Telemedicine companies see funding boom of $788M in Q1

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Going forward, health innovation investments will likely favor startups with solutions that either have a direct impact on a pandemic response or have a place of relevance in a changed world. (SmartPhotoLab/Shutterstock)

Venture capital funding for telemedicine companies surged in the first quarter of 2020 to $788 million.

That funding level is more than triple the $220 million telemedicine companies raised in the first quarter of 2019, according to communications and research firm Mercom Capital Group. Telemedicine funding jumped 258% year over year.

Global venture capital funding, including private equity and corporate venture capital funding, into digital health companies in the first quarter of 2020 came to a record $3.6 billion in 142 deals compared to $1.7 billion in 142 deals in the fourth quarter of 2019, Mercom Capital reported in its first-quarter digital health funding and M&A report.

Digital health venture capital funding in the first quarter of 2020 increased by 79% compared to the same quarter last year when $2 billion was raised in 149 deals. 

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Total corporate funding into digital health, including VC, debt and public market funding, increased by 112% with $3.7 billion in the first quarter of 2020 compared to $1.7 billion in the fourth quarter of 2019, the research firm reported.

“There was no evidence of coronavirus affecting digital health funding in Q1. Going forward, we anticipate investors to become more selective in this environment. The era of 'I don’t want to miss out' investments may be over. That may not be a bad thing,” said Raj Prabhu, CEO of Mercom Capital Group.

Following telemedicine, the top-funded digital health categories in the first quarter of 2020 were data analytics with $573 million, clinical decision support with $446 million, mHealth apps with $365 million, healthcare booking with $306 million and wearable sensors with $286 million.

Companies classified in the telehealth space, which includes telemedicine and remote patient monitoring technology, scored a total of $930 million from 35 deals in the first quarter, according to Mercom Capital.

"The healthcare industry is really leaning on digital health technologies, particularly telehealth solutions to tackle the coronavirus pandemic," Prabhu said. "We anticipate funding trends to shift among digital health technologies, and we also see investors lose interest in certain products and solutions which would have been funded in a pre-COVID world."

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There were major M&A deals involving telemedicine and connected care solutions this past quarter. Publicly traded company Teladoc Health bought InTouch Health for $600 million, and Masimo acquired NantHealth's Connected Care business for $47 million.

AMN Healthcare also bought Stratus Video, a provider of video remote language interpretation services for the healthcare industry, for $475 million. 

In the first quarter of 2020, there were 41 M&A transactions involving digital health companies.

Investment company StartUp Health also reported that health startups poised to support pandemic-response solutions saw a surge in funding in the early weeks of 2020.

When compared to first-quarter 2019 data, funding for telemedicine and patient monitoring startups had significant year-over-year increases—telemedicine funding is up by 1818%, and remote patient monitoring platforms by 168%, StartUp Health reported in a blog post about first-quarter funding trends.

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"Mental health, an otherwise underfunded health sector, also saw a 65% year-over-year increase in funding, suggesting the pandemic could shine a light on previously overlooked areas for health innovation," StartUp Health said.

The investment firm looked at publicly available data through March 31 on seed, venture, corporate venture and private equity funding.

As the COVID-19 outbreak has rapidly spread and physical distancing measures put in place, there has been a spike in demand for virtual care. Teladoc reported a 50% jump in virtual visits on March 13 for the week prior.

Online scheduling platform Zocdoc has added telehealth appointments to help meet demand, and startups such as Pager and Hims & Hers have expanded their telehealth offerings.

Health systems also have ramped up the use of patient monitoring technologies to manage patients outside hospitals.

While the first quarter of 2020 was a record-breaking quarter for digital health financing, funding levels dipped as the impact of the coronavirus was felt. Funding levels have gradually declined since the World Health Organization’s pronouncement of the pandemic March 11, StartUp Health reported.

And analysts warn that not every digital health company will thrive in the post-pandemic world.

"The uncertainty of financial markets will most likely lead to a herd-like shift of deal flow, with health innovation investments favoring entrepreneurs whose solutions either have a direct impact on a pandemic response or have a place of relevance in a changed world. In short, the rubric for measuring digital health’s relevance has been fine-tuned in order to account for a new world order—a post-pandemic world," StartUp Health wrote.

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