Digital Health Funding Year in Review 2014 by @Rock_Health

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Download this report here: https://gumroad.com/l/RCjx
Watch the archived webinar here: http://bit.ly/1w1k3ux

An in-depth look at the investors, companies, and trends that drove digital health to a record-breaking $4.1B in venture funding in 2014. The report also covers M&A activity, the most active investors in the space, a look at the public markets, a breakdown of deals by stage, and geographic distribution of funding, among other topics.

Update: On January 2nd, the most active investors (slide 13) list was corrected. Emergence Capital was originally unlisted due to an error and has been included in the list.

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Digital Health Funding Year in Review 2014 by @Rock_Health

  1. PRESENTATION © 2015 ROCK HEALTH Jan DIGITAL HEALTH FUNDING Year In Review 2014 January 1, 2015
  2. PRESENTATION © 2015 ROCK HEALTH Rock Health is powering the future of the digital health ecosystem, bringing together the brightest minds across disciplines to build better solutions. Rock Health funds and supports startups building the next generation of technologies transforming healthcare. Our partners include AARP, Abbott, Blue Shield of California, Boehringer Ingelheim, Deloitte, GE, Genentech, Harvard Medical School, Kaiser Permanente, Mayo Clinic, UnitedHealth Group and UCSF. Learn more at rockhealth.com DIGITAL HEALTH FUNDING YEAR IN REVIEW (2014) January 1, 2015 espite this being our fourth full year of tracking digital health funding and our eighth report on the subject, we were still surprised when venture funding exceeded $4B. The figure is staggering in many contexts—125% growth over 2013, four times the total from just three years ago, and nearly exceeding the sum of the last three years together. For the record, we don’t believe there is a bubble. We are fortunate to work with world-class entrepreneurs building sustainable companies in healthcare and see growth in funding as a reflection not only of their early success but also of the long, capital-intensive road ahead. As we begin 2015, it is obvious that our healthcare system is undergoing a technology-based transformation, with health reform serving as a massive tailwind. Entrepreneurs (and investors) are taking note (and advantage). With the growth in venture funding comes the obvious question of exits. We tracked 95 overall M&A deals and about $20B in disclosed M&A activity over the year, and another $10B in market cap created through IPOs. Public market performance both in new offerings and existing was weak in 2014, and the sector needs name brand companies that have taken on significant venture capital to find their way to an exit. It’s likely that 2015 will be an even bigger year than 2014. More deals, more exits. Stay tuned. D MALAY GANDHI @mgxtro TERESA WANG @teresawang6 AUTHORED BY WITH HELP FROM Lauren DeVos Sarah Jacobson Emily King Charu Raghu Sheila Shah Halle Tecco
  3. PRESENTATION © 2015 ROCK HEALTH Table of contents 3 SECTION KEY FIGURES Dollars and deals Venture funding of digital health companies (2011-2014) Growth in venture funding (2013 vs. 2012 and TTM Q3 2014 vs. 2013) Average deal size and count (2011-2014) Funding of top 6 categories (2011-2014) Fastest growing categories (2013-2014) Distribution of deals (2011-2014) Investors Distribution of investors by deal count (2011-2014) Most active investors by deal count (2011-2014) Geographies Deals by geography (2011-2014) Alternative funding Campaigns and dollars raised on crowdfunding platforms (2013-2014) Exits and public markets Digital health acquirers by category and notable transactions (2014) 2014 IPO price change relative to offering price 2015 IPO outlook survey Performance of publicly-traded digital health companies (2014) Summary 4 12 14 15 16 19
