Telemedicine has transformed the role of the modern physician and expanded access to health services throughout the world. While not yet available in every hospital or country, the industry is quickly maturing as more and more physicians become comfortable treating patients remotely.
This has helped propel a big spike in funding to the space, with telemedicine startups raising over $1.2B since 2013 and deal flow exploding over the past 3 years. The industry has now seen the IPOs of market leaders like Teladoc and Telehealthcare, among many others. And investors showed no signs up of slowing up in 2016 as deal flow hit a 5-year high.
The definition of telemedicine is currently in flux and is often referred to as either a sub-section of telehealth or synonymous with it. For this report, we used the Medicaid definition of telemedicine, seen below.
“For purposes of Medicaid, telemedicine seeks to improve a patient’s health by permitting two-way, real time interactive communication between the patient, and the physician or practitioner at the distant site. This electronic communication means the use of interactive telecommunications equipment that includes, at a minimum, audio and video equipment.”
Annual funding trends
In 2016, equity funding to telemedicine companies saw a 14% decrease from $420M in 2015 to $362M in 2016. Deals, however, grew 16% from 61 in 2015 to 71 in 2016. In 2017 YTD, funding has hit $43M across 18 deals. At the current run rate, 2017 funding is set to come in much lower than 2016, on track to total $158M over 65 deals.
The largest deals of 2016 include the $55M Series E of Pennsylvania-based Accolade from investors including Andreessen Horowitz and Comcast Ventures, the $25M Series A of Babylon Health from investors including DeepMind Technologies, and the $40M growth equity round of PodiCare Services.
Quarterly funding trends
On a quarterly basis, equity funding to telemedicine companies dropped slightly, from $44M in Q4’16 to $43M in 2017. This puts quarterly funding at its lowest level since Q4’13, for the second quarter in a row. Deals also fell, down from 21 in Q4’16 to 18 in Q1’17.
The largest deal in Q1’17 was the $8M Series B of Sense.ly from investors including the Mayo Clinic and Fenox Venture Capital. Sense.ly has developed a virtual nurse avatar that checks in with the patient periodically and updates the clinician remotely. Other deals in Q1’17 include the $7.95M Series A of Conversa Health and the $1.07M seed round of France-based Exelus from BPI France and Caisse d’Epargne. 
Funding by stage
Despite the presence of public, well-funded telemedicine companies such as TelaDoc, early-stage startups continue to occupy the majority of deals to the industry. In 2016, early-stage seed and Series A deals accounted for 56% of total deal share, dropping below 60% for the first time since 2013.
These early-stage startups are taking on big players by making key advances in the technology or developing entirely new business models. For example, DeepMind Technologies-backed Babylon Health overlays artificial intelligence on a patient-physician communication platform to help automatically pre-screen patients. And Call9, backed by Index Ventures and Kapor Capital, among others, connects emergency physicians with nursing home patients in order to reduce unnecessary hospitalizations.
Mid-stage deals, including Series B and C, represented 9% of all deals in 2016, down from 14% in 2015. Late-stage deals (Series D and E) fell significantly from 15% of all deals in 2015 to 4% in 2016.
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