The 'Edge Report Blog

Guest Post: Digital Health: Top Performer For the Next Decade

April 27, 2016

It’s been another record raise for digital health companies in the first quarter of 2016: $1.8 billion in venture capital. It’s the latest sign that the convergence of healthcare with digital technology continues to demonstrate incredible potential. The continued funding surge is no fad, as it is becoming clear to VCs that digital health will emerge as a top performer across the venture investment landscape throughout the next decade.

The funding data comes from Startup Health, a global entrepreneurship development company for transformative healthcare chaired by former Time Warner Chairman and CEO Jerry Levin and backed by prominent investors such as Steve Case and Mark Cuban.

As recently as 2011, digital health attracted less than $1 billion in venture capital. But in 2015 digital health venture startups raised a record $4.5 billion according to Rock Health, up from $4.1 billion in 2014 representing over 125% year-over-year growth.

Why is this happening? Until recently, healthcare remained stubbornly behind other industries in the adoption of modern information technologies. But that is starting to change. We are seeing ample evidence that digital health not only is increasing the quality and efficiency of healthcare — and at a time when record numbers of Americans are insured, but also is responsible for a meaningful amount of out-of-pocket healthcare expenses, igniting a consumer trend to demanding the best value for the healthcare dollar.

In addition, digital health companies are actually “walking the walk” by bringing together IT, communications, software and hardware technologies that deliver platform solutions with demonstrable return on investment.

Of the money raised in Q1, Oscar Health, a web-assisted health insurance company, landed the most VC last quarter, raising $400 million. To date, the company raised more than $475 million and is reportedly valued at $2.7 billion in just its third year after going live. While I like its concept of an online, consumer-focused health plan, the company’s valuation is hard to support given its current membership and the hyper-competitive nature of the insurance business.  Its investors must foresee explosive growth in membership and a solid plan to reduce medical expenses. But I believe they can succeed and prove a consumer-focused health insurance model that will be of great benefit to many.

Other digital health companies that raised at least $100 million were oncology analytics company Flatiron Health, genomics sequencing company Guardant Health, consumer health information business Healthline, and Mindmaze, which uses virtual reality to treat neurological disorders.

Digital therapeutics, a newly expanding category of healthcare companies, is also coming on strong. Among the quarter’s winners in this sector was young startup Pear Therapeutics, which focuses on treatment of substance abuse with digital therapeutics and raised more than $20 million.

Among the biggest digital health investors in Q1 was University of Pittsburgh Medical Center (UPMC), which made four investments. Among the companies in which it invested were Lantern, which uses technology to integrate mental health into primary care, and Health Catalyst, a big data analytics company. UPMC invests in four technology areas: clinical tools, population health, consumer centric healthcare and business services and infrastructure.

Companies I believe will get great traction over the coming years are CareSync, a family health record that collects, organizes, and stores health information on a secure, privacy platform, Zipnosis, a startup that provides virtual care platforms, that recently raised $17 million in its Series A, and HealthReveal, a company that’s leveraging advanced analytics and biomonitoring for early detection and diagnostic and treatment guidance to preempt the advance of disease.

Another of my favorites is HealthEdge, which is a Psilos portfolio company.  They provide modern, disruptive technology that delivers a suite of products that enables health insurers to leverage new business models, improve outcomes, drastically reduce administrative costs and connect everyone in the healthcare delivery cycle.

Like all venture backed companies, it will take time for these companies to become the next Google or Apple.  But finally America is on an inevitable path toward improving healthcare outcomes and quality while lowering the cost of healthcare, and technology will be the enabler of this endeavor.  Expect digital health to become “Health” over the next 10 years, as technology becomes the backbone of the healthcare business environment, just as it is in our other industries.