A booming subsector with a strong future 

Healthtech investment, though down slightly from 2015’s peak, continues to outpace investment even in other hot industries. According to Pitchbook, while VC investment has slowed in other areas, investment in healthtech continues at pace with more than $4.5 billion invested in 2017 to date. Deal size has also been increasing, with more than 25 percent of healthtech deals thus far in 2017 valued at more than $5 million.

The scope of the healthcare opportunity, and the overall size of the potential market, are clear drivers of this activity. Health spending accounts for a significant percentage of western countries’ Gross Domestic Product (GDP)—a number that stands to grow as life expectancy increases and the Boomer generation ages. Healthcare, too, is an industry ripe for disruption, with medical establishments hindered by legacy processes and systems while patients clamor for greater access to personal health and treatment information.

While most of the prominent VCs have some investment in healthtech, firms like Kleiner Perkins, Flare, and Bessemer maintain a prominent place in large sector raises. Corporate investors are also demonstrating significant interest, with companies receiving backing from the VC arms of firms like GE, Philips, and even Amazon.

 

Wide spread of geographic hubs

In terms of both dollars invested and number of deals, the United States remains dominant in the healthtech sector. In addition to the Bay Area and Boston, American healthtech firms are clustered in other areas of the country that boast world-class hospitals and universities, such as Philadelphia and Minneapolis. This pattern of smaller healthtech clusters is likely to continue, driven by broader healthcare, medical, and life sciences activities in these regions.

Despite the United States’ continued prominence, other global regions are catching up. In addition to strong activity in European centers, healthtech is becoming particularly strong in China. According to Pitchbook, two of the ten largest healthtech VC raises in 2017 have been Chinese firms.

 

Telehealth, digital medical devices on the rise

VC investment has been increasing in a number of healthtech subsectors. Telehealth is one such area, a subsector broadly defined as technology used to facilitate remote care and diagnostics. An example is Babylon Health, which raised $60 million earlier this year and has recently announced a partnership with the U.K. National Health Service to provide doctor consultations over Skype. The telehealth subsector is particularly noted for its ability to revolutionize healthcare access in remote and underserved areas, and for individuals with mobility challenges.

Another hot healthtech area is nondiagnostic digital medical devices. These devices provide access to powerful healthcare information for consumers, such as baby monitors that track an infant’s heartbeat and oxygen levels. Internet of Things (IoT) enabled health and fitness devices, such as FitBit, are another booming area attracting considerable attention from investors and consumers alike.

 

Increasing focus on backend process support

While innovative technology devices often grab the headlines, there is also rising interest and activity surrounding the application of technology to help with backend healthcare processes. End-to-end patient care processes create large volumes of confidential information, often spread across disconnected, disparate systems. Healthtech companies that aim to integrate, manage, or find patterns within this wealth of data are becoming more prominent and demonstrate a strong potential for future growth. One recent example is Clover Health, which raised $130 million in Q2 2017 for its data analytics solution used for preventative screening and insurance.  

Care coordination solutions have also been drawing investor attention, with a range of companies providing software to enable seamless communication between care providers. Such solutions could have a considerable impact on patient care by improving information flow between doctors and specialists, increasing the speed of diagnosis, and reducing wait times for patients.

 

Exciting potential in AI

Artificial Intelligence (AI) is another technology poised to make an impact on healthcare in coming years. While AI cannot replace clinical judgment, it can nonetheless help provide better diagnostics and treatment plans, reduce human error, and increase speed of delivery. AI also holds exciting potential to assist in managing and compiling complex patient data. Expect to see more investment in this area in coming years, including the use of AI and big data to unlock the potential for more personalized medicine such as treatment plans tailored for each patient’s unique physiology.

Despite considerable activity in the healthtech sector to date, the most exciting advances are still ahead. With swifter diagnostics tools, more powerful backend technologies, and unparalleled access to detailed personal health information, healthtech is set to transform the industry for patients and professionals alike.

Bryan McCorry, audit partner
Venture Capital practice
t: +1 617 475 4706
e: bmccorry@kpmg.com

James Cohane, director
Venture Capital practice
t: +1 617 475 4779
e: jcohane@kpmg.com

KPMG’s Venture Capital (VC) practice offers a range of audit, tax and advisory services tailored to help venture-backed companies navigate each stage of development—from idea through exit. We use our knowledge of the VC ecosystem to help entrepreneurial ventures simplify the complex challenges of creating the technologies of tomorrow in highly competitive industries, while also meeting diverse regulatory, compliance, and financial reporting requirements. Our VC clients collaborate with a global network of KPMG professionals who understand the marketplace challenges facing start-ups and growth companies. Our passion and mindset match the companies we serve: entrepreneurial, hands-on, proactive, visionary, and dedicated.

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