While traditional medical device startups are struggling to find financiers, digital health companies are not. The space earned $5.8 billion in VC money last year, up from $4.3 billion in 2014, according to CB Insights.
GV (formerly Google Ventures) general partner Dr. Krishna Yeshwant explained the firm's investment strategy to TechCrunch. One-third of GV's $2.4 billion portfolio is invested in the life science and healthcare space, he said.
One focus is Big Data. "There's a fundamental need for infrastructure. A single disease type of lung cancer is actually lots of diseases. Other more complex diseases are going to need more data sets, multisite trials, and we need to create infrastructure for that," he told TechCrunch.
That's why GV made a big bet on New York City's oncology-focused software company Flatiron Health. "Flatiron is basically integrating EMR's (electronic medical records) in the outpatient and hospital setting," he said, "and it provides data back to physicians as well as aggregating data to aid with discovery and help with regulatory processes."
Highlighting the opportunities for partnership and med tech's growing integration with the pharmaceutical industry, Roche recently provided the company an additional $175 million in Series C funding, and plans to subscribe to its software for R&D purposes.
Other GV investments include Metabiota, Zephyr Health and DNAnexus. All provide Big Data crunching software.
"Once you're in a world where you can scale up and down your computational analysis, you can ask lots of simultaneous questions of your aggregated data sets and that's well suited to the cloud environment," said Yeshwant. "We invest heavily in those spaces."
Another area of interest is genetics, as evidenced by investments in CRISPR gene editing player Editas, consumer-focused 23andMe (which increasingly relies on R&D partnerships with Big Pharma), and diagnostics company Foundation Medicine ($FMI).
A third theme that guides GV's investment decision is the shift from a fee-for-service to fee-for-value payment system. "Anything you can do to move healthcare from a high-cost setting to a low-cost setting is generally going to be successful in that model," said Yeshwant. "Telemedicine is a good example of that. We have a company called Spruce Health which is essentially asynchronous care. Value-based care is a big area for us."
Spruce Health makes a telemedicine app that enables remote treatment of dermatological conditions like acne, poison ivy and tick bites.
GV's focus on digital health reflects the potential for sky-high returns. For instance, Emergence Capital's $4 million bet on life science cloud computing company Veeva Systems ($VEEV), turned into a $1.2 billion stake upon the company's 2013 IPO.
Less astronomical, but still stellar, was Venrock's threefold return on software maker Castlight Health ($CSLT). The VC's 20% stake in the company went from $181 million to one worth $620 million in 2014.
But both firms highlight the space's risks as well as its rewards. Castlight shares now trade around $3, while Veeva Systems' are down about 50% since debuting at $44.
- read the article in TechCrunch