Rock Health recently released a decidedly mixed report on the current state of Digital Health investing, as the data suggest many investors continue to tentatively explore the sector, but most have yet to make a serious commitment.
Overall, VC funding for digital health increased significantly over the past year, from just under $1B in 2011 to about $1.4B in 2012; 20% of this total was associated with just five deals: two raises for transparency companies, Castlight (targeting employees with high deductible plans looking to manage their costs) and GoHealth (targeting consumers contemplating purchase of health insurance); two raises for referral companies, Care.com (helps consumers find the right caregiver – defined broadly, as needs addressed include eldercare, child tutoring, babysitting, and pet care) and BestDoctors (helps employees find the right doctor), and one deal for 23andMe (a pioneering consumer genetics company).
Not surprisingly, the largest thematic area of investment ($237M) was “health consumer engagement,” comprised of companies that – like the first four above – help consumers or employees with healthcare purchases. “Personal health tools and tracking,” the second leading category, captured $143M in funding last year. “EMR/EHR” ($108M) and “hospital administration” ($78M) rounded out the list; the last two numbers seem shockingly low given the apparent size of these markets, and suggest both areas may be perceived as firmly owned by incumbent players, and prohibitively difficult for new participants to enter.
Athenahealth’s just-announced acquisition of Epocrates highlights the competitive pressures even existing EMR companies face as they struggle for traction in an environment that seems to be increasingly dominated by a few large players, most notably Epic. “Our biggest obstacle,” Athenahealth CEO Jonathan Bush told Bloomberg Businessweek, “is that 70% of doctors don’t even know we exist.” In contrast, I’ve suggested that a category I’d broadly define as EMR adjacencies may be primed for growth, as VC’s Stephen Kraus and Ambar Bhattacharyya have also discussed recently in this intelligent post. The related area of care transitions is also attracting considerable entrepreneurial interest, including current Rock Health portfolio companies WellFrame and OpenPlacement, and TechStars alum Careport; it remains to be seen whether a robust business model will emerge here.