Digital Health Startups Surpass 2013 Funding with $2.3B in 2014

No wonder IT heavyweights such as Apple (AAPL) and Google (GOOG) are weighing in on the health and fitness market. According to a new report, digital health startups so far this year have landed some $2.3 billion in funding, already dwarfing the segment’s entire haul for 2013 with more apparently on the way.

According to a new report from Rock Health, a San Francisco-based digital health seed fund, newbies so far have secured $330 million more than the $1.97 billion invested in the market for all of last year, a figure that at the time represented an all-time high. The report points to a 168 percent year-over-year growth in the amount invested in digital health startups in 2014.

Obviously, what we have here is a hot market, which Apple, Google and some others already seem to know.

Who are the most active digital health investors? Andreessen Horowitz, Bessemer Venture Partners, Emergence Capital, Google Ventures, Matrix Partners, Qualcomm (QCOM) Ventures and Venrock. And, where’s the money going? According to Rock, about half of it is landing at startups in payer administration, digital medical devices, analytics and Big Data, healthcare consumer engagement, population health management and personalized medicine.

The volume invested in the segment seems to have surprised even Rock. In a blog post, Teresa Wang, Rock’s strategy manager, wrote, “At the end of the first quarter, we were optimistic that 2014 would be another record year for digital health funding. What we didn’t expect was that in just six months, 143 companies would have successfully raised $2.3B.”

Wang said Rock’s data showed the average deal size had increased 56 percent to $15.6 million compared to last year.

Malay Gandhi, Rock Health managing director, in a VentureBeat interview, credited the Affordable Care Act with advancing the market.

“We’re seeing a lot of tailwinds from healthcare reform,” Gandhi said. “Healthcare reform has put a lot of pressure on existing stakeholders to reduce costs, and startups in the top categories have a direct effect on those pain points.”

The VentureBeat report listed some of the largest investments to this point: NantHealth ($135 million), Flatiron Health ($130 million), Alignment Healthcare ($125 million), Proteus ($120 million), MedHOK ($78 million), Lumeris ($71 million), Zenefits ($67 million) and Doximity ($54 million).

Even with an increased volume of funding flowing into the digital health segment, Rock conceded that in IT industry terms, the numbers don’t compare with a typical round of venture capital poured into a single company.

“Yes, we’re excited about the $2.3B in digital health funding, but we know this could be considered a small number relative to tech companies receiving a $1.2B round of capital or being acquired for $2.0B prior to a product launch,” Wang wrote.