Recently I have been looking at the latest Healthcare Software investment trends using CB Insights data. CB Insights maintains a venture capital database that aims to catch every private company financing and angel investment database. It is a goldmine of valuable information if you want to find out where people believe future growth will lie and understand which companies in the area are hot enough to command VC funding. It also provides information on mergers and acquisitions, which I have analyzed in a separate article.
One thing is clear from looking at the overall healthcare software investment dashboard. Healthcare software investments have been getting increasingly active. The CB Insights dashboard breaks the activities down by quarters in a really nice overview.
I found the quarterly breakdown to be too noisy, however, to gauge the overall trends effectively and therefore ran my own trailing 12 months view of the data over 5 years, which gave me a good sense of the 4-year growth numbers ending with Mar 31, 2017. Based on full 12 months data, I found that healthcare software deal activity is up roughly 60% in 4 years (12% YoY growth). The deal sizes have also gone up 2.5 times (26% YoY) resulting in an overall funding growth of 4X (41% YoY).
We have to be optimistically cautious, however. While the average deal sizes have grown significantly over the years, this is primarily due to a select set of larger deals that moved the average up. The average quarterly median deal remained around $1.1 million during the past 5 years, indicating a relatively consistent modest funding amount for early deals that are the bulk of all investments.
Despite the enthusiasm that the long-term trends indicate and blockbuster numbers in late 2016, Q1 2017 was disappointing with the lowest funding amounts since Q4 2013, even though the number of deals was right in line with the number of deals seen a year before. We expect that as the healthcare software industry matures, it will only provider greater opportunities for new companies to emerge and start to integrate with other solutions as part of an eventual ecosystem, similar to Android or iTunes. This will mean an even more rapid growth in healthcare software startups, and therefore an even more lively investor marketplace.