performance of companies that went the IPO route in 2014.”
 
Mhealth companies were the largest recipient of VC funding bringing in $1.2bn – within mhealth most funding went to wearables with $526m and mhealth apps with $507m. Telehealth companies received $369m, and rating and comparison shopping companies brought in $288m.
 
Mhealth apps topped year on year growth at 341 per cent followed by telehealth at 297 per cent. Wearables came in at 135 per cent behind rating and comparison shopping at 216 per cent and data analytics ay 146 per cent.
 
Practice-centric companies raised $2.4bn in 234 deals in 2014, including clinical decision support companies with $517m, followed by data analytics companies with $367m and population health management companies with $247m. Consumer-centric companies raised $2.3bn in 436 deals.
 
The top two VC funding rounds in 2014 were raised by NantHealth, which brought in $320m and $135m in two separate deals; Flatiron Health raised $130m; this was followed by Alignment Healthcare, which raised $125m. Proteus Digital Health came in next with its $120m raise; it also raised $52m in another deal bringing its total to $172m for 2014.
 
China's Guahao raised $100m, Dedalus Group raised $89m and American Well brought in $81m.
 
A total of 732 investors were involved in funding rounds for healthcare IT companies in 2014. The top VC investors were Khosla Ventures and Social+Capital Partnership with nine deals each, followed by Kleiner Perkins Caufield & Byers and Sequoia Capital with seven deals each.
 
Top investors in the sector from the past five years were Khosla Ventures with 21 deals, Social+Capital Partnership with 18, Kleiner Perkins Caufield & Byers with 17, Sequoia Capital with 12 and Andreessen Horowitz with ten deals. There were 120 accelerator and incubator deals in 2014 compared with 139 in 2013. Top accelerator and incubator seed investors were Blueprint Health, Rock Health, Y Combinator, DreamIt Ventures, Sprint Accelerator, Iron Yard and XLerate Health.
 
A record 29 countries participated in healthcare IT VC funding activity this year. In the USA, California led healthcare IT fundraising with 174 deals followed by New York with 50, Massachusetts with 33, Florida with 22 and Texas with 21.
 
There were 219 M&A transactions in the healthcare IT sector in 2014 compared with 165 transactions in 2013, with 21 companies making multiple transactions during the year. Revenue cycle management companies led M&A activity with 28 transactions followed by practice management with 24 and mobile health with 21.
 
“Most of the M&A activity has been around larger, more established practice-focused companies,” said Prabhu. “Even though mobile health related apps and wearables are getting significant funding, we have not seen a game-changing Instagram or WhatsApp-type transaction yet in the sector.”
 
In the past five years, 121 companies have made multiple acquisitions including IMS Health with eight, Compugroup Medical, Emdeon, iMedx and Quality Systems with seven each, and both McKesson and PracticeMax with six companies apiece. Cerner, GE Healthcare, Nuance Communications and Advisory Board Company each acquired five companies.
 
The top five disclosed M&A transactions included the $4.4bn acquisition of MultiPlan by Starr Investment Holdings and Partners Group, the acquisition of TriZetto by Cognizant for $2.7bn, and the $1.3bn acquisition of Siemens’ health information technology business unit, Siemens Health Services, by Cerner. This was followed by Vista Equity Partners’ acquisition of Advanced Computer Software for $1.14bn, and the $550m acquisition of Ability Network by Summit Partners.
 
There were six healthcare IT IPOs in 2014, raising a total of $1.8bn. IMS Health raised $1.3bn, followed by Castlight Health with $204m, Everyday Health with $100m, Orion Health with $98m, Imprivata with $86m and Connecture with $53m.