  4. PRESENTATION © 2015 ROCK HEALTH $0B $1B $2B $3B $4B $5B With a fast start in January, venture funding for digital health companies was set to reach new heights. By the end of the second quarter. it had already surpassed the entire 2013 funding total. Year-over-year growth in funding accelerated to 125% after slowing last year to 30%. With this latest year, compound annual growth (CAGR) from 2011-2014 hit 45%. 2014 also produced the largest four individual quarters ever for digital health funding, with Q2 alone exceeding the entire 2012 total. Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M Venture funding of digital health companies surpassed $4B in 2014, nearly equivalent to the prior three years (2011-2013) combined. 4 DIGITAL HEALTH VENTURE FUNDING 2011-2014 2014 $ 4.1B 2011- 2013 2014 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2011 $0.9B 2012 $1.4B 2013 $1.8B
  5. PRESENTATION © 2015 ROCK HEALTH 21% 29% 127% 77% 61% -17% 10% 29%30% 9% Source: PwC MoneyTree; digital health data based on Rock Health analysis Note: Digital health only includes U.S. deals >$2M Digital health is the bellwether of venture funding, outgrowing both traditional healthcare and technology sectors. 5 There is no question that venture markets are hot, with overall funding exceeding $48B in a single year for the first time since the dot-com era. Within that context, digital health funding has demonstrated differentiated growth, outpacing overall funding, the software sector, and traditional healthcare sectors—biotech and medical devices. With this growth, digital health accounted for nearly 9% of all venture funding in 2014, a record that nearly triples its contribution to overall funding in 2011. With the continued pressure on funding for medical device companies, digital health has for the first time overtaken medical devices in aggregate venture funding. GROWTH IN VENTURE FUNDING 2013 vs. 2012 and 2014 vs. 2013 ALL VENTURE FUNDING SOFTWARE DIGITAL HEALTH BIOTECH MED DEVICE 2013 vs. 2012 2014 vs. 2013 LEGEND
  6. in 2014 258digital health companies each raised more than $ 2 million
  7. PRESENTATION © 2015 ROCK HEALTH Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M The average deal size and the total number of deals increased significantly in 2014, leading to a record-breaking year for digital health funding. 7 For the prior three years (2011-2013), average deal size has been steadily declining against significantly increasing deal count, falling under $10M in 2013. 2014 brought a sharp reversal to this trend, with average deal size up nearly 43% over 2013 to $14M. This increase in average deal size was combined with record deal growth of 56%, leading to to an overall record year for digital health funding. AVERAGE DEAL SIZE AND DEAL COUNT 2011-2014 AVERAGEDEALSIZE 2011 $0.9B 2012 $1.4B 2013 $1.8B 2014 $ 4.1B NUMBER OF DEALS 86 138 189 295 $15M $10M $5M
  8. PRESENTATION © 2015 ROCK HEALTH The six largest rounds of the year total to more than $1B, representing nearly 25% of all 2014 funding. 8 LARGEST VENTURE ROUNDS 2014 The largest deal of the year, funding NantHealth, was led by a sovereign wealth fund, the Kuwait Investment Authority. Flatiron Health was the third largest and perhaps most remarkable deal of the year, raising $130M in a Series B (with an undisclosed amount going towards the acquisition of Altos Clinical, an oncology EHR provider). Corporate investors were the most active type of investor in the largest deals. Five of the top six categories of the year were influenced by these outsize venture deals (personalized medicine, population health management, digital medical devices, telemedicine, and analytics/big data). Source: Company websites Note: NantHealth and Proteus raised in two rounds ($250M + $125M for NantHealth and $120M + $52M for Proteus) Converging biomolecular medicine and bioinformatics with technology services to empower physicians, patients, payers $ 375M Series B Creating new pharmaceuticals that integrate medicines with ingestible, wearable, mobile and cloud computing $ 172M Series G Aggregates and transforms clinical and financial data from EMR and billing systems in real-time for oncology intelligence $ 130M Series B Provides partners with a continuous care program, including care coordination, risk management, and IT enablement $ 125M Growth Brings genetic information into routine medical practice to improve the quality of healthcare for billions of people $ 120M Series F Offers software, services, and access to clinical services to anyone who wants to offer a complete telehealth service $ 81M Series C
