Rock Report: State of Digital Health

Digital Health STARTUP + VC ACTIVITY Rock Report August 1st, 2011

About this reportWe wanted to know more about VC funding and entrepreneur perspectivesof the digital health space. This report sources data from Capital IQ, CrunchBase,NVCA and a survey we conducted with 110 digital health entrepreneurs.Caveat: we are not professional white-paperistas, just curious advocates who like toshare knowledge and further the discussion around the evolving digital health space.About usRock Health is a San Francisco based seed-accelerator in the digital health space.We support the next generation of health entrepreneurs with grants, ofﬁce spaceand mentorship. We currently have 10 startups working full time in our ofﬁces,and an additional 20 startups that receive access and operational support.www.rockhealth.com.

Part one VC-funded digital health companies in 2011 Sourced from Capital IQ, NVCA + CrunchBase

VC funding of healthcare technology segment % of # of VC deals % all VC funding ($)43210 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Capital IQ

77% of VCs think healthcare IT investment dollars will increase in 2011 Source: 2011 Venture View Predictions Survey by NVCA and Dow Jones VentureSource

35 digital health companieshave received $2M+ in 2011 Digital Health companies receiving $2M+ in ﬁnancing in 2011 Source: Capital IQ + CrunchBase

The majority of these companies are building B2B businesses 20% Target User: Businesses/Health Orgs (B2B) Consumers (B2C) 51% Medical Professionals (B2Dr)29%

What are they building? Consumer Web SitesPersonal Health Monitoring Data Analytics Data SharingPhysician Social Networks 0 1 2 3 4 5 Themes of the 35 digital health companies receiving $2M+ in ﬁnancing in 2011

Common theme #1 consumer web “Health Guru is the webs leading destination site for health information videos.” “Personalized, engaging health information, from leading medical experts and similar community members, that’s easy to understand and all about you.” “Play games to train your brain.” “Your childs health and development anytime, anywhere you want.” “An interactive platform that provides expert health information and allows you to ask questions and get answers from trusted healthcare experts.”

Common theme #2 personal health monitoring “The most accurate heart rate monitor for smartphones.” “Track your caloric burn, activity levels, and sleep habits to make every day your best day.” “Daily health monitoring service to help reduce falls, monitor heart rate and breathing rate, reduce the risk of bedsores and help manage chronic diseases without attaching anything to the monitored person.” BAM Labs “Healthrageous delivers on the promise of improved, sustainable health by analyzing data collected from biometric measurement devices with our expert system in order to provide you with the personalized support and inspiration necessary for a lifelong journey of wellness.”

Common theme #3 data analytics “Explorys enables the discovery of critical correlations, trends, and outcomes across millions of patients, clinical records, and diverse environments” “Humedica is a next-generation clinical informatics company that provides novel business intelligence solutions to the health care industry.” “Kyruuss data-driven products arm users with curated, comprehensive, up-to-date information and intuitive analytics. We help organizations assess and predict the risk, value, and opportunities that characterize their ubiquitous interactions with physicians across the entire healthcare value chain.”

Common theme #4 data sharing “Axial solutions provide clinical data sharing to save time and money across the healthcare delivery network -- for hospitals, physicians, research organizations, and health plans.” “Resilient Network Systems new class of Internet servers extends the reach of the Internet to protected data and application content by introducing new methods of establishing trust and giving owners customized control over how their content is used.”

Common theme #5 physician social networks “Sermo is an online physician-only network for discussion about clinical issues, health care reform, practice management and more.” “Doximity is a professional networking tool exclusively for Physicians and health care professionals.”

Locations of 2011 VC-backed digital health companiesCalifornia - 11Massachusetts - 5New York - 3 Companies receiving $2M+ in ﬁnancing in 2011

Which VCs funded them?* *non-exhaustive list

Largest Deals of 2011software for healthcare and insurance delivery$61M from Camden Partners and Kleiner Perkins Cauﬁeld & Byerssoftware for cognitive enhancement$32.5M from Menlo Ventures, FirstMark Capital, Harrison Metal Capital, Norwestconnecting providers and Medicare$27M from Bain Capital Ventures and Lemhi Venturesweb-based EMR$23M from Founders Fund, Artis Capital Management, Glynn Capital, Morgenthaler, Felicis

Part two Survey of 110 early-stage digital health entrepreneurs

We surveyed 110 early stage digital health entrepreneurs funding stage of respondents age of company < 6 months• 84% said they were 6 months - 1 year bootstrapping their venture• 13% have angel funding, 1 -2 years and only 2% had VC funding 2-3 years• 60% have had less than 3-4 years $50K in funding 5+ years 0% 10% 20% 30% 40%

What is your background? Other Scientist 6% 5% Designer 5% Entrepreneur/BusinessMedical Professional 43% 13% Engineer/Developer 27%

What motivated you to start your venture?“I want to make the world a healthier place.”“Just a consumer who saw a very broken system and wanted to ﬁx it.”“From what I’ve seen, very few people in health tech are innovators.It’s boring out there.”“We saw ﬁrst-hand some of the care that patients were getting at topmedical facilities. The lack of focus on the patient was appalling, sowe decided to grab the bull by the horns.”“Love.”

How challenging are these barriers for entrepreneurs in the digital health space? FundingEstablishing Sustainable Revenue Model Talent Acquisition Navigating Government Regulation Access to Medical Expertise Access to Technical Expertise 20% 2,000% 4,000% 60% 0% 40% 80% 100% 6,000% 8,000% 10,000% Somewhat Challenging Very Challenging Almost 100% of respondents identiﬁed funding as a somewhat or very challenging barrier.

How will your venture make money? Subscription Model Charging Consumers DirectlyCharging Medical Professionals Product Purchase Ad Model Other In-App Purchase 0% 9% 17% 26% 34% 43% 51% 60% Respondents were able to select more than one checkbox, so percentages add to more than 100%.

Who pays for your product or service?Consumers Other Hospitals InsurersEmployersAdvertisers 0% 10% 20% 30% 40% 50% 60% 70% The majority of digital health entrepreneurs surveyed think consumers will pay for their product or service. Less than a third think insurers will pay.

Key FindingsFrom Capital IQ + CrunchBase: VC interest in digital health is skyrocketing, and 2010 was a record year for health technology as a percentage of all VC funding. The number of healthcare technology deals more than doubled from 2005 (52) to 2010 (138). 35 digital health startups have received $2M+ in 2011 so far.Rock Health survey ﬁndings: The #1 challenge for digital health entrepreneurs is fundraising. Early stage digital health entrepreneurs are building B2C companies... despite the majority of VC dollars going to B2B ventures. Entrepreneurs identiﬁed subscriptions as the most popular revenue model. The majority of digital health entrepreneurs think consumers will pay for their product or service. Less than a third think insurers will pay.

Want more?List and details of the 35 digital health companies funded in 2011:http://bit.ly/VentureFunded2011List of 200+ digital health startups:http://rockhealth.com/resources/digital-health-startup-list/Entrepreneur? We still want to hear from you! Take our survey:http://bit.ly/healthstartup

get in touch info@rockhealth.com

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Rock Report: State of Digital Health

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