Rock Health's H1 2015 Digital Health Investment Lags StartUp Health by $7 Billion Amid Robust Market Activity

At the beginning of the month, StartUp Health, a prominent U.S. digital health accelerator, released its financing and investment report for the first half and second quarter of 2015. In comparison, Rock Health’s recently released report for the same period showed a total investment volume that was $700 million lower.

VCBeat has summarized the key points as follows:

• Although the growth rate slowed in 2015 compared to 2014, it closely followed the trajectory of 2014, and the investment momentum remained in a leading position.




• In the first half of the year, a total of over $2.1 billion in financing was secured, slightly lower than the same period last year. Among these, 80 projects received funding attention for the first time.




• Five companies completed IPOs (including Teladoc, which listed on July 1), with a combined market capitalization exceeding $11 billion, compared to only five IPOs for the entire previous year.




• The second half of the year will be fraught with uncertainties, but one thing is certain: more companies will go public, and fueled by the buoyant capital markets, there will be a surge in financing deals this summer.

Total investment in the first half of 2015 exceeded $2 billion, nearly on par with the level in 2014.

Compared with the significant growth in the internet healthcare sector last year, the pace slowed slightly in 2015, with a year-on-year decrease of $70 million. In the first half of 2015, financing volume was relatively low in the first quarter, with an average transaction size of $10 million. However, there was a notable rebound in the second quarter, bringing the average transaction size for 2015 to over $15 million, slightly higher than the $14.6 million recorded in 2014.

Internet Healthcare Financing Momentum Continues to Outpace Overall Financing and the Software, Biotechnology, and Medical Device Sectors

In the first half of 2015, 136 internet healthcare companies raised more than $2 million in financing.

Top 6 Deals: Financing Amount Exceeds One-Third of Total for First Half of 2015

The top three deals were all growth equity investments: Jawbone raised $300 million from BlackRock; NantHealth secured $200 million from Allscripts; and Virgin Pulse obtained $92 million, the largest external capital injection since the Virgin Group’s establishment. Health Catalyst raised $70 million, while Doctor On Demand and PillPack each secured $50 million. These six major transactions accounted for one-third of the total funding volume in the first half of the year. Notably, Doctor On Demand closed the largest Series B round in the history of internet healthcare, trailing only NantHealth, Evolent Health, and Flatiron Health.

The top six investment categories accounted for 50% of the total internet healthcare investment in 2015, with three of these categories not having ranked among the top six in 2014.

Top 6 Internet Healthcare Investments in H1 2015
1. Wearable and Biosensors – $387 Million
2. Big Data Analytics – $212 million
3. Healthcare Consumer Engagement – $176 million
4. Telemedicine – $169 million
5. Corporate Health – $128 million
6. EHR and Clinical Solutions – $74 million

Series B financing saw a slight increase; angel and Series A deals continued to lead.

In the first half of 2015, Series B financing accounted for 22% of the total, compared to only 18% in 2014. Ten companies that completed their Series A rounds in 2014 proceeded with their Series B transactions this year as scheduled, with typical examples including Stride Health (advancing from Series A to Series B) and PillPack (advancing from Series B to Series C). Early-stage financing volumes remained flat, while Series B/C financing decreased by 20%–35% compared to 2014.

Venture capital continues to focus on early-stage investments, while corporate venture capital places greater emphasis on late-stage deals.

In the first half of 2015, many active investment firms returned to the scene, including NEA, Venrock, First Round, and Social+Capital Partnership. There were also new faces, such as RRE Ventures and Thrive Capital, each investing in three deals. In terms of corporate venture capital, GE Ventures and Cambia Health Solutions took the lead, with five and four investments respectively. Google Ventures, previously a top investor, stepped back from the leading position and shifted its focus toward broader frontiers in life sciences. Furthermore, among the 330 investment firms active in the first half of 2015, nearly one-third had made their inaugural investments in the internet healthcare sector since 2011.

Internet healthcare companies headquartered in California continued to attract the majority of investment, with firms in the San Francisco Bay Area securing nearly 40%.

In the first half of the year, transactions spanned 23 states (with nine states still having no digital health transactions in the past five years). California accounted for more than half of all transactions (with Jawbone and NantHealth comprising nearly 25% of these), while Boston and New York continued to compete for the position of the second-largest digital health market.

By mid-2015, 92 M&A transactions had already occurred, nearly matching the full-year total of 95 deals in 2014; however, the total disclosed transaction value amounted to only $2.6 billion.

In 2014, there were a total of 95 M&A transactions, amounting to $20.4 billion. In the first half of 2015 alone, 92 deals were recorded, with a disclosed total value of $2.6 billion, indicating that the majority of transactions did not disclose their financial terms. Among these, several internet healthcare companies played an active role as acquirers, accounting for more than half of the acquisitions.

Furthermore, the two most notable M&A transactions were Under Armour’s acquisition of MyFitnessPal for $475 million and Managed Health Care Associates’ acquisition of SoftWriters for $450 million.

Four internet healthcare companies went public in the first half of the year, while Teladoc made its market debut on the first day of the second half of 2015.

In the first half of 2015, publicly listed internet healthcare companies raised over $1 billion in funding, with the total market value exceeding $10 billion. Among them, Fitbit became the largest tech IPO of the year, while the combined market capitalization of Evolent and Teladoc increased by more than $1 billion following their public listings.

In the First Half of 2015, Listed Internet Healthcare Companies Outperformed the S&P 500 Index

25 listed internet healthcare companies saw an average gain of 7.3% in the first half of the year, outperforming the S&P 500’s 1.2% rise. The biggest contributor was Fitbit, which went public in June.

Review

• Investment Amount and Transaction Volume:In the first half of 2015, total venture capital investment in the internet healthcare sector reached $2.1 billion, essentially flat compared to the same period in 2014.

• Major Categories:In the first half of 2015, the top six categories accounted for 54% of total investment. These were: wearable devices and biosensors, big data analytics, consumer health engagement, telemedicine, corporate health management, and EHR and clinical solutions. Among these, big data analytics and consumer health engagement have consistently ranked within the top six in recent years.

• Most Active Investments:In the first half of 2015, 330 distinct investment institutions participated in investments in internet healthcare, with 108 of them investing for the first time. The most active investors have maintained their stability consistently over the past four years.

• Exit Activity:Numerous M&A transactions occurred in the first half of 2015, with the volume significantly exceeding that of 2014; however, the publicly disclosed transaction value was notably lower than the previous year. Internet healthcare companies remained the most active acquirers. In addition to private exits, the public markets saw the IPOs of five internet healthcare companies (including Teladoc, which debuted on July 1), bringing their combined market capitalization to $11 billion.

Compiled by Zhao Yinong | Edited by Mo Renying