Health tech is ‘falling out of favor with VCs’? Not quite

In releasing its latest ranking of the top 50 startups this week, the Wall Street Journal (s NWS) did some prognosticating about what might be the “next big thing” in tech and, according to them, it isn’t going to be health.

For the first time since launching the list two years ago, the Journal said, a healthcare company did not top the list. And noting that last year’s top-ranked startup, Castlight Health, had fallen completely out of the list, the article said, “the health-care industry in general has fallen out of favor with venture capitalists.”

Really? Health tech might not be doing well according to the Journal’s criteria, but plenty of other data show the contrary.

For example, digital health startup accelerator Rock Health found that, as of July, the sector had already seen a 73 percent increase in investments compared to the same time last year. Last year, the total amount of venture funding for companies receiving $2 million or more was $968 million. This year, the figure reached $675 million by July, the accelerator said.

In July, financial services firm Burrill & Company released a similarly positive report about the state of health tech financing. According the report, funding for health tech startups climbed 317 percent in the first half of 2012. The company appears to track a narrower set of