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Healthcare investment reached $18 billion in Q2, setting new record

There were close to 1,300 equity investments in healthcare companies during Q2, with tech startups drawing much of the capital.

Jeff Lagasse, Associate Editor

The COVID-19 pandemic has brought financial hardship to the nation's hospitals, with bottom lines struggling due to cancelled elective and other lucrative procedures, and mergers and acquisitions sinking to their lowest level in five years during the second quarter. But one area remains strong: Healthcare investments, which hit $18.1 billion globally in Q2, a new worldwide record, according to CB Insights.

The sheer number of investments rose 6.6% compared to the first quarter. That's good news for startup companies especially, as digital health had a banner quarter in terms of raising funds.

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Overall, there were close to 1,300 equity investments in healthcare companies during Q2, with tech-oriented startups drawing much of the capital. Telehealth showed an especially strong quarter: At 154 deals, the number of deals rose 23% compared to Q1. Funding, however, dropped 18% between Q1 and Q2.

Firms focused on artificial intelligence technologies were a prime target for investors, with investments in the space hitting $1.1 billion, enough for 14% growth from the previous quarter, though deal volume remained flat.

One area that didn't fare as well was women's health, with investments in that space sinking a significant 47% – though, at 52, the number of deals increased by 20%.

Globally, venture capital firms have started to shift their focus. Investment in North America remained relatively flat during Q2 at $10.5 billion, compared to $10.6 billion in Q1. California recorded the highest number of deals in the U.S. at 66, though this is a 14% decline from the first quarter. At 47, the number of deals in New York remained stable.

Asia was the beneficiary of the shift in investment focus, seeing a 98% increase in the amount invested: close to $5 billion, all told. Funding in Europe also saw an increase, from $1.5 billion to $2.3 billion, quarter-to-quarter.

Across the board, early-stage funding was in decline, making up just 46% of all deals in the quarter, continuing a downward trend that began in Q3 2019.

THE LARGER TREND

The potential for telehealth to address the COVID-19 novel coronavirus is drawing the interest of venture capitalists, who are already pouring money into the space and may increase their activity as the model grows in viability and popularity.

Steven Shill, national leader at the BDO Center for Healthcare Excellence and Innovation, sees this confluence of factors as a "perfect storm" that could lead to a dramatically increased ability to screen and test people for the virus, protecting not only the public but the healthcare professionals who are treating patients.

Private equity and venture capital have spent a lot of money in the space, because they're believers in disruption and changing old paradigms, said Shill. Significant investments have been made as of late.

K Health, makers of an artificial intelligence-powered medical app, recently raised about $28 million to replace initial doctors' visits for certain conditions, for example. And Aurora Health recently dedicated roughly $126 million to prevent illnesses and lower costs.
 

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com