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HealthTech: Insights intoan Emerging IndustryValuable Exits Reinforce Growing InvestmentsOctober 2019Follow @SVB FinancialEngage #SVBHealthcare
Table of ContentsIndustry Overview3HealthTech Investments4HealthTech Exits29Glossary34About the Authors35SVB HealthTech Report2
Valuable Exits Reinforce Growing InvestmentsSince 2015, the HealthTech industry has become one of the fastest-growingsegments within healthcare. In fact, an SVB analysis finds that the number ofprivate, venture-backed HealthTech financings has grown by 25% over that period,with SVB working with roughly 40% of combined US and European companies.In this inaugural report, we introduce primary sectors and respective subsectorsto measure their investment and exit activity. These sectors were derived byanalyzing the problems around wasteful healthcare spending and then groupingcompanies based on their tech-enabled solutions to solve these problems.Six primary sectors (see page 9 for full definitions):Provider OperationsAlternative CareClinical Trial EnablementHealthcare NavigationMedication ManagementWellness & EducationOverall, the outlook for HealthTech is promising. In the past five years, theindustry’s robust growth has facilitated more than 27B in invested capital forprivate companies and 14 companies with 1B valuations. Additionally, 2019 hasalready surpassed 2018 with a record 8B in total exit value, largely driven bystrong IPOs.HealthTech TeamLife Science & HealthcareSilicon Valley BankNotes: Financing data includes private financings by venture-backed companies that have raised 2M in US and Europebetween 2015 and 09/13/19. Valuations mentioned here are defined as post-money valuations from PitchBook. Dates offinancing rounds subject to change based on add-on investments. Source: PitchBook, SVB proprietary data and SVB analysis.Market Stats40%of all VC-backed HealthTechcompanies are SVB clients. 14Bof the 27B total invested capitalsince 2015 has been raised bySVB HealthTech clients.SVB HealthTech clients are20%more likely to haveat least one corporate investorparticipate in their financing.On average, SVB HealthTechclientsraise 1.5xlarger rounds than non-clients.SVB HealthTech Report3
HealthTech Investments:Growth Across the BoardSVB HealthTech Report4
In 2019, Investment Is Up, Deal Count Is DownWithin the last five years, HealthTech deals have grown reliably year-over-year; however, for thefirst time ever, 2019 is predicted to come in lower than previous years due to a decrease in thenumber of deals in 2H 2019. Despite this decline, the total amount of dollars invested is up —indicating that companies are, on average, raising larger rounds.VC Deals and Dollars (US & Europe)USEurope2H 2019 EstimatedTotal Deals136123244150141175174191185105 0.6B 1.5B 2.1B 2.9B 1.9B 2.5B 1.8B 3.3B 4.0B 5.6B 1.7B1H 20152H 20151H 20162H 20161H 20172H 20171H 20182H 20181H 20192H 201920152016201720182019*Region ( M)USEuropeTotal 3,474 4,497 3,745 6,680 6,285* 153 257 553 533 1,597* 3,627 4,754 4,298 7,213 7,882*Notes: *2019 numbers collected through 09/13/19; table shows estimated annualized 2019 dollars. Financing data includes private financings by venturebacked companies that have raised 2M in US and Europe. Dates of financing rounds subject to change based on add-on investments.SVB HealthTech ReportSource: PitchBook, SVB proprietary data and SVB analysis.5
US Leads World, UK Leads Europe in InvestmentsCountries with high healthcare expenditures also lead in total HealthTech funding. Whilehealthcare costs are country specific, often the solutions targeting these costs are fundedthrough cross-border participation. For example, in the last five years, 40% of all US deals havebeen syndicated with at least one European investor.Countries with 200M VC Investment & Top Deals: 2015–2019Total to Date: 27B 1.1BUKUnited States 275MSwedenUnited Kingdom 599MFrance 24BUnited StatesGermany 1B 500M 100M 202MGermanySwedenFrance 100MNotes: Financing data includes private financings by venture-backed companies that have raised 2M in US and Europe.Dates of financing rounds subject to change based on add-on investments. 2019 numbers through 09/13/19.Source: PitchBook, SVB proprietary data and SVB analysis.SVB HealthTech Report6
