Understanding Venture Capital in Digital Health
Cameron Jacox is the founder of Rocket Digital Health, the foremost digital health scale consultancy. Go-to-market is hard in healthcare, and we believe that you don’t need to reinvent the wheel to bring your brilliant invention to market. Having helped scale 13 digital health startups, including for 4 years as Chief Growth Officer at Lark Health from Series A to Unicorn status, Cameron & his team work with select startups to bring growth strategy to bear to beat their growth goals and catch their stride.
Digital health venture capital refers to the investment of capital into digital health startups by venture capital firms. Digital health startups are companies that use technology and data to improve healthcare, including the development of digital health products and services, such as telemedicine platforms and medical devices.
The growth of digital health venture capital
Over the past decade, digital health venture capital has experienced significant growth. According to a report by Rock Health, a digital health venture capital firm, digital health funding reached a record high of $9.1 billion in 2020, representing a 21% increase from the previous year.
The growth of digital health venture capital is driven by several factors, including the increasing adoption of digital health technologies by healthcare providers and consumers, the growing demand for cost-effective and convenient healthcare solutions, and the potential for digital health technologies to improve the quality of care.
Types of digital health startups funded by venture capital firms
Venture capital firms invest in a wide range of digital health startups, including companies that develop digital health products and services such as telemedicine platforms, medical devices, and health apps. Other types of digital health startups that may receive funding include companies that use artificial intelligence and machine learning to analyze and interpret healthcare data, and companies that use blockchain technology to improve healthcare data management and security.
How Have Venture Capital Flows Into Healthcare Changed?
Venture capital (VC) investment in healthcare has undergone significant changes over the past few years. As healthcare continues to evolve with advances in technology, the investment landscape has shifted to focus on companies with innovative solutions that have the potential to transform the industry. In this article, we'll explore some of the key ways that venture capital flows into healthcare have changed.
Increased Investment in Digital Health
Digital health has become a hotbed for venture capital investment, with investors pouring billions of dollars into startups that use technology to improve healthcare delivery. In 2020, digital health companies raised a record-breaking $14.1 billion in funding, up from $7.4 billion in 2019. The COVID-19 pandemic has accelerated the adoption of digital health solutions, as people have been forced to seek healthcare services from home due to social distancing measures. Digital health solutions, such as telemedicine, remote monitoring, and digital therapeutics, have become essential tools for providing healthcare services during the pandemic.
Shift Toward Value-Based Care
As healthcare costs continue to rise, there has been a shift toward value-based care, which focuses on improving patient outcomes and reducing costs. Venture capitalists are increasingly investing in companies that offer innovative solutions for value-based care, such as population health management, patient engagement, and data analytics. These solutions aim to improve care coordination, reduce waste, and increase efficiency in the healthcare system.
Focus on Healthcare Infrastructure
The healthcare infrastructure, such as hospitals, clinics, and diagnostic labs, is an essential component of the healthcare system. However, it has often been overlooked by venture capitalists in favor of innovative technologies. In recent years, there has been a renewed focus on investing in healthcare infrastructure, with investors recognizing the importance of upgrading and modernizing these facilities to improve patient outcomes and reduce costs.
Increased Collaboration with Traditional Healthcare Players
Traditionally, venture capitalists have focused on investing in startups and disruptors that challenge the status quo. However, in recent years, there has been a shift toward collaboration between venture capitalists and traditional healthcare players, such as hospitals and health systems. These collaborations aim to facilitate the adoption of innovative technologies and solutions, while also ensuring that they are integrated into the existing healthcare system.
Greater Emphasis on Mental Health
Mental health has been a neglected area of healthcare for many years, with stigma and lack of resources preventing people from seeking care. However, in recent years, there has been a growing recognition of the importance of mental health, and venture capitalists are investing in companies that offer innovative solutions for mental health, such as digital therapeutics, teletherapy, and mental health apps.
Increased Investment in Precision Medicine
Precision medicine, which involves tailoring medical treatment to an individual's unique genetic, environmental, and lifestyle factors, has the potential to revolutionize healthcare. Venture capitalists are increasingly investing in companies that offer innovative solutions for precision medicine, such as genomics, artificial intelligence, and data analytics. These solutions aim to improve patient outcomes, reduce costs, and increase efficiency in the healthcare system.
Venture capital flows into healthcare have undergone significant changes in recent years, with a growing emphasis on digital health, value-based care, healthcare infrastructure, collaboration with traditional healthcare players, mental health, and precision medicine. These changes reflect the evolving nature of healthcare and the need for innovative solutions that can improve patient outcomes, reduce costs, and increase efficiency in the healthcare system.
Key players in digital health venture capital
There are a number of key players in digital health venture capital, including traditional venture capital firms and digital health-focused venture capital firms. Traditional venture capital firms that invest in digital health include Andreessen Horowitz, Kleiner Perkins, and Sequoia Capital. Digital health-focused venture capital firms include Rock Health, Digital Health Ventures, and 7wire Ventures.
Challenges and opportunities in digital health venture capital
Digital health venture capital is not without its challenges. One challenge is the high risk associated with investing in early-stage startups, as many digital health startups may not reach the expected milestones or may not achieve the expected return on investment.
Another challenge is the regulatory environment for digital health technologies, as many digital health products and services are subject to regulatory oversight by agencies such as the Food and Drug Administration (FDA) and the Federal Trade Commission (FTC). This can increase the cost and complexity of bringing digital health products and services to market.
Despite these challenges, digital health venture capital also presents significant opportunities. Digital health technologies have the potential to improve the quality, efficiency, and accessibility of healthcare, and investing in digital health startups can provide investors with the opportunity to participate in the growth of this sector.
