Digital health completes record-breaking year of funding, entering a new stage of maturity

Driven by consumerism, digital health funding hit record highs in 2017. (Image: Pixabay)

After surpassing previous year-end funding totals by the end of the third quarter, the digital health industry closed out 2017 with a record year of investment.

Analysts believe the industry will maintain those funding levels as digital health enters a new stage of maturity, although recent legal concerns could bring more scrutiny in 2018.

“It’s clear that the early game has concluded and digital health is entering the ‘middle innings’ as an investment sector,” Rock Health researchers Megan Zweig and Rachana Jain wrote in an year-end analysis. “We’re at the end of the beginning of digital health.”

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Total digital health funding reached $5.8 billion in 2017 with a record 345 deals, according to Rock Health, which tracks U.S. transactions that exceed $2 million. Total funding in 2016 was $4.4 billion.

StartUp Health, which analyzes digital health funding across the globe reported $11.5 billion in funding in 2017, a $3.3 billion increase from the previous year.

But there were some notable caveats. Despite a spike in investment, especially early in the year, there no initial public offerings in 2017, although Rock Health analysts noted that a frozen IPO market has impacted all industries, adding that “for now, at least, M&A is the new digital health IPO.”

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A significant chunk of last year’s funding also traced back to Outcome Health, a company that is now facing intense scrutiny from regulators and investors. Outcome closed a $500 million funding round in May 2017, but those investors have sued to get their money back, claiming the startup gave the fraudulent financials. The allegations may force investors to review digital health companies with a more critical eye in 2018.

One thing is clear: Consumerism drove last year’s funding. Patient and consumer experience deals represented the largest portion of last year’s total, accounting for 191 deals and $1.64 billion in funding, according to StartUp Health. Likewise, consumer health information companies accounted for $1.6 billion. Even without Outcome Health’s $500 million funding round, that category still significantly outpaced other sectors like clinical decision support, disease monitoring and clinician workflow.