Investment reached a high mark between October and the end of the year, with just more than $1 billion spent in three months, according to a recent report from the New York City Health Business Leaders, a trade group focused on health care and technology.
“There were already a lot of challenges in the health care delivery system before Covid, so the idea of embracing innovation was already happening,” said Bunny Ellerin, president of the group. “But Covid completely accelerated both the funding and adoption of technology.”
Health-tech investment has grown more than 400% since 2017, according to the report.
Investors last year proved most interested in digital health companies that either provide telemedicine or offer tech-enabled services for insurance or pharmacy delivery, such as Oscar Health, Cityblock and Ro.
The three aforementioned companies ranked highest in total investment in 2020, each raising more than $200 million. The top biotech company for funding was Neurogene, a Chelsea-based startup that raised $115 million to develop gene therapies for rare neurological diseases.
Insurer Oscar Health led the way with $365 million in investment across two deals that bookended 2020. The company made its debut on the New York Stock Exchange Wednesday.
That type of successful exit—the investment term for when a startup reaches public markets or is acquired—can help further develop a startup ecosystem. The most famous example is the “PayPal mafia,” with the Silicon Valley online payments company’s employees—such as Elon Musk—launching a list of startups that includes Tesla, LinkedIn, YouTube and Yelp.
There is evidence already of an Oscar mafia for local health-tech companies, noted Nimi Katragadda, a partner at BoxGroup, an early-stage technology investment firm based in Union Square whose portfolio includes Oscar, Ro and Blink Health.
Former Oscar employees have already launched startups such as Tomorrow Health, Alma and Garner Health. Katragadda expects there will be similar trends with employees from startups such as Cityblock and Ro breaking off to launch firms.
“These companies are great breeders of talent,” Katragadda said. “But there is the other half of our portfolio as well, which is outsiders who bring a fresh perspective for how health care should work.”
Although many of the top funding deals focused on consumer startups—those that deliver care—Katragadda said there is a rising group of startups focused on offering services for health care providers. BoxGroup has invested in Ribbon Health, a Lower Manhattan startup that maintains a directory of doctors and health plans, with information on specialization and insurance providers, which health care providers can use for referrals.
Health-tech startups—particularly in virtual care—were greatly helped by policy changes at the start of the pandemic, such as those to Medicare reimbursement rates and the removal of a state requirement that telehealth be performed only from approved facilities.
Investors will be watching how many of those changes become permanent, noted Jordan Nof, managing partner at Tusk Venture Partners, whose investments include Alma and Ro.
Long-term policy choices will be especially important for the many digital health companies early in their growth that will soon seek second and third investment rounds after receiving initial funding to meet pandemic demand. Can digital health build off the frenzy created by Covid-19?
“Later-stage investors are going to want to see sustained growth over multiple cycles, which means post-vaccine,” Nof said, “we will see some major winners emerge.”