The Ecosystems that Fuel Health IT Investment

August 31, 2017

Health IT is a geographically dispersed sector, yet certain locations are known for supporting strong Health IT ecosystems, such as Nashville, Boston, San Francisco, Chicago, Atlanta, and Madison.  These ecosystems are generally the result of large, incumbent corporations and institutions that fuel the intellectual capital and talent that are the foundation for the development of new enterprises. 

During the 2017 period through August, HGP monitored 403 HIT investment transactions – 264 (66%) were located in the United States and 139 (34%) were international(1).  The top seven US metroplexes by measure of investment volume during the period were San Francisco (46 deals), New York (32), San Jose (23), Boston (17), Chicago (12), Atlanta (11), and Los Angeles (11).


We must admit that the location of investment targets did not exactly match our expectations.  What were our expectations?  We theorized that investments would flow into cities where there is already a strong presence of healthcare and Health IT, with the expectation that individuals from these established companies would spin out to create their own innovations and businesses.  This held true for cities with large and mature healthcare ecosystems, such as Boston, Chicago, and Atlanta, but not true for Madison, Kansas City, and even Nashville, relative to its outsized industry presence. 

What gives?  In addition to the existing healthcare ecosystem, after reviewing the data, we hypothesize two more factors that contribute to funding by geography:

  1. The top funded cities of San Francisco and New York are also home to the top funders. Capital tends to stay close to home.  Companies further away from sources of capital are at a disadvantage to those that are not.
  2. Health IT is increasingly seeing a greater number of non-healthcare entrepreneurs. Many upstarts in the Bay Area, for example, are health industry outsiders who bring a mix of fresh and naïve perspective.

In all honesty, the investment patterns are as refreshing as they are concerning.  Funding in the Health IT market is at record levels, and it’s important that capital flow both efficiently and wisely.  To ensure this, we encourage investors to throw a broad geographic net, and we equally encourage entrepreneurs to cultivate capital relationships from across the country.  When investing in an industry-outsider, we encourage investors to counterbalance those individuals with seasoned industry insiders. 

Perhaps we need to redefine what qualifies as a Health IT ecosystem.  Today’s Health IT ecosystems are built as much on healthcare foundations as non-healthcare foundations.  The mix of outsider idealism and insider realism is another testament to the complex and rapidly changing dynamics of this market.  Equally important is that many healthcare markets in the United States have their own identity as states and regions take differing approaches to care delivery and reimbursement.  We encourage investors and entrepreneurs to take a pragmatic approach that balances idealism and realism by leveraging the diverse perspectives and talents available across the United States.


  1. The non-US share of HIT transactions is noteworthy and a topic that we plan to revisit in a future research note.

~ Chris Candelari - Market Research Analyst, Healthcare Growth Partners