Rocky Mountain Projected to Double in 2019While the West and Northeast remain at the top in terms of invested capital, the RockyMountains have become the nation’s fastest-growing region from 2018 to 2019. This recent surgecan be attributed to an increase in the number of sizable deals within Colorado and Utah. 829MNotable DealsRocky MountainsMidwestNortheastSouthwestSoutheast 2.0BWest 234M 292M 95M 2.5B 1.1B 579M 365M 196M 185M 92M 79M 822M 474M 295M 205M 2.5B 2.6B 1.6B 186M 1.0B 235M 120MGrowth in Key US Regions: 2017–2019Notes: Financing data includes private financings by venture-backed companies that have raised 2M in US and Europe. Dates offinancing rounds subject to change based on add-on investments. 2019 numbers through 09/13/19.Source: PitchBook, SVB proprietary data and SVB analysis.SVB HealthTech Report7
Corporates Add Strategic Value at Multiple StagesIn the healthcare industry, startups commonly partner with incumbent players to gaintraction. As these companies continue to innovate across the healthcare system, we expect tosee a range of corporates — from biopharma and insurance to hospital systems — continue tomake investments.Most Active New Investors* in HealthTech: 2015–2019Active New Investors: Series ATotal New Investments 534%New InvestorDoesn’t LeadActive New Investors: Series BTotal New Investments 466%New Investor LeadsActive New Investors: Series CTotal New Investments 2Corporate InvestorLead Corporate Investor**Notes: *Most Active New Investors calculated as new (first-time) investments into private, venture-backed US and European companies in 2015–2019. 2019 financing data through 09/13/19. Dates of financing rounds subject to change based on add-on investments.**Corporate investor leads 50% of their total new investments. Source: PitchBook, SVB proprietary data and SVB analysis.SVB HealthTech Report8
Wasteful Spending Drives Well-Funded SectorsTotal Funding & US Healthcare Waste for SVB’s Primary Sectors, 2015–2019Provider OperationsAlternative CareClinical Trial EnablementWastes 404B & 8.8B InvestedWastes 269B & 8.2B InvestedWastes 26B & 2.5B InvestedHealthcare NavigationMedication ManagementWellness & EducationIncreases the efficiency and accuracyof provider-provider, provider-patientinteractions.Wastes 13B & 2.1B InvestedGuides users to relevantproviders and/or payersbased on their needs.Provides primary or specialtycare outside of a hospitalor private practice.Wastes 24B & 1.4B InvestedAids users in accessand adherence to theirprescribed medicine.Solutions to accelerate drugdiscovery and the digitizationof clinical trials.Wastes 26B & 1.3B InvestedInforms users of healthylifestyle and medicalbest practices.Notes: Financing data include private financings by venture-backed companies that have raised 2M in US and Europe. Dates of financing roundssubject to change based on add-on investments. 2019 numbers through 09/13/19. Healthcare waste calculations are only for the US healthcaresystem; additional details are stated in the Glossary at the end of this report. Source: PitchBook, news articles, academic publications, Centers forMedicare & Medicaid Services, SVB proprietary data and SVB analysis.SVB HealthTech Report9
Provider OperationsGrowth Is Projected to ContinueUS-based Provider Operations companies have raised 1B each year for the last five years and2019 is expected to set a record for deal and dollar volume. NorCal currently leads the nation,with 28% of all Provider Operations deals.VC Deals and DollarsInvested Capital by Round SizeUSEurope2019 EstimatedTotal Deals114123177158132 90M 43M 62M 50M 25M– 50M9%8%10%11% 700M 137M32% 10M– 25M11%13%25% 5M– 10M 5M8%8%13%12%22%28%29% 109M19%20%18%30% 1.5B 1.8B 1.4B 2.1B %34%20182019Notes: Financing data include private financings by venture-backed companies that have raised 2M in US and Europe. Dates of financing rounds subjectto change based on add-on investments. 2019 numbers through 09/13/19.SVB HealthTech ReportSource: PitchBook, SVB proprietary data and SVB analysis.10
