Rock Health: Digital Health Funding Surpasses $4.3 Billion in 2015, Matching Record High

2015 was another breakout year for digital health (Digital Health),Total capital inflows exceeded $4.3 billion。

As digital health funding hit a record high in 2014, many wondered whether the enthusiasm for the sector would continue into 2015. The facts have shown that there should be no doubt about the strong momentum in 2015. Total investment in digital health in 2015 was on par with 2014, exceeding $4.3 billion. Although some skeptics have questioned the inherent attractiveness of the digital health industry by pointing to concerns over the stability of economic growth, it is more important to recognize that matching the record-breaking investment levels of 2014 was itself an extraordinary achievement.

This year, funding in the digital sector not only broke last year’s record but also doubled compared to the previous year. However, investment in digital health still accounts for only about 7% of total venture capital funding, remaining on par with previous years. This also indicates thatThe Digital Health Industry Is Not a Bubble Economy. Currently, digital healthcare is gradually maturing.

2015 was a record year for industry consolidation, and the digital health sector was no exception.There were 180 mergers and acquisitions, nearly double the figure from last year.Public venture capital funding also reached $6 billion. Compared with other industries, perhaps the biggest theme of 2015 was the growing focus on consumer healthcare services. According to statistics, investments in consumer engagement in healthcare services and in the category of personal health tools and information tracking alone accounted for 23% of total investment. As we look ahead to 2016, increasing consumer participation brings us boundless business opportunities. Undoubtedly, the coming year will be another optimistic one, greatly exciting venture capitalists in the digital health sector.

The following are the main contents of the 2015 report.

US Dollars and Transactions

In 2015, venture capital investment in digital health companies exceeded $4.3 billion, remaining flat compared to 2014.

Source: Rock Health Funding Database

Note: The chart includes only digital health projects with transaction values exceeding USD 200 million; data statistics are current as of December 8, 2015.

Investment trends remained stable throughout 2015, with total investment comparable to that of 2014 and surpassing the $4.3 billion mark. Consequently, the compound annual growth rate (CAGR) from 2011 to 2015 exceeded 30%.

Investment growth was sluggish at the beginning of 2015, but it quickly rebounded in the second quarter, which also saw the largest transaction volume and the highest average deal size of the year. Ultimately, the year concluded with 278 deals and an average transaction value of RMB 15.6 million.

Digital healthcare continues to attract the attention of conservative investors, accounting for 7% of total venture capital investment.

Source: PwC MoneyTree (latest available data is through Q3 only); digital health data based on Rock Health data

Note: The chart only includes digital health projects with transaction values exceeding $200 million.

In 2015, overall venture capital investment showed a slight downward trend. However, digital health maintained a stable share of total VC funding, accounting for 7%. Its growth rate was significantly lower than that of other sectors, such as software and medical devices.

Although the total number of projects decreased compared to the previous year, the average transaction size reached $1.56 million, hitting a record high.

Source: Rock Health Funding Database

Note: The chart includes only digital health projects with transaction values exceeding USD 200 million; data statistics are current as of December 8, 2015.

In 2014, digital health investment showed a significant upward trend compared to previous years, both in the number of deals and the average deal size, with growth rates of 56% and 35%, respectively. In 2015, although the total number of investments declined slightly, the average transaction size reached a record high of $1.56 million. As the digital health industry continues to develop and mature, expectations for the sector align with its actual growth trajectory.

The number of employees in the digital healthcare industry is also growing, increasing from an average of 44 to 50. Compared with the average of 39 employees in 2013, the growth trend in employee numbers in 2015 was also very significant.

The total amount of the six largest investments in 2015 approached $1 billion, accounting for 17% of the total investment volume in 2015.

Source: Rock Health Funding Database

Note: The chart includes only digital health projects with transaction values exceeding USD 200 million; data are current as of December 8, 2015.

