Health care start-ups rake in record money in 2014

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Ask venture capitalists in Silicon Valley about which industry they're most excited to revolutionize, and odds are high that they'll say health care.

So it's no surprise that money is surging into start-ups that focus on the intersection of health care and technology.

In 2014, venture funding for these start-ups hit a record $4.1 billion. That was a 125 percent year-over-year jump, according to Rock Health, which provides seed funding for start-ups and conducts research in this area.

Those working in this sector say health care is undergoing a technology transformation with a range of start-ups aiming to make the industry more efficient, convenient and cost effective.

"Technology can improve the quality of care dramatically," Malay Gandhi, managing director of Rock Health, said. "Its time has come."

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One such company is Omada Health, which connects those at risk for chronic disease like diabetes to a comprehensive lifestyle change program that includes a personal health coach and digital support group.

Sean Duffy, the company's CEO, said start-ups like his are attracting attention and money, in part because there is now a new generation of entrepreneurs who are passionate about health care and tech.

"I worked at Google before going to medical school," Duffy said. "I love technology. I love health care. You have entrepreneurs who are able to combine both. The venture capital and investing community sees the chance for the next wave of folks to take health care to a digital era."

So, which start-ups in this space are most likely to go public this year?

Those tracking the space point to several candidates, including Fitbit, the maker of fitness trackers; ZocDoc, which allows users in all 50 states to find and book appointments online with doctors; Practice Fusion, a cloud-based electronic health records provider; Proteus, which makes ingestible sensors; and 23andMe, which provides genetic reports about users' ancestry and family history. (Fitbit, 23andMed and ZocDoc declined comment. A spokesperson for Practice Fusion said: "An IPO could definitely be in Practice Fusion's future.")

One note of caution for investors.

Five digital health companies went public in 2014, according to Rock Health, raising a total of $1.7 billion. But three of those five stocks—, Castlight Health, and Imprivata—are now selling at below their offering price, in two cases well below. The other two, Everyday Health and IMS Health Holdings, remain above their offering prices. ( declined comment; the chairman of Castlight said "opportunity is tangible and large in healthcare right now, so both the entrepreneurial and VC community will focus on the market and business model dynamics inherent in businesses they believe can be the next...Castlight, rather than short term stock prices.")

Analysts note that enthusiasm for this sector could cool if that downtrend continues this year.

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Correction: An earlier version of this story incorrectly stated the mission of Omada Health.

Updated to reflect the comments of Practice Fusion and Fitbit.