  9. PRESENTATION © 2015 ROCK HEALTHNote: Rock Health tracks funding across 24 separate categories The top six categories accounted for 44% of all digital health funding in 2014, with software-driven personalized medicine entering the rankings for the first time. 9 FUNDING OF TOP SIX 2014 CATEGORIES 2011-2014 1 Healthcare consumer engagement* Healthcare consumer engagement* EHR and clinical workflow 2 Analytics and big data* EHR and clinical workflow Analytics and big data* 3 Digital diagnostics Personal health tools and tracking Digital medical devices* 4 EHR and clinical workflow Care coordination Population health management* 5 Post-acute solutions Wearables and biosensing Wearables and biosensing 6 Hospital administration Telemedicine* Healthcare consumer engagement* TOP 6 FUNDING CATEGORIES 2011-2013 *Also a top 6 category in 2014 1 Analytics and big data Data aggregation and analysis to support a wide range of healthcare use cases $ 393M 2 Healthcareconsumerengagement Consumer tools for the purchasing of healthcare services or health insurance $ 323M 3 Digital medical devices Software/hardware designed to treat a specific disease or condition $ 312M 4 Telemedicine Delivery of healthcare services through virtual channels (e.g., phone, video, text) $ 285M 5 Personalized medicine Software to support the practice of medicine customized to an individual’s genetics $ 268M 6 Population health management Platforms for managing population health under the shift to risk-based payment models $ 225M Analytics / big data Healthcare consumer engagement Digital medical devices Telemedicine Personalized medicine Population health management $2.0B $1.5B $1.0B $0.5B VENTURE FUNDING 2011 2012 2013 2014
  10. PRESENTATION © 2015 ROCK HEALTH TELEMEDICINE PAYER ADMINISTRATION DIGITAL THERAPIES Three categories experienced breakout growth in 2014, suggesting transformational changes in the way healthcare will be defined, delivered, and administered. 10 Telemedicine was the fastest growing category of 2014, fueled by mega deals in both established and new entrants. As both licensing and reimbursement turn favorably towards the sector, we expect telemedicine to be a mainstay of the top category list. Health insurers continue to face significant administrative cost pressures, largely due to MLR caps and are investing in technology-enabled operational efficiencies, leading to rapid growth of companies in the payer administration space. Finally, digital therapy companies that raised seed capital 2-3 years ago have demonstrated their effectiveness through initial studies—leading not only to commercial traction, but also significant fundraising. With more addressable diseases and more evidence, digital therapies are just getting started. FASTEST GROWING CATEGORIES 2013-2014 overall funding and year-over-year (YoY) growth 2013 funding LEGEND 2014 funding 2013-2014 YoY growth SIGNATURE DEALS OF 2014 315% 269% 266% % $300M $200M $100M Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M
  11. PRESENTATION © 2015 ROCK HEALTH Digital health deal volume has tripled over the last three years, primarily driven by the growth of early deals in the Seed and Series A stages. 11 2011 2012 2013 2014 Excluding small deals (under $2M, representing less than $200M in annual activity) allows for a clearer picture of the growth in early stage companies, which dominate digital health funding and have been the primary driver of increased deal volume. Multiple companies advanced through the funding funnel in 2014. Twelve companies progressed from Series A to B, five from B to C, one from C to D, two from D to beyond, and finally one company (Vivify Health), raised both a Series A and B in 2014 following its seed in early 2013. At the early stage, round sizes have increased dramatically, with Series A and Series B up 38% and 61%, respectively. DEAL DISTRIBUTION 2011-2014 (total deals and % of deals by stage) 86 134 185 295 100% 75% 50% 25% LEGEND D+ C B SEED & A Deal volume Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M; 52 of the 295 deals were not classifiable by stage
