StartUp Health released their Q3 2017 report recently providing a number of insights into the size and speed of investment into the global digital health market.
I think it is clear that investor confidence is increasing in the digital health sector as startups produce more evidence, repeat customers and recurring revenue, despite the slow adoption rates of technology and long sales cycles experienced by everyone in the industry.
Investors in the US, Europe, Asia and Australia are backing startups with larger later stage rounds based on the theory that once digital health software, hardware or devices are adopted, they will become sticky, frequently used, be hard to displace with a competitive product, continue to improve patient/clinician experience and ultimately unlock cost savings.
It is no surprise that significantly more Seed stage and early stage funding is focused on B2C and consumer/patient facing startups than B2B and enterprise focused startups. Three main reasons come to mind to explain this -
1) Incumbents - there are very few incumbent providers of B2C digital health software, hardware or devices. Therefore the bet on startups with well designed, intuitive products that remove the friction for consumers/patients is worth taking as the competition is significantly lower than in clinical settings and B2B markets.
2) Mass market - it is traditionally easier to secure proof points for B2C startups because the total addressable market is much larger, products used by consumers/patients solve problems every day and word of mouth/viral spread of awareness is easier due to social media, WhatsApp and email.
3) Less regulation - releasing products for use by patients and consumers is a lot easier than releasing products or use by doctors, clinicians and surgeons. Data protection laws, information governance requirements and systems integration needs are significantly higher in a B2B and enterprise setting.
However despite all this very positive news, where are the exits for investors and why have Apple, Google, Facebook, Samsung, Amazon and Oracle not acquired digital health startups to enter the healthcare market?
What is holding back M&A activity in the digital health sector?
StartUp Health - www.startuphealth.com
StartUp Health is organizing and supporting a global army of Health Transformers. StartUp Health is investing in 10 health moonshots with the long-term goal of improving the health and wellbeing of everyone in the world. With the world’s largest digital health portfolio (Nearly 200 companies spanning 5 continents, 18 countries and 65+ cities), StartUp Health’s long-term platform for entrepreneurs includes the StartUp Health Academy, StartUp Health Network, StartUp Health Media and StartUp Health Ventures. StartUp Health was founded by Steven Krein and Unity Stoakes and is chaired by former Time Warner CEO, Jerry Levin.
StartUp Health Insights : Global Digital Health Funding Report Q3 2017 YTD
1) 2017 is on track to pass $10 Billion in Funding
2) Digital Health StartUps with traction and customers are securing bigger investment rounds
3) Big Data and Analytics top the Digital Health sub sectors, medical devices is rapidly increasing in focus for investors
4) Later stage investment rounds are growing in size as digital health startups produce more evidence, repeat customers and recurring revenue
5) Early stage investment rounds are still focused more on B2C and patient/customer experience startups, productivity and efficiency startups are starting to secure more later stage funding
6) Later stage digital health investments are not dominated by US startups, a lot of activity now in Europe, Asia and Australia
7) Traditional technology investors are well represented as the leading digital health investors