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.
Mary Beth Chalk, co-founder, Healthrageous
Women founders in digital health
By Aditi Pai
Out of the 422 founders MobiHealthNews found in our report, our team was able to gather basic demographic information on 383 of them. And out of that group, only 39 were women -- which means just under 14 percent of companies in our data set had a female founder. To better understand the experience of these founders and perhaps to explore why this number was so low, MobiHealthNews reached out to some of the women on the list.
Those we spoke to did acknowledge that there was a noticeably larger number of men than women in their work environments, but many also pointed out that the number of women founders has likely grown larger as the digital health space has grown.
Many women mentioned that the strong correlation between digital health and technical fields, like engineering, might explain why there were so few females — if women are already a minority in engineering, it follows that there would be even fewer women digital health, they argued, which is a new market. Nonetheless, these founders see an increasing opportunity for other women to found successful digital health companies.
Mary Beth Chalk, cofounder of (the now defunct) Healthrageous, noticed that when she was looking for funds for her company, VCs weren’t concerned with whether a woman was a part of the founding team. Instead VCs were concerned with understanding the team dynamic, seeing if the team understood the market, and trying to gauge whether the team could execute their ideas. Still, there was a noticeable lack of women on the other side of the table too, she said.
Lark Life
“We did probably 20 different investor pitches in the early stages, looking for the right mix of investors and those that were interested in Healthrageous and I would say, out of all of those meetings, there was a handful, two to three, women. All of the senior decision makers on the investment side were men to my recollection,” Chalk said. “But I didn’t have a sense that my being a woman was that rare until I would get into networking functions.”
Chalk discovered that digital health was similar to any other industry in that, once she had proven herself, being a woman was an advantage. "Proving herself" in the startup world, however, might not have been as necessary if she wasn’t a woman, she said.
“Men are born into the club — so you know, it’s just automatically extended,” Chalk said. “Based on school, based on where they lived, based on who they knew, there’s just all sorts of reasons. They’re just automatically assumed into the club until proven otherwise, but women have to earn their way into the club.”
Voxiva cofounder Dr. Pamela Johnson suggested that the scarcity of women founders of digital health companies might have come about, in part, because of the lack of women in the engineering, telecommunication and computer science fields.
“I never thought of myself as like ‘Oh I’m a woman founder of an IT company’,” Johnson told MobiHealthNews. “I was interested in IT and I was interested in health and I saw a tremendous potential for what could be done. So it was more following my own interests and then teaming up with two other people who had complementary skills. We decided to try it but I didn’t know that it would be unusual. I didn’t know that I couldn't do it.”
Johnson added that even if a woman had the specific background that might lead them to start a digital health company, there are many barriers for both men and women when starting a company.
Yifan Zhang, co-founder, Pact
“You need to have an idea, be able to get other people to believe in your idea and really figure out how to execute it,” Johnson said. “I think the other thing is you need to really stick with it. Somehow the image is that this happens overnight, that you have a great idea and next day you have a big company. The reality is there's a lot of hard work between having having that idea and actually having a company that’s successful.”
Of course, some of the struggles that come with starting a company will affect a founder’s personal life as well.
“A startup is a 24-7, 365 job and it’s an extremely physically demanding pace at which you work,” Chalk said. “The younger women, who have the stamina and chops to run the race without growing fatigued, typically these are their prime childbearing years. Being away from their children and not being present and available for families and children is a particularly unique challenge for women.”
Chalk adds that having an understanding and supportive spouse is one of the prime reasons she can live on the road and work odd hours of the day.
Lark founder Julia Hu also notes that getting funding might be harder if a woman is building a family.
“The best ways to get funded is to have previous success founding companies, but if you look at the age that is necessary for that, you’re looking at a [founder who has] first success or first exit in their 20s,” Hu said. “The second company is in their early thirties, and that happens to be when women are having children. And I do know that, while there is not rampant sexism, at least as I understand or have experienced, there are points against you if you are pregnant or about to be pregnant. The thinking is you won’t be as dedicated as a singularly-minded person who is devoting their life to a startup, which is sometimes what it needs.”
Just within the professional world, both Lark's Hu and Yifan Zhang, founder of Pact (formerly Gympact), noticed that having the right attitude, body language, and approach to funding is important as well — and some of these traits, they believe, might be more natural for men.
For Zhang, the changes she had to make to the way she interacted with people were partly because she was a woman, but also because she was young.
Julia Hu, founder, Lark
“I did have to make some adjustments, but I think that was necessary anyways,” Zhang said. ”Part of that was just learning how to be a professional — how to be able to present myself that way. But part of it is some of these adjustments may come naturally for certain types of men and I had to personally make those adjustments.”
While at a startup incubator, Techstars, Zhang learned more about what kind of body language she should display when she walked into a meeting and how to show people that she was the CEO. Her advisors at Techstars also helped her maintain a professional tone of voice and be careful with her inflections. She pointed out that some changes, such as showcasing certainty and decision-making rather than asking questions and getting advice, were only necessary because she was young and making the transition from being student to professional and leader.
On the other hand, Hu felt she had to work more on strategy when she was talking to VCs about investing in Lark.
“The funding environment is mostly male and so, one, males tend to not understand companies that serve women as much and females tend to start companies when the markets are more female-based, so that’s an issue,” Hu said. “But the other thing is that women — I saw myself doing this in the beginning too — ask for less. We’re a little less bullish. We don’t think we’re going to take over the world in the next year and so we say, ‘OK given our growth, this is how much I need’ and so we ask for less and typically it ends up that those things work against us.”
As Lark grew into a more established company, Hu also learned that once she got past the logistics of founding the company and she received the funding her company needed to move forward, the qualities that she possessed were very well suited for her role as CEO. Hu said that research has shown that women excel at communication, building teams, forming partnerships, and thinking outside of the box -- all important traits for any CEO.
"What I would say is it’s not that we are always going to have to fight the upward battle," she said. "Once you establish a company and you decide that you’re going to go for it, your innate strengths are really, really aligned with running a great company, and that’s 95 percent of the battle.”
Zhang experienced similar issues when she passed the point in her founding experience that required her to focus on getting the company off the ground and securing investments. Her main challenge now, she said, is just changing perceptions.
“One thing I realized, even different from being a woman founder, is being a woman CEO, because my cofounder is male and one of the things I did notice was that when the two of us walk into a room, a lot of people will assume that he is a CEO,” Zhang said. “I understand that, you know. It’s understandable because a lot of arrangements are like that. And it’s not something that lingers after people realize that I’m the CEO, but it’s just interesting that there’s that initial assumption."
"I highly encourage more women to take that risk, start the company, be the CEO, not just the founder," she said. "Go after the larger opportunity, not just the one that you know you’re more comfortable with.”
