From the first bio-absorbable stent approved in the United States to the world’s first human head transplant, 2017 was a remarkable year for healthcare. And for Healthcare IT & Digital Health, the year was no less remarkable, as numerous fundraising records were set, and mammoth acquisitions set in motion, despite the sector’s continued consolidation and the looming concerns over industry regulation. We think 2018 brings with it the promise of even more broken records, eye-popping acquisitions, continued innovation, and acceleration in the achievement of value-based care goals. But before we ring in the New Year, let’s have a look at where we’ve been…
An Explosive Funding Environment…
If Digital Health were an Olympic Sport, then 2017 would be our Michael Phelps. Through even just the first half of the year, there were 188 deals worth over $3.5B. With an additional 43 deals and $465MM invested during Q3, 2017 is setting the stage to break both 2016’s record of 296 total deals funded, and 2015’s record of $4.6B invested annually (Q4 2017 hadn’t been totaled when this went to print).
2017 also saw a record 8 – yes 8! – nine-figure fundraising deals. That includes 3 of the largest deals in HCIT history:
1) Alphabet’s venture round for Verily, their Asia-focused life sciences firm, which is being funded to the tune of $800M by Singapore’s sovereign wealth fund, Temasek Holdings.
2) Outcome Health’s $500M Series A led by Goldman Sachs, CapitalG, Leerink Transformation Partners, and Pritzker Group VC.
3) Peloton Interactive’s $325M Series E led by Fidelity Investments, Kleiner Perkins, and a host of others.
Those numbers dwarf the largest 2016 raises, namely Proteus Digital Health’s $172M Series G, the Kuwait Investment Authority’s $162M investment into the ill-fated Jawbone, and Thalmic Labs’ $120M Series B. Proteus and Thalmic amount to 2016’s only nine-figure fundraising events.
M&A and Hiring…
Though not as feverishly paced as prior years, consolidation within our industry continues. HCIT saw 31 M&A transactions recorded through November 2017; down from a total of 49 during all of 2016. But there are some potentially game-changing transactions in those 31 deals, most notably Internet Brands’ $2.8B acquisition of WebMD, a deal size not seen since Facebook’s $2B purchase of ProtoGeo in 2014.
And as Silicon Valley continues its HCIT binge, with firms like Apple, Alphabet, and the Chan-Zuckerberg Initiative all making notable acquisitions (Beddit, Senosis, and Meta, respectively), it seems that more traditional Healthcare organizations are continuing to push through cross-sector consolidation, exemplified by UnitedHealth’s $4.9B purchase of DaVita Medical Group, and CVS’ pending $69B Aetna acquisition – the largest deal of 2017. These deals show that executive leadership in healthcare companies of all shapes and sizes recognize the continued need to get stickier with customers and provide actual value.
From a hiring perspective, all of this funding and M&A activity is a leading indicator of an incredibly hot talent market in 2018. As more companies raise follow-on capital in the form of Series A and B rounds, significant amounts of that will be leveraged to gain competitive advantage through talent. Trends toward hiring top tier marketing and growth talent in 2017 signals an increased emphasis on driving brand recognition and profitability. Strong operators and strategic deal-shapers – along with top tier technical talent, i.e. CTO, CISO and VP of Engineering – will be in high demand this year. Add to that the talent exiting some of these organizations post-acquisition, and you have all the makings of an exciting year in hiring.
Growth on the Home Front
Aequitas came into its own this year, each quarter reflecting on what seemed to be an impossible amount accomplished in the months before. We partnered with more than half a dozen new clients, and continued working with others that have been the bedrock of our business. We founded and launched Aequitas Ventures 1, which made four equity investments via search work over the course of the year. We moved into larger office digs here in our Gramercy Park neighborhood, launched a brand new website, hired our first full time employees, and conceptualized and launched this little ditty you’re reading now – our newsletter!
While we’re proud of what we were able to do as a team in 2017, we are even more excited about what we’ll have to share during this recap next year. So to any of you reading this that played a role in our success this year, we extend to you, a heartfelt thank you.
Speaking of the Year Ahead…
There’s no crystal ball, but based on some of the momentum we saw in 2017, we think there are some themes worth keeping an eye on this year.
Boom Times for Baby Boomers
We believe in the future of clinical care delivery to in-home Medicare populations, specifically aging-in-place. As more Baby Boomers become eligible for Medicare with each passing year, we’re beginning to experience a generation of senior citizens that are more connected and tech-savvy than those of previous generations, making them easier to reach remotely. Today’s seniors have greater access to digital health platforms, and are far more willing to adapt their lifestyles to reap the inherent benefits.
FRND Health is a great example of an organization thinking differently about how they deliver true, clinical, population health to high-risk populations. By leveraging a technology-enabled service model to bring clinicians directly into the homes of those that need it most, they are positioning themselves as the tip of the spear outside the four walls of the hospital for helping this ever-growing population age gracefully in place. Among other things, FRND’s success is predicated on the willingness of today’s seniors to remotely engage with practitioners via smartphone – something that would not have been likely even 3-5 years ago. Which leads us to…
The Human Touch
In our Q4 Newsletter, we discussed 3 trends facing the Healthcare industry. One of those trends – the re-humanization of Healthcare IT through tech-enabled services – is likely to continue its prevalence in 2018, as companies like FRND, that provide a clinically aware human touch, will gain a foothold in markets overlooked by traditional Healthcare solutions. For example, the opioid crisis is reaching epidemic proportions, and mainstream Healthcare has only managed to scratch the surface of helping those in need. Startups such as Boulder Care, which will provide treatment in an end-to-end mobile experience, are likely to disrupt the current paradigm as they offer patients something that traditional Healthcare facilities are unable to deliver: digitally powered solutions augmented by human engagement that meet patients where they are.
The Opioid Epidemic Draws Increased Entrepreneurship
After spending time with Stephanie Papes and Dr. Amanda Wilson for this month’s Aequitas Forum, it was crystal clear to us that there is tremendous opportunity for innovation and impact within this demographic. Slowly but surely, some of the stigmas attached to the disease are being shed, and digital solutions are uniquely suited to reach a cohort that so easily slips through society’s cracks. Look no further than the recent Department of Health and Human Services’ Opioid Symposium and Code-a-thon. Over 300 coders and 50 teams threw down their expertise to aid in taking a more data-driven approach to targeting this plague. As awareness increases, incentives get aligned, and more great minds try to reach this group with innovative solutions, we’re hopeful that they can make an impact.
We think that the digital health and healthcare IT landscape will continue to mature this year, led by some of the aforementioned markets. It will likely lead to fewer Seed fundings, with more emphasis placed on deploying follow-on capital into companies that have demonstrated clear product-market-fit and customer traction. It’ll be fun to look back at the end of the year to see the results.
Another Ball Drops…
2017 was a fantastic year for our industry, and we at Aequitas are eagerly anticipating the year ahead. There’s lots to be excited about, both in terms of what the industry can deliver for patients, and in what our company can deliver for the industry. We hope you’re anticipating 2018 as much as we are, and we’re looking forward to seeing you at the JP Morgan Conference in January, and at the HLTH Conference in May.