Provider OperationsWorkflow Optimization Raises 1B AgainIn the past three years, we have observed six mega rounds of 100M . The four withinWorkflow Optimization alone raised 700M, or roughly 20% of the 3.7B total invested capitalbetween 2017 and 2019 whereas the two in Clinical Decision Support raised 440M, accountingfor nearly 25% of the 1.8B total invested capital during that period.All Provider Operations Deals by Subsector201720182019 9 Deals over 100M94 1.4B 1.1B108942019 Deals 50M– 100M 321M 816M 655M3850332019 YTD Deals 25M– 50MCompany Went PublicNotes: Financing data include private financings by venture-backed companies that have raised 2M in US and Europe. Dates of financing rounds subjectto change based on add-on investments. 2019 numbers through 09/13/19.SVB HealthTech ReportSource: PitchBook, SVB proprietary data and SVB analysis.11
Provider OperationsHospital Operators Remain CommittedIn addition to increasing operational efficiency, Provider Operations-focused companieshave helped hospitals transition to a value-based care system. Investments within this sectorby hospitals, such as Inova, or VC funds that have hospital LPs, such as Heritage Group,suggest that we may see additional integrated delivery networks supporting these startups.Top Follow-on InvestorsRound Size & Valuation RangesSeries AFollows-on in over 80% of financingsSeries B75thPercentile 60MMean*Median25thPercentileFollows-on in 75%–80% of financings 34M 30M 26M 21MFollows-on in 60%–75% of financings 17M 16M 13M 12M 8M 8M 3MRound Size 21M 12M 7M 5MPre-MoneyValuationRound SizePre-MoneyValuationCorporate InvestorNotes: The follow-on percentile calculated as total follow-on investments/total investments within SVB’s HealthTech universe. Investor had a minimum of 3 totalinvestments. *Mean calculated after excluding outliers that fell outside /-1.5*IQR. Financing data includes private financings by venture-backed companies thathave raised 2M in US and Europe from 2017 to 2019. Dates of financing rounds subject to change based on add-on investments. 2019 numbers throughSVB HealthTech Report09/13/19. Sample size for boxplots: Series A 75 companies, Series B 50 companies. Source: PitchBook, SVB proprietary data and SVB analysis.12
Alternative Care Projected to Outpace Other Sectors by 1B The rise in invested capital and increase in 50M rounds can be attributed to companiesneeding more capital to validate the efficacy of their treatment within a clinical setting. From2015 to the end of 2019, deals are projected to double and dollars to quintuple, with NorCalseeing the largest percentage of Alternative Care deals.VC Deals and DollarsInvested Capital by Round SizeUSEurope2019 EstimateTotal Deals95146104112 258M 50M 25M– 50M14%11%11%4%8%17%17%16% 1.1B19% 819M6922%21% 40M 131M 268M 1.0B 0.9B 2.3B 1.8B20152016201720182019 5M– 10M 5M4%7%12%10%22%21%17%25%42%56%67%26%23% 0.7B 10M– 25M7%20152016201720182019Notes: Financing data include private financings by venture-backed companies that have raised 2M in US and Europe. Dates of financing rounds subjectto change based on add-on investments. 2019 numbers through 09/13/19.SVB HealthTech ReportSource: PitchBook, SVB proprietary data and SVB analysis.13
