VC funding for health IT exceeds $5 billion in 2016
2016 was a record-setting year for venture capital funding for health IT companies, with investment exceeding $5 billion for the first time, according to research firm Mercom Capital Group. In particular, mobile health as a technology category set a new record, with $2.1 billion in VC funding.
Overall, last year saw 622 deals worth $5.1 billion in investments, representing 9 percent in year-over-year growth compared to 574 deals which raised $4.6 billion in 2015.
“2016 was a pretty good year—compared to 2015 we grew about 9 percent, which is not bad, and we hit $5 billion for the first time,” says Raj Prabhu CEO and co-founder of Mercom Capital Group, who notes that VC funding rebounded after declining by 2 percent in 2015 compared to 2014.
At the same time, Prabhu points out that 2016’s numbers as a percentage are a far cry from the 2010-2014 time period, when VC funding nearly doubled each year.
Nonetheless, the top funded technology areas in 2016 included: mobile apps ($1.3 billion), wearable sensors ($592 million), data analytics ($574 million), telemedicine ($528 million), mobile wireless ($228 million), and wellness ($218 million).
“For mobile health, definitely it was a big year,” adds Prabhu. “The other area that is doing really well is data analytics. Companies that are coming up with software to parse the data, make sense of it and turn it into actionable intelligence are doing well.”
According to Mercom, the top five VC funding rounds in 2016 were: Chinese company Ping An Good Doctor with $500 million; Chunyu Yisheng, $183 million; Flatrion Health, $175 million; Jawbone, $165 million; and Meet You, $151 million.
“Looking globally, there was a lot of pick-up in funding in China, some really big deals, especially on the mobile health side,” observes Prabhu.
While Mercom reports that 35 countries recorded health IT VC funding activity in 2016, the firm reveals that most of the investment was in the United States, which saw more than $3.4 billion in 431 deals.
In addition to VC activity, Mercom also did an analysis of debt and public market financing for HIT companies, reporting that it fell to $533 million in 18 deals in 2016, compared with $3.4 billion in 29 deals in 2015. Further, there were only four initial public offerings in 2016, raising a combined $234 million, compared with seven IPOs in 2015 bringing in $2.2 billion.
“The enthusiasm in funding the sector by venture capitalists and private equity is not shared by the public markets,” says Prabhu. “On the public market side, compared with private companies, you have to make money, grow revenues and make profits.”
Still, of the 30 public health IT companies Mercom tracks, Prabhu notes that only eight companies beat the S&P 500 market index, compared with 15 in 2015, while about 60 percent of HIT public companies stocks the firm follows lost money in 2016.
Mercom also reports that mergers and acquisitions in the health IT sector in 2016 dropped slightly to 205, compared with 219 transactions in 2015. “M&A needs to grow along with funding, because companies are only going to get so much VC funding, beyond which they will have to either go to public markets, or somebody else has to buy them out,” according to Prabhu.
Mobile health apps were involved in 21 M&A transactions, followed by data analytics companies with 19, practice management solutions with 16 transactions, and telemedicine companies with 12.
The top five publicly disclosed M&A transactions in 2016 were the acquisition of MedAssets by Pamplona Capital Management ($2.75 billion); the purchase of Truven Health Analytics by IBM ($2.6 billion); the acquisition of Press Ganey Associates by EQT Equity fund EQT VII ($2.35 billion); the purchase of Netsmart Technologies by Allscripts & GI Partners ($950 million); and the acquisition of Verisk Analytics' healthcare services business from Verisk Health (known today as Verscend) by Veritas Capital ($820 million).