Digital health companies raised a record $57 billion last year, according to CB Insights. While funding slowed during the first quarter of 2022, many of the country's leading venture capitalists are still investing in the space at a rapid clip. For instance, Levels recently raised a $38 million Series A for its metabolic health software platform.
Let's look at what's driving health and wellness tech, which venture capitalists invest in the space, and what's coming next for the industry.
What's Driving Investment?
The business models that fuel most of the world's most successful tech companies boil down to data. For instance, Google and Facebook track users' searching and browsing behaviors to target advertisements. The same focus on data could revolutionize the $10 trillion global healthcare industry and solve some of its most pressing challenges.
With recent improvements in artificial intelligence and sensor technologies, health and wellness tech companies aim to transform a torrent of continuous health data into early diagnoses, personalized treatments, and easier chronic disease management. As a result, they could lower costs, save lives, and generate billions in value.
The possibilities are endless for these technologies. For instance, the Oura Ring tracks subtle changes in body temperature to predict a woman's menstrual cycle. In addition, researchers from the University of San Diego found that they could use the Oura Ring to detect pregnancy about nine days before an at-home pregnancy test!
Who Are the VCs Investing?
There are more than 1,000 active venture capital firms in the U.S., according to the National Venture Capital Association, but only a handful of them are well-regarded brands focused on the health and wellness technology space.
Some of the most popular health tech VCs include:
Rock Health – Rock Health was the first full-service seed fund to invest exclusively in digital health startups. Since 2010, the San Francisco-based fund has invested in over 100 companies, supporting everything from fundraising to business development.
BoxGroup – BoxGroup is a New York-based fund that invests in software and health tech companies at the pre-seed round or earlier. However, they typically invest in subsequent rounds to stay involved and assist entrepreneurs.
Blue Venture Fund– Blue Venture Fund, funded by the 36 Blue Cross Blue Shield Plans, invests in health tech companies from development to later-stage rounds. The fund manager, Sandbox, also manages an accelerator called Healthbox.
Andreessen Horowitz – Andreessen Horowitz is among the best-known venture capital firms in Silicon Valley, funding several emerging health tech startups, including wearables and digital healthcare businesses.
Founders' Fund – Founders' Fund is another well-known venture capital firm in San Francisco with more than $11 billion in capital under management. With a focus on AI and health, the fund has become a famous investor in the health tech space.
Should You Use Venture Capital?
Many health tech startups need to raise capital to build their team, create products, and even achieve regulatory approvals. Given the challenging nature of healthcare, these startups may require much more money than lean software startups. As a result, venture capital is a popular venue for startups to raise money in pre-seed, seed, and Series A-C rounds.
But, that said, raising capital from venture firms has some crucial advantages and disadvantages. Founders should carefully consider these pros and cons before starting the capital raise process since it can be highly time-consuming and significantly impact the make-up of your board of directors and strategic direction.
Advantages
You can raise large amounts of money quickly
VCs have networks for hiring or biz dev.
Equity capital doesn't impact cash flow.
VCs can help raise future rounds of funding.
VCs provide valuable leadership and advice.
Disadvantages
You have a lower ownership stake.
Raising capital is a time-consuming process.
You could lose your business if you underperform.
You typically have new board oversight.
The overall cost of funding may be higher.
Debt financing and crowdfunding are two popular alternatives to venture capital. For instance, a successful company may use simple bank loans to finance its growth initiatives. On the other hand, smaller companies can get away with raising capital through a Regulation CF or Regulation A+ funding round (enabling you to raise up to $50 million).
What's Next for Health Tech?
The health tech industry is moving quickly, particularly given the involvement of the tech giants. For instance, the Apple Watch continues to push the boundaries of a wearable device, measuring everything from heart rhythm to walking stability. Apple even received FDA clearance to alert users of irregular heart rhythms in real-time.
There are a few megatrends to watch over the coming years:
FDA Clearance & Approvals – Many health tech devices are seeking FDA clearance and approvals to replace conventional methods of diagnosis and treatment with high-tech alternatives. In particular, many wearable devices could crossover and become regulated as medical devices.
Predictive Artificial intelligence – Wearables generate a vast amount of data that contains a wealth of information, but artificial intelligence algorithms are necessary to crunch the numbers. With the rise of deep learning, these algorithms could become increasingly adept at finding patterns.
Blood-related Analyses – Blood sugar, cholesterol, and other tests are vital to assessing metabolic and cardio health. While these tests require an invasive needle prick or a visit to a doctor's office, many companies hope to introduce wearables that continuously analyze blood to pinpoint problems.
The Bottom Line
Digital health companies raised nearly $60 billion last year, and while these trends may slow in 2022, venture capitalists remain highly interested in the sector. Entrepreneurs looking to raise capital have many options when picking venture capital firms, but they should carefully consider them before taking any money.
If you're a health tech startup, Intent can help you with everything from conceptual design to product development. We've worked with Oura Ring and other companies to develop top-notch user experiences and ultimately help startups bring successful products to market.
Greg Cargopoulos
Marketing Lead