Alternative Care 1B Raised in Primary Care & Mental HealthInvested capital within primary care has continued to far exceed that of specialty care. In fact,within the last two years, five specific deals have raised 45% of the total primary care capital.Similarly, mental health has doubled its invested capital since 2018, largely due to ClickTherapeutics’ 305M corporate investment by Japan-based Otsuka Pharmaceutical.Top* Alternative Care Deals by h20182019 574M 1.6B 1.4B4860412019 Deals over 100M 175M 311M 640M14 17172019 Deals 50M– 100M 114M 85M 160M10 5 10 176M 189M 148MDiabetesBehavioralHealth8 66 12M 38M 97M2019 Deals 25M– 50M26 5 45M 100MNeurology67Notes: *Only showing top six subsectors by total invested capital within Alternative Care. Financing data include private financings by venture-backedcompanies that have raised 2M in US and Europe. Dates of financing rounds subject to change based on add-on investments. 2019 numbers through09/13/19. Source: PitchBook, SVB proprietary data and SVB analysis.SVB HealthTech Report14
Alternative CareMH & Diabetes Land Most Valuable DealsStartups developing clinically validated, software-based solutions to prevent, manage, or treathealthcare conditions have begun to receive FDA approval. These digital therapeutics are becomingincreasingly valuable, with one successful exit already on the books.Companies with a 50M Post-Money Valuation: 2017–2019DiabetesMental Health (MH)4/11/18 105M Round 805M Post6/26/19 73M Round 593M Post4/4/18 45M Round 320M Post6/3/19 46M Round 241M Post1/4/19 64M Round 494M Post5/8/19 60M Round 490M Post5/29/19 50M Round 310M Post6/27/17 35M Round 140M Post6/7/17 4M Round 105M Post1/3/19 7M Round 65M Post1/12/18 14M Round 55M Post8/8/18 68M Round 258M Post12/17/18 61M Round 241M Post12/21/18 45M Round 200M Post6/11/19 21M Round 110M Post10/1/18 17M Round 82M Post8/15/17 9M Round 72M PostNephrologyBehavioral Health3/20/18 11M Round 61M Post8/21/18 24M Round 50M PostWomen’s Health7/11/19 52M Round 287M Post5/6/19 58M Round 340M PostCardiology9/26/18 27M Round 87M Post9/11/18 50M Round 63M PostMusculoskeletalOphthalmology8/9/18 26M Round 90M Post5/17/18 16M Round 76M PostGreen box: Company subsequently went public. Purple text indicates company has received FDA approval.Notes: Post-money values reported by PitchBook for US and Europe venture-backed private companies. Dates of financing roundssubject to change based on add-on investments. 2019 financing through 09/13/19.Source: PitchBook, Digital Therapeutics Alliance, SVB proprietary data and SVB analysis.SVB HealthTech Report15
Alternative CareFunded by a Cross-Sector Group of Big PlayersAs Alternative Care companies continue to provide opportunities for large employers to reducetheir employees’ total healthcare expenditures, we will continue to see a range of corporatestake interest. Cross-sector investors stand to benefit not only from a successful exit, but alsofrom an employee productivity level.Top Follow-on InvestorsRound Size & Valuation RangesSeries AFollows-on in over 90% of financingsSeries B on in 70%–80% of financings 50M 44M 38M 26MFollows-on in 60%–70% of financings 12M 8M 8M 17M 24M 16M 10M 4MRound Size 24MPre-MoneyValuation 17M 6MRound SizePre-MoneyValuationCorporate InvestorNotes: The follow-on percentile calculated as total follow-on investments/total investments within SVB’s HealthTech universe. Investor had a minimum of 3 totalinvestments. *Mean calculated after excluding outliers that fell outside /-1.5*IQR. Financing data include private financings by venture-backed companies thathave raised 2M in US and Europe from 2017 to 2019. Dates of financing rounds subject to change based on add-on investments. 2019 numbers throughSVB HealthTech Report09/13/19. Sample size for boxplots: Series A 50 companies, Series B 35 companies. Source: PitchBook, SVB proprietary data and SVB analysis.16
Clinical Trial EnablementDollars Are Up, Deals Are DownStrong inflows of capital remain within the Clinical Trial Enablement (CTE) sector, and 2019 isposited to double 2018 and reach 1B. However, total deals within the sector are predicted todecrease relative to 2018. Within the US, NorCal encompasses one-third of all CTE deals,followed by New York and Massachusetts, each with roughly 15%.VC Deals and DollarsUSEurope2019 EstimateTotal DealsInvested Capital by Round Size333130 50M14% 291M231929% 25M– 50M5%5%7%33% 109M 48M 10M– 25M 5M– 10M9%4%6%8%20%18%3% 5M2%13%22%11%41% 38M 71M57%50%60%56% 22M27% 144M 551M 497M 388M 610M2015201620172018201920152016201720182019Notes: Financing data include private financings by venture-backed companies that have raised 2M in US and Europe. Dates of financing rounds subjectto change based on add-on investments. 2019 numbers through 09/13/19.SVB HealthTech ReportSource: PitchBook, SVB proprietary data and SVB analysis.17
