Valgard Sees Plenty of Opportunity in the United States Digital Health Sector
Digital health funding has expanded rapidly overall and as a share of all venture capital
Toronto, Ontario, September 23, 2015 (Newswire.com) - Valgard Investments Senior Analyst said “The overall forecast for digital health companies is very strong with a growing share of successful exits already seen”.
Ultimately, the goal of venture investment is to see a return often through acquisition or IPO. Though still relatively few in number, digital health companies have seen rapid growth in exit activity in 2013 and 2014—outpacing strong activity in the ecosystem as a whole.
Though relatively nascent in 2009, annual digital health venture capital deals were two-and-one-half times larger in 2014 and dollars invested nearly six times greater than five years earlier, growing faster than VC as a whole. In total, $15.4 billion was invested on the back of 2,349 venture deals during the six-year period.
Relative to other affluent countries, the United States devotes disproportionate resources to health care with disappointing results. Complex insurance rules and distorted market signals create massive inefficiencies, frustrated patients, and providers burdened by excessive paperwork. Recognizing these problems, entrepreneurs are increasingly applying information technology to health care equipment, monitoring, treatment, and service delivery, creating a sector known as digital health. These technologies, once embedded and distributed around the country, hold the potential to substantially alter the efficiency and quality of health care through the better generation, processing, and use of information; the reduction of overhead costs; and the empowerment of patients.
This analysis finds that digital health venture capital investment is a substantial and growing share of total venture capital, creating, even in its infancy, valuable returns for owners.
The need for health care presents the United States, in particular, and all aging countries more broadly, with a massive economic challenge: how to preserve and improve health without devoting excessive resources to the health care sector.
Technology is already providing an important role that will increase as a means to confront these challenges. Venture capital activity in digital health has increased substantially in recent years and is absorbing a larger share of total deals and dollars invested in the United States. Digital health companies are no longer in their infancy but at already generating significant returns to both specialist investors and broader venture capital firms signaling a sector that is moving from proof-of-concept to higher rates of expansion and implementation. Exit activity, public offerings and mergers and acquisitions has also grown significantly in recent years.
The digital health ecosystem is dispersed geographically throughout the United States, with deal and investment concentrations less concentrated in the major VC hubs than total venture capital. At a share of the workforce, some surprising areas emerge as important contributors to VC entrepreneurship.
The geographic analysis suggests that innovation will not come from the health care sector itself but from outside it. There is a strong correlation between the presence of digital health VC in a metro and a concentration of innovative “advanced industries.” Yet, areas with a high concentration of health care workers are no more likely to receive venture investment in digital health than those with low concentrations of health care workers.
Only time will tell if digital health companies will fulfill their promise of increasing the quality and efficiency of health care, but there are promising signs that they will at least make a significant contribution.