Electronic medical/health records, devised as a method of organizing patient data more effectively than paper records, have become vital components of the healthcare system, ubiquitous in nearly every hospital or clinic. However, while the digital health renaissance rolls on, funding to health IT startups aiming to build new EMR systems that improve upon legacy systems remains sluggish.
The difficulties of changing physician behavior compounded with the inertia around updating or revamping large-cycle hospital systems makes disruption a slow and bureaucratic process. Consequently, outside of hitting a high in 2013 due to a large round to Accelera Innovations, funding has hovered at just over $100M per year since 2012. Despite a rally from Q3’16-Q4’16, full-year deal activity remained static compared to 2015.
Yearly Funding Trends
In 2016, funding to electronic medical record companies saw a 33% drop from $159M in 2015 to $109M this year. Deals remained steady in 2016, at 19, but have now remained below even 2012 deal count for the past 2 years.
The largest deals since 2012 include a $200M private equity round to Accelera Innovations in October 2013 from Lambert Private Equity, Practice Fusion‘s $70M Series D in September 2013 from investors including OrbiMed Advisors and Kleiner Perkins Caufield & Byers, and a $55M equity round to Kareo in July 2015 from investors including OpenView Venture Partners and Silver Lake.
Quarterly funding trends
On a quarterly basis, funding saw a 24% increase from $38M in Q3’16 to $47M in Q4’16. Deal flow jumped from 5 deals in Q3’16 to 8 in Q4’16.
Recent deals include a $10.5M Series B round to Azalea Health in July 2016 from Kayne Anderson Capital Advisors and InterSouth Partners and a $31.5M Series C to CareCloud in November 2016 from investors including Norwest Venture Partners and Intel Capital. Both companies are providers of electronic health record (EHR) software in addition to practice management solutions.
Deal share by stage
Early-stage deals occupied the lion’s share of total deal flow in 2016 at 26%, despite dropping from 32% in 2015. Since declining yearly from 2012-2014, seed/angel deals have increased for the second consecutive year, up from 16% in 2015 to 21% in 2016. Series A deals fell to 5% in 2016.
Following 3 straight years of decline, mid-stage investments (Series B and C) picked back up in 2016, reaching 16% of total deal flow, up from 5% in 2015. Recent Series B rounds include the $2.8M Series B to Caredox, which provides free medical record software for K-12 public schools, and $10.5M Series B to Azalea Health. Investors pulled back from late-stage deals in 2016 with Series D+ deal share decreasing from 26% in 2015 to 11% in 2016.
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