Clinical Trial Enablement 100M Mega Deals Return in 2019The Drug Discovery Platform subsector remains at the forefront of the CTE field in terms ofinvested capital, predominantly due to its 2019 mega deal. The last mega deals were in 2017,one of which was PatientsLikeMe, a patient network and recruitment company that recentlymade headlines for being acquired by United Health Group after losing its foreign investors.All Clinical Trial Enablement Deals by Subsector20172018DrugDiscoveryPlatform2019 44M 183M 307M1389 116M 162M 247M10109WorkflowOptimization2019 Deals over 100M2019 Deals 50M– 100M 132M 18M 63MPatientRecruitment733 203M 61M 68MGenomic2Analysis512019 Deals 25M– 50M 39M 35M 35MMobile 2 2 1TrialsNotes: Financing data include private financings by venture-backed companies that have raised 2M in US and Europe. Dates of financing rounds subjectto change based on add-on investments. 2019 numbers through 09/13/19.SVB HealthTech ReportSource: PitchBook, news articles, SVB proprietary data and SVB analysis.18
Clinical Trial EnablementBig Tech & Healthcare Investors RepeatAs companies increasingly turn to artificial intelligence/machine learning (AI/ML) to improvedrug design and establish end-to-end solutions for clinical trial programs, they will continue tosee interest from both tech and healthcare investors.Top Follow-on InvestorsRound Size & Valuation RangesSeries AFollows-on in over 60% of financingsSeries B 83M 62M75thPercentileMean* 48MMedian25thPercentileFollows-on in 40%–60% of financings 32M 29M 22M 20MFollows-on in 25%–40% of financings 11M 7M 14M 9M 2MRound Size 20M 13M 12M 6MPre-MoneyValuationRound SizePre-MoneyValuationCorporate InvestorNotes: The follow-on percentile calculated as total follow-on investments/total investments within SVB’s HealthTech universe. Investor had a minimum of3 total investments. *Mean calculated after excluding outliers that fell outside /-1.5*IQR. Financing data include private financings by venture-backedcompanies that have raised 2M in US and Europe from 2017 to 2019. Dates of financing rounds subject to change based on add-on investments. 2019numbers through 09/13/19. Sample size: Series A 15 companies, Series B 7 companies. Source: PitchBook, SVB proprietary data and SVB analysis.SVB HealthTech Report19
Healthcare NavigationNew York & NorCal Lead DealsNew York ties NorCal with about 25% of all deals for Healthcare Navigation companies.Investments across the US have been strong, with larger rounds raised in the last two years and2019 projected to have 1B total invested. While Europe has doubled its investments this year,the growth is driven by large deals from Doctolib (France) and ZnanyLekarz (Poland).VC Deals and DollarsUSEurope2019 EstimateTotal Deals27Invested Capital by Round Size3030 50M 25M– 50M5%5%13%18%7%2215 292M27%32% 87M 81M 429M 157M 184M 400M 449M20152016201720182019 5M– 10M 5M3%4%3%8%17%13%16%27% 271M 20M 12M 10M– Notes: Financing data include private financings by venture-backed companies that have raised 2M in US and Europe. Dates of financing rounds subjectto change based on add-on investments. 2019 numbers through 09/13/19.SVB HealthTech ReportSource: PitchBook, SVB proprieta
Medication Management. Wellness & Education. SVB HealthTech Report. 3. Valuable Exits Reinforce Growing Investments. Since 2015, the HealthTech industry has become one of the fastest-growing segments within healthcare. In fact, an SVB analysis finds that the number of private, venture-backed HealthTe