  12. PRESENTATION © 2015 ROCK HEALTH While the number of investors dabbling in digital health continues to climb, serial investors are growing even faster, with 35 firms doing three or more deals apiece in 2014. 12 One Two Three > Four 1718 61 283 8 21 28 200 53 27 121 43 18 103 Each year since 2011, the number of investors entering the digital health space has climbed. Funds doing only a single digital health deal in a year (the “dabblers”) have nearly tripled over that time period, while those who do three or more deals (“serial” investors) has grown by five times over the same period. Serial investors tend to stick, with slightly more than half of those from 2013 doing 3+ deals in 2014 as well. On the other side, dabblers show moderate persistence, with 35% of the 2013 group doing at least one deal in 2014 as well. New digital health investors drive the increase in dabblers, with 216 of the 2014 group appearing for the first time in our database. DISTRIBUTION OF INVESTORS BY DEAL COUNT 2011-2014 NUMBER OF DIGITAL HEALTH INVESTMENTS # of investors in each year LEGEND 2011 2012 2013 2014 Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M
  13. PRESENTATION © 2015 ROCK HEALTH 5 5 5 10 The most active investors in digital health represent a broad cross section of corporate, healthcare, technology, and sector-agnostic venture funds. 13 The top of the most active investor list has remained remarkably stable over the 2011-2014 time period, with both KPCB and Qualcomm amongst the most active funds each year. Thirty-nine separate funds did at least six deals over the 2011-2014 period, representing a nearly equal mix of healthcare-focused, tech-focused, sector-agnostic, and corporate venture funds. Digital health has benefited from having a diverse base of investors with widely varying investment theses, with many of the most active firms not having done any co-investments. MOST ACTIVE FUNDS Deals in 2014 & cumulative deals 2011-2014 4 4 4 4 4 4 4 5 5 6 6 7 7 21 20 11 8 17 15 10 8 10 10 7 16 14 11 8 VENTURE CORPORATE # of deals LEGEND 2014 2011-2014 cumulative 2014 2011-2014 cumulative Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M 7
  14. PRESENTATION © 2015 ROCK HEALTH Digital health companies from over 30 states received funding in 2014, with Bay Area- based companies accounting for 25% of all 2014 funding. 14 DEALS BY GEOGRAPHY 2011-2014 In 2014, California-based companies raised $1.8B, nearly as much as total funding in all of 2013. Boston and New York metro areas experienced rapid growth in dollars raised since 2011 (303% and 136%, respectively). Over the past four years, the top three states that saw the most growth in deal volume were Illinois, Pennsylvania, and Tennessee. 2011 2012 2013 Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M 2014 83 12 11 26 26 10 9 9 $0-10M LEGEND $10-50M $50-100M $100-500M $500M+> # of deals in metro area
  15. PRESENTATION © 2015 ROCK HEALTH ................................................................................................................................... 31% 23% 2014 ...........................................................................................2013 $7.8M $5.0M Source: Crowdfunding platform websites Note: Only includes deals ending in 2014 Although the total number of campaigns on crowdfunding platforms has increased by over 60%, successful campaigns and total dollars raised are in decline. 15 Failed LEGEND Successful CROWDFUNDING PLATFORMS 2013 vs. 2014 ......... ....................................2013 2014 67% 47% $0.9M $4.5M ................ 15% ....................2013 2014 75% $0.4M $0.1M Across all three major crowdfunding platforms, a total of 187 campaigns were tracked in 2014. Despite the growth in number of campaigns, success rates have declined across all platforms. In June, Kickstarter changed its policies to lower barriers for health and medical product campaigns. Since then, 33 campaigns have closed with half of those ending successfully. One campaign alone accounted for 53% of total dollars raised on Kickstarter (Hello’s Sense). # of campaigns 2013 Funds raised 2014
