By Brian Dolan

There is no shortage of sources for aggregate funding data for digital health companies, and while the overall numbers are helpful for hyping up growth of the digital health trend, more granular analyses of funding trends in digital health could prove to generate more insights about where funding dollars are going.

Toward those ends, MobiHealthNews' newest paid report is an analysis of Funding and Founder Data for Patient-facing Digital Health Companies. We tracked publicly disclosed funding data – about $3.6 billion worth – for 270 digital health companies with patient-facing products or services. We aimed to gather more historical data too, and didn’t limit our data gathering to just the past few years. And while there's little of it, our funding data points start at 2002 – more than 10 years ago.

Our team also took an inclusive approach to which companies were considered patient-facing – even if patients or consumers weren’t the company’s core customer group, they often made it into our analysis. This categorization process, like most, was highly subjective. Patient engagement might be another lens through which to understand our inclusion criteria. To give you a sense of one of our parameters: While some companies create medical devices that certainly come into contact with patients or might even be worn by them, we didn’t include these companies if they didn’t actively make that data available to the patient. Those aren’t really patient-facing tools or services, even if they work “on” patients. “With” was the preposition we kept in mind as we made the close calls. 

As it turned out, those 270 companies had a total aggregate number of 422 founders and co-founders. Noting that very little research has been conducted about the founders of digital health startups, MobiHealthNews collected data about as many of these 422 founders as we could find. We used both official bios from the companies themselves and information listed publicly elsewhere. Some of the demographic data we consider in this report includes gender, university attended, educational degree, school state, previous employers and more.

As the two figures above reveal, the average patient-facing digital health company has about 1.6 founders, which means on average a company is likelier to have more than one founder.

Funding for patient-facing digital health companies by year

With the exception of a dip in funding for these companies in 2009, which might be attributable to a particularly bad year during the Great Recession, funding in patient-facing digital health companies steadily rose between 2002 and 2012. Notably, 2007 was also one of the first big years for investment dollars flowing into patient-facing digital health companies. Investors pumped $214 million into the patient side of digital health in 2007 – that’s more than the combined totals of the five years leading up to it.

The following year, 2008, brought in even more funding with $268 million invested, but 2009 saw a slight dip to $233 million. After that, investment dollars doubled year over year for the following two years. In 2012, according to our data, funding appears to have peaked at just shy of $1 billion – $939 million was invested into patient-facing digital health companies that year. In 2013 significantly less money flowed into the sector – a still impressive $810 million. However, that figure is also lower than the amount that patient-facing digital health companies raised in 2011, too, which was $837 million.

Did funding really hit a ceiling in 2012?

A number of unusually large investments north of $50 million each were also announced during the year, and while the yearend totals are not small sums, some of these larger individual deals are big enough to make on their own to make one year appear more investment-heavy than the next. So the 2012 spike and subsequent decline could be chalked up to a few extraordinary deals.

Digital health founders with previous healthcare experience

A common thread in digital health discussions – for many years now – has been the lamentation and/or celebration of nontraditional players entering healthcare backed by investment firms known mostly for their financial support of technology companies.

Our research has found that, at least for patient-facing digital health companies, more than half of all funding invested in these companies has gone to those that have at least one founder with some kind of previous healthcare work experience – meaning they worked previously at another healthcare technology company, pharma, provider, or payor.

So, if it ever was true that a majority of money was going to tech firms with no healthcare experience, our data shows it’s not fair to make that claim anymore – at least for patient-facing companies. That’s a key point because digital health companies making tools for providers are almost certainly working closely with providers to develop their wares. It’s also seems to be much more of a concern to some working in healthcare that a patient-facing startup doesn’t “understand how healthcare works”.

That said, we found that 46 percent (123) of the companies in our data set have at least one founder or cofounder who previously worked at a healthcare-related company or has a medical degree. That group has raised almost $1.9 billion as of yearend 2013. That figure accounts for 52 percent of total funding. So, while a still significant portion of investment dollars – about $1.7 billion – over the years has flowed to companies that were founded by people with no previous healthcare-related work experience, it’s not a majority of funding. Many might contend that’s still too much, but remember we just looked at founders and cofounders. Digital health companies typically have advisory board and even executives (who aren’t cofounders) with healthcare experience and relevant educational backgrounds.

To better examine how this particular investment trend has changed over the years, in our new report, MobiHealthNews broke down funding by year into two categories – the amount that went to companies with healthcare experienced founders and the amount that went to companies without healthcare experience. It’s clear from this analysis that an increasing percentage of funding dollars has flowed into companies with healthcare experience year-over-year. Starting in 2012 the percentage jumped to north of 50 percent of investment dollars -- and in 2013 it almost reached 60 percent of all investment dollars.

Given that upward trend, as time goes on, digital health companies founded by people with no prior healthcare experience, may find it increasingly difficult to convince investors to fund their ventures.

What follows is a longer discussion of the report’s section on women founders. MobiHealthNews’ writer Aditi Pai led the research effort behind our funding and founders report and she followed it up by interviewing a number of women who have founded or co-founded digital health startups to better understand their experiences. More on that in the pages that follow.