NantHealth’s latest investment round reached $200 million, making it the largest deal of the year. This brings NantHealth’s total investment in 2015 to $680 million. Additionally, two of the six major investments were attributed to consumer-driven genetics companies: 23andMe and Helix. Currently, the utilization rate of genetic services stands at only 7%. Investors are confident that consumption in this sector will see significant growth, as consumers increasingly recognize the value of leveraging genetic products and services to understand and improve their health.

The high-growth digital health categories in 2015 reflected the importance of cost reduction, user experience engagement, and enhanced communication and coordination.

Source: Rock Health Funding Database

Note: The chart includes only digital health projects with transaction values exceeding $200 million; data statistics are current as of December 8, 2015.

Investment in consumer-driven genetic companies has boosted funding in the categories of personal health tools and information tracking, with the total amount exceeding the combined investments in patient care coordination and life sciences. This reflects a growing emphasis on the importance of building a consumer-centric healthcare ecosystem.

Care coordination companies not only provide more streamlined workflow solutions but also strive to identify pathways to improve patient experience. Meanwhile, life sciences companies have witnessed significant advancements in biopharmaceuticals to address pricing pressures, ultimately accelerating the drug development process.

Investors

The most active investors in 2014 continued their strong momentum in 2015.

Source: Rock Health Funding Database

Note: The chart includes only digital health projects with transaction values exceeding USD 200 million; data statistics are current as of December 8, 2015.

The digital health industry is attracting an increasing number of professionals from other fields to explore opportunities. A growing number of investors are simultaneously investing in three or more projects. Since 2011, one-fifth of the investors who have invested in ten or more projects have been strategic investors. The most active investors in 2014 maintained strong investment momentum in 2015.

Geographical Features

Digital health companies headquartered in California, U.S., continue to secure the majority of funding, with San Francisco Bay Area–based firms accounting for nearly 40% of total digital health investment.

Source: Rock Health Funding Database

Note: The chart only includes digital health projects with transaction values exceeding USD 200 million; data statistics are current as of December 8, 2015.

In 2015, digital health companies from 30 U.S. states secured investment. This year, total investment in New York also exceeded $500 million, making it the second major hub for digital health companies after California.

Demographic Characteristics of CEOs

Among the companies that received funding in 2015, some had female CEOs, but male CEOs still constituted the majority.

Source: Rock Health Funding Database

Note: The chart only includes digital health projects with transaction values exceeding USD 200 million; data statistics are current as of December 8, 2015.

Although the majority of funded digital health companies are led by male CEOs, the number of female CEOs has doubled compared to 2014. More than 10% of these companies have a female CEO. Among digital health companies founded in 2015 and those that received funding in 2015, 31% had a female CEO.

Most female CEOs hold advanced graduate degrees; more than one-third possess an MBA, while 11% hold a PhD and 9% are Medical Doctors (MDs). Among funded digital health companies, the states with the highest number of female CEOs are California (21), Massachusetts (7), and New York (3).

Summary

Funding Amount and Number of Projects:In 2015, total venture capital investment in digital health companies exceeded $4.3 billion, remaining flat compared to 2014. The compound annual growth rate from 2011 to 2015 surpassed 30%. The year ultimately concluded with 278 deals and an average transaction value of $15.6 million.

Six Major Funded Categories:The six major thematic categories that each received more than 50% of the total funding are: Consumer Engagement in Healthcare Services, Wearable Devices and Biosensors, Personal Health Tools and Information Tracking, Payer Management, Telemedicine, and Care Coordination.

Growth Categories:The three areas that have experienced significant growth are personal health tools and information tracking, care coordination, and life science technologies. All sectors are facing immense pressure to reduce costs. Digital health will focus on the engagement experience of end users and strive to enhance communication and coordination, which play a critical role in current corporate development.

Prolific Investors:Digital healthcare continues to attract investor attention, with a growing number of investors participating in at least one transaction. Over the past five years, the most active digital healthcare investments have remained stable and diversified. In 2015, fourteen venture capital firms and ten strategic companies each participated in at least four investment deals.

Compiled by Zhang Fan
Editor: Mo Renying