  16. PRESENTATION © 2015 ROCK HEALTH Source: Rock Health tracking and analysis based on news reports Note: M&A transactions totals and lists are not meant to be comprehensive We tracked 95 M&A deals throughout 2014, representing over $20B in disclosed transactions. 16 Health tech Med device Payer Biopharma Provider Other healthcare Tech Other 6 3 2 1 4 3 4 11 47 8 6 6 4 4 7 13 Other healthcare Aggregate transaction value Per disclosed deal $2.3B $210M $670M $168M $1.0B $344M $322M $80M $17M $17M $12.2B $6.1B $126M $42M $3.4B $567M $20.1B $591MTOTAL # of M&A deals LEGEND With disclosed transaction value 2014 total Target Acquirer Amount CareFusion BD $12.2B TriZetto Cognizant $2.7B Siemens Health Cerner $1.3B Alere Optum $600M bswift Aetna $400M Privia Brighton Health $400M API Healthcare GE $340M Change Healthcare Emdeon $185M Corventis Medtronic $150M Definiens AstraZeneca $150M Basis Intel $100M Medico.com Everyday Health $100M RxAnte Millenium Labs $70M CardioMEMS St. Jude Medical $60M Citrus Lane Care.com $49M HealthPost Advisory Board Co. $25M Wello Weight Watchers $9M Meddius Premier $8M Target Acquirer Altos Solutions Flatiron Health AmeriDoc Teladoc Archimedes Evidera Audax Optum Bina Technologies Roche Breakthrough MDLive CareInSync Hearst Health ClarusHealth Cambia Health eCardio Merck Lift Labs Google MedSynergies UnitedHealth Group MindBloom WellTok PatientKeeper HCA ProtoGeo (Moves) Facebook Sense4Baby AirStrip Wireless Sessions MyFitnessPal TheraSim WebMD Zephyr Technologies Covidien DISCLOSED UNDISCLOSEDDIGITAL HEALTH ACQUIRERS BY SECTOR 2014 (notable transactions listed at right)
  17. PRESENTATION © 2015 ROCK HEALTH Five digital health companies went public in 2014, all of which are currently trading below their highs. 17 69% 149% 37% 41% 11% -51% -27% 5% 28% -13% IPO Baseline CRCM CSLT EVDY IMS IMPR 2014 total IPO RAISE $91M $177M $115M $1.3B $66M $1.7B MARKET CAP $0.26B $1.06B $0.45B $8.5B $0.31B $10.6B LEGEND Price change relative to IPO 2014 high Dec. 31 2014 Three out of the five companies are down from their debut, with Castlight Health experiencing the largest sell- off, losing nearly 75% of its peak value. IMS Health—a company making its second IPO after being taken private in 2010—is showing the biggest gain since its offering. Without any offerings in the second half of 2014, digital health has pent up demand for exits in 2015, with our readers identifying the largest names in the space as most likely to IPO. IPO LANDSCAPE 2014 IPO performance & 2015 survey 2 3 9 10 11 11 13 14 16 19 19 38 38 47 WHO WILL IPO IN 2015? Source: 2014 performance from NASDAQ and Google Finance as of market close on December 31, 2014 2015 IPO outlook based on Rock Health survey of Rock Weekly readers (n = 100; 60% entrepreneurs and investors) 0%
  18. PRESENTATION © 2015 ROCK HEALTH Source: The Digital Health Public Company Index by Rock Health (as of market close on December 31, 2014); Available from: https://www.motifinvesting.com/motifs/the-digital-health-index-by-roc-O7xghiOF#/ Publicly-traded digital health companies did not fare well in a year when the public markets demonstrated strong overall performance. 18 PERFORMANCE OF PUBLIC DIGITAL HEALTH COMPANIES 2014 0% 10% 20% -20% -10% S&P 500 13.7% Digital health public company index -5.4% 1/1/2014-12/31/2014 The digital health public company index, comprised of 19 companies and now exceeding $53B in aggregate value (BenefitFocus was removed due to its broadening focus on general HR software) launched earlier this year.
  19. PRESENTATION © 2015 ROCK HEALTH Venture funding for digital health companies in 2014 surpassed $4.1B, nearly equivalent to all three prior years (2011-2013) combined. This represents more than 125% YoY growth in funding compared to 2013. 293 deals, across 258 companies, closed with an average deal size of $14.1M. Summary of findings 19 FUNDING AND DEAL VOLUME The top six themes of the year that received 44% of all funding included: analytics and big data, healthcare consumer engagement, digital medical devices, telemedicine, personalized medicine, and population health management. Personalized medicine joined the top six for the very first time this year. MAJOR THEMES In 2014 alone, 379 distinct investors funded digital health companies, 35 of which made 3+ deals (the serial investors) and 216 of which were investing in digital health for the first time since we began tracking in 2011. The most active digital health investors have remained stable—and diverse—over the past four years. PROLIFIC INVESTORS 2014 saw a lot of exits. There were 95 M&A transactions tracked and disclosed deals were valued at over $20B. Health tech companies were still the most active acquirers. Beyond private exits, the public markets welcomed five digital health companies with a total current market capitalization of $10.6B. EXIT ACTIVITY Three categories received significant growth in funding: telemedicine, payer administration, and digital therapies. Telemedicine and digital therapies are new ways of delivering care that can help improve care and reduce costs. As healthcare reform uncertainty and changes persist, payer administration tools will be essential for efficiently and effectively navigating the healthcare industry. GROWTH CATEGORIES
  20. PRESENTATION © 2015 ROCK HEALTH Rock Health defines digital health as the intersection of healthcare and technology. This means that the venture funding tracked only includes technology-enabled health-related companies, whether they focus on the administration of healthcare, the delivery of healthcare, or the process of bringing breakthrough new healthcare products to market (both R&D and commercialization). Healthcare companies that aren’t digital. Health insurance companies, such as Oscar, or healthcare providers, such as One Medical, are pure services companies (that employ technology, certainly, as does every company). This is in direct contrast to a technology-enabled services business such as telemedicine, that simply could not exist without digital. Molecular diagnostic companies, such as Guardant Health, that perform testing and render a definitive diagnosis to physicians are also excluded. Similar to biopharma companies, molecular diagnostic companies are significantly more capital intensive than software- based companies and would skew funding. Technology companies that aren’t healthcare. Companies diversified across industries are not included. Software companies focused across human resources (and not solely health benefits), such as Zenefits, are not included. Methodologies Rock Health funding data only includes disclosed US deals over $2M. Deals under $2M would be impossible to track comprehensively since companies often do not file their small seed rounds with the SEC or disclose to press. We also believe that deals under $2M generate noise in key statistics, including deal count and average deal size. Disclosed deals under $2M represent less than 5% of the total we report, giving us confidence in our overall figures. In prior years, we have attempted to include international companies that were funded by U.S. investors, monitoring the portfolios of hundreds of VCs. In reviewing this data, we have concluded that it is challenging to track all international deals and beginning with this 2014 year end report, we are no longer tracking or reporting any international deals. All numbers in this report are for U.S.-based companies only. Funding tracked includes debt, venture rounds, and growth equity but excludes lines of credit (working capital) and cash/equity associated with merger or acquisition activities. Deals data is gathered based on publicly available resources (press releases, news outlets, SEC filings, etc.) and supplemented with CapIQ’s venture data. 20 WHAT IS DIGITAL HEALTH? HOW WE TRACK DIGITAL HEALTH FUNDING
  21. PRESENTATION © 2015 ROCK HEALTH GET OUR DATA AND SUPPORT OUR WORK Our Funding Database is available as part of a subscription on our website. The subscription includes a dataset encompassing individual deals back to 2011, provides details on each of the funded companies, and profiles investors based on deal volume. The annual subscription includes quarterly data updates and member-only webinars. Please visit rockhealth.com/research to learn more. research@rockhealth.org @rock_health

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