Too hot not to cool down? This year’s digital health funding, as reported by Rock Health, may be ‘just one of those things’ depending on what happens next quarter. After a torrid Q2 which brought first half 2017 to an explosive $3.5 bn [TTA 11 July], Q3 added only $1.2 bn for a total $4.7 bn. Bear in mind that this is larger than the full years of 2014-2016, and that Rock Health tracks only US deals over $2 million in value from venture capital, excluding government and grant funding. Rock Health’s report concentrates on deal sizes, trends, and types of companies. Here’s what this Editor found to be interesting:
Here’s what this Editor found to be interesting:
- Number of deals is at a record: 268 digital health funding deals across 261 companies. In 2016, 240 digital health venture deals had closed by the end of Q3 in 2016.
- Few mega-deals this quarter: The only ones are 23andMe with a $250 million round in September followed by cancer data company Tempus’ $70M Series C round. Average deal size dropped to $14.6 million. The cooling is great enough for Rock Health to predict that there may not be any IPOs this year–23andMe was considered the leading candidate but instead went for another round.
- 16 percent of companies funded in Q3 are led by women CEOs, up from 11 percent. Of course, this is influenced by 23andMe’s founder/CEO Anne Wojcicki. But almost more importantly, there’s been a breakthrough in that women’s and reproductive health companies continue to gain funding traction, and most are led by women.
- The two top categories for funding through Q3 are consumer: health information and personal health and tracking tools.
- Yet companies are shifting to a B2B business model from B2C, with 23andMe in the lead targeting drug discovery via the Genentech deal they have had for a long time. 61 percent of digital health startups that Rock Health tracks converted from B2C to B2B. No surprise to this Editor as consumer adoption is a slow and costly road.
- Exits are also cooling down as long-cycle reality hits. The ‘nine-inning ball game’ stated by an investor is, given healthcare’s long cycles, regulation, and slow adoption, is more like 15.
- Some recovery in public companies making money in earnings per share (EPS). Teladoc‘s recovered, while NantHealth continues in the doldrums. (Perhaps it’s Cher suing Patrick Soon-Shiong?)