Healthcare AI funding hits new high as sector matures

Dive Brief:

Startups using artificial intelligence to improve healthcare raised a record amount of money in the second quarter, a report from CB Insights revealed Tuesday.
AI healthcare startups raised $864 million in venture capital-backed deals and financing, beating the previous quarterly high by about $100 million.
The surge in investment was driven by big financing rounds for companies such as Tempus and PathAI, which are respectively using AI to analyze health data and in pathology services.

Dive Insight:

The potential for AI to improve the review of medical images, facilitate large-scale data analysis and otherwise make healthcare more efficient and effective has led to predictions the technology will transform the industry. Yet funding for startups driving any transformation has slowed, falling from $764 million to $517 million between the second and fourth quarters of 2018.

Deal volumes picked up in the first quarter of 2019, rising from a low of 52 up toward a high of 81, but the value of investments remained below $600 million.

That changed in the second quarter of 2019, when AI healthcare startups raised $864 million through 75 deals. The fundraising record was easily beaten despite there being fewer deals than in two previous quarters, showing the large size of some of the recent investments.

Tempus, which uses AI to analyze clinical and molecular data, raised $200 million while AI-powered pathology startup PathAI raised a $60 million round. Such investments raised the mean investment up to $11.5 million, well above the $7.4 million seen in the previous quarter and above the $9.4 million achieved in the record-breaking second quarter of 2018.

The mean deal size for AI startups is one of two data points in the CB report that show the maturation of companies using digital technologies within healthcare. The other data point comes from a breakdown of digital health deals in the quarter when 32% of financing rounds were seed or angel investments. In recent years, approximately half of all digital health deals have been funded by seed or angel investments.

CB said the shift from seed investments to larger, later-stage investments is a consequence of the digital health sector maturing. Later-stage investments, defined as Series C or later, accounted for more of the deal-making activity in the second quarter than at any time in the past. The proliferation of larger, later-stage deals resulted in the third biggest quarter of digital health investment on record.