In 2013 interest increased in digital healthcare, with everyone from Apple and Google to Ford and AT&T making investments and announcing they intended to enter the sector. But 2014 will be remembered as the year digital health got serious.
Our latest StartUp Health Insights report shows that the $5 billion in funding for digital health during the first nine months of 2014 is nearly double what investors put into the category last year. More companies are putting more money into diverse areas of digital healthcare, suggesting 2014 will be a landmark year. At StartUp Health, we are experiencing this moment of creative destruction first hand. Since 2011, we have been building an army of healthcare entrepreneurs and digital health innovators who are reinventing what’s possible in healthcare, and this year there has been a palpable lift.
A number of factors are driving the digital health revolution: Healthcare reform is changing business models; high costs and an aging population are creating demand; iPads, sensors, genetics, and big data are getting cheaper; and socially conscious thinkers and entrepreneurs graduating from the world’s best schools are opting to create companies in healthcare rather than things like gaming. As a result, healthcare is drawing attention from newbies, those living the system, and corporate entities—all at once.
One major signal of change is that entrepreneurship in digital health is increasingly being led by women, minorities, doctors, and global innovators within the health system who contribute unique and powerful perspectives. Women lead close to one-third of the companies in StartUp Health’s portfolio, and more than 40 percent are led by an MD or PhD. Increasingly diverse funding sources mirror the profile of the entrepreneurs.
That said, the funding, and in some cases the push into healthcare itself, is increasingly coming from corporate America. Apple declared its desire to be heard in healthcare when it opened up market opportunity to many more entrepreneurs through its HealthKit in the latest version of iOS 8 and announced the much-anticipated Apple Watch. Other companies including Microsoft, Samsung, Google, Facebook, and Twitter have made similar proclamations. But perhaps most interesting are the efforts by unlikely companies such as Ford, which is entering the market by integrating glucose monitoring into auto entertainment systems.
Growing investment in digital health outside the Bay Area and New York—historically the sector’s major markets—offers more evidence of an expanding footprint. Boston (26 deals through Q3) and Washington ($536 million in funding) may not surprise you as close followers, but Los Angeles (9 deals, $341 million) and Minneapolis (3 deals, $242 million) are also emerging as hotbeds for company formation. Nor is investment in digital health any longer U.S.-centric. Sixteen percent of StartUp Health’s portfolio is outside the U.S., in six different countries. We estimate that more than 5,000 startups around the world are developing new solutions in digital health.
Where are all these VCs, private equity funds, and corporations making their bets? Everywhere from big data and analytics to sensors and patient engagement, and including more in-the-weeds subsectors like tools to navigate the care system and genomics. At least 10 subsectors have each received over $200 million in funding to date.
At StartUp Health we’re driving as well as witnessing this historic moment. In the last five years we have seen company formation, funding, and attention in the digital health marketplace surpass our expectations. We’re excited by all that’s to come as the industry begins to touch the consumer—whether with wearables, invisibles, or solutions that make consumers smart buyers of healthcare. We look forward to being surprised much more in 2015.
Unity Stoakes is co-founder and president of StartUp Health, a global growth platform for entrepreneurs transforming healthcare.
