Q1 provides a strong start for 2017 digital health funding, Rock Health and StartUp Health agree

By Jonah Comstock

The reports are out, and both StartUp Health and Rock Health agree that Q1 2017 was a strong quarter for digital health funding, with over $1 billion in deals. Beyond those broad strokes, StartUp Health and Rock Health, two organizations that track industry funding, differ on the details and trends.

Rock Health reports the funding for the quarter as just over $1 billion, spread across 71 deals. StartUp Health tracked 124 deals (according to its data, a slow quarter for deal count) totaling $2.5 billion — an all-time record for digital health funding.

We've written before about the funding methodologies that lead to discrepancies between the two groups. Broadly speaking, Rock Health's process is a bit more conservative than most as it only includes funding rounds that are more than $2 million, avoids conflating investment dollars with transactional costs associated with M&A, and has a stricter definition of a digital health company than StartUp Health does. Rock Health also tracks only US deals.

One big discrepancy is that StartUp Health included a $914 million deal that didn’t fit Rock Health’s criteria: Cancer detection company Grail. According to StartUp Health, that’s the largest digital health deal ever. The two groups agreed on the next three (Rock Health’s top three): Alignment Healthcare with $115 million, Nuna Health with $90 million, and Evariant with $64 million. Neither group included Verily’s $800 million investment from Temasek.

Rock Health pegged Big Data and Analytics as the biggest area of digital health, with 11 deals and $197.5 million in funding. StartUp Health, on the other hand, reported Population Health as the breakout area with 25 deals and $392 million in funding. There’s a lot of overlap between those two categories, so it’s possible these two positions are more aligned than they seem.

Broadly speaking, StartUp Health says the trend for the quarter was fewer, bigger deals.

“While Q1 2017 had the lowest deal volume since 2011 — with only 124 deals taking place this quarter — we’re seeing more and more big $500 to $900M deals,” they wrote in their report. “What do less deals and more money mean? Even though VCs are betting less, they’re betting bigger. Also, the lines are blurring quickly as expected between “digital” and all other categories of health and healthcare.”

For Rock Health, the headline this quarter is that regulatory and political uncertainty didn’t dampen investment, as many thought it would.

“It’s still early in the year, and deals take months to close (thus are a lagging indicator), but so far we aren’t seeing a downshift in digital health funding due to regulatory uncertainty,” Research Fellow Angelica Murillo and Founder Emeritus Halle Tecco wrote. “So far, 2017 digital health funding is shaping up to be on track with previous years (49 percent above Q1 2015 and 23 percent below Q1 2016). We hear that providers and health plans are delaying expenditures based on uncertainty, yet founders remain cautiously optimistic and feel well positioned for what comes next.”