8 Investment Trends Digital Health Startups Need to Watch Out For

Everybody has their eyes set on digital health! And why not? This booming industry seems to show no signs of slowing down. After attracting an all-time high investment total of $4.5 billion in 2015, digital health startups are keenly watching the space this year. Here are the top eight investment trends that digital health startups need to watch out for in 2016:

1. Tech Corporates Will Continue to Pour Money into Digital Health:

The invasion of the tech giants in health care is stale news. Google, IBM and Apple have already made early inroads into digital health. More recently, Nokia’s acquisition of wearables company Withings made big headlines.

Google Ventures (GV), the investment arm of the eponymous search engine, has consistently been one of the most active investors in healthtech. In 2015, 23andMe, One Medical Group and TinyRX were among the startups that scored funds from this VC firm. In 2016, behavioral health startup Quartet Health raised $40 million in a second round of funding led by GV.

In 2016, expect to see more funding from tech companies and their investment arms.

2. Pharma and Health Insurance Corporates Double Up as Investors:

“If you can’t fight ’em, join ’em!” Perhaps there isn’t a more apt description of the current digital health scene. We’ve already seen an increasing number of leading health insurers invest money into startups.

According to CB Insights’ research, big pharma corporations are “effectively outsourcing the R&D of some newer and experimental drugs to smaller, more nimble companies by investing in them.”

Eddie Chan from Sanofi, for example, talks about how the pharma industry is finally moving forward from the initial skepticism of mobile and digital health technologies. He says,

For now, Merck, Roche and Novartis remain the most active investors among pharma corporates. As we move further into 2016, pharma and health insurers will continue to invest actively in digital health.

3. Wearables to Draw Increasing Investments:

The wearables segment of health care has been one of the most sought after in recent years. According to Rock Health, wearables emerged as the top funded digital health category in the first quarter of 2016. While Rock Health put the Q1 funding in wearables at $202 million, another report by Mercom Capital Group states that wearables/sensors saw a total investment of $260 million in this year’s first quarter.

One of the biggest deals at the beginning of 2016 was the $165 million investment raised by Jawbone, which builds and sells wearable technology to offer personalized insights into how people move, eat and sleep.

As the demand for wearables in health care rises, there will be a corresponding increase in investments for this segment. Stay tuned!

4. Big Data to Rule:

The healthcare industry has realized the value of data analysis. Not surprisingly, then, healthtech startups that dabble in big data are raking in big bucks. An increasing number of companies are focusing on integrating various out-of-hospital data with medical records to give doctors key insights.

In the first quarter of 2016, big data analytics companies managed to draw in $197 million in venture capital funding. In fact, one of the top VC deals this quarter was the $175 million raised by Flatiron Health, a clinical intelligence platform that gathers, analyzes and sells data on cancer treatments. The round was led by Roche, whose chief operating officer, Daniel O’Day, says,

Bill Taranto, head of the Merck Global Health Innovation Fund, talks about their emphasis on data. “Our primary investment thesis is based on the assumption that data is the currency we will use to transact in the future healthcare market, and all that data is derived from digital health.”

Digital health companies that are creating data feeds that make sense to doctors and help patients will see more investments coming their way.

5. More Investments Outside of the United States:

There has been a steady growth of digital health hubs outside the United States. This is a result of both the stringent regulatory issues in the United States, as well as a greater demand for digital health solutions in other countries, especially those with higher patient-to-doctor ratios.

Practo and Guahao, based in India and China, respectively, are two healthtech startups that have raised considerable funding. In addition, much of the growth in mobile health is predicted to be in Europe, according to BCC Research.

In 2014–15, Canada saw eight biopharma deals worth $218 million, and the United Kingdom witnessed 11 such deals, totaling $410 million. Health IT’s device segment also raised $110 million in six deals in Switzerland, and $46 million in three deals in the United Kingdom.

As we advance into 2016, we are sure to see more digital health hubs outside of the United States attract funds.

6. M&A Is Likely to Remain Elevated:

The year 2015 saw massive consolidation across health care, with more than $6 billion in disclosed activity and an average of $140 million per deal. Last year, M&A activity nearly doubled in volume from 2014, with a total of 187 deals.

In 2016 itself, there have already been a number of digital health acquisitions. Notable among these is the $20 million acquisition of nutrition coaching app maker Rise by One Medical Group.

Moreover, wellness company Virgin Pulse acquired two employee wellness companies, ShapeUp and Australia-based Global Corporate Challenge (GCC).

As we further advance into 2016, M&A activity will only step up.

7. More Digital Health IPOs:

As late-stage investors move away from private markets, many existing digital health companies will look at going public for further investments.

In 2015, five venture-backed digital health companies went public—Fitbit, InVitae, MINDBODY, Evolent Health and Teladoc.

For 2016, CB Insights has identified 34 digital health companies in its Tech IPO list, alongside six digital health companies that are valued above a billion dollars—Zocdoc, Proteus Digital Health, 23andMe, NantHealth, Oscar and Guahao. If late-stage investors continue to drift further away from private markets as they did in the last quarter of 2015, many of these firms will need to go to public markets for further funding.

Which digital health company will be next to file an IPO?

8. Consumers Are Becoming Investors:

Consumers are key for any industry, especially health care. With equity crowdfunding and social media, digital health startups are able to tap into a whole new group of investors—consumers!

Consumers are now directly able to support the healthcare solutions that they want to see in the marketplace. It’s no wonder that platforms like Kickstarter and Indiegogo are increasingly seeing digital health crowdfunding campaigns.

Investments via crowdfunding is all set to become the norm, rather than the exception.

As we advance into 2016, new funding trends are bound to emerge. Where do you think the money will flow in digital health this year?

More importantly, is your startup ready to respond to the changing investment landscape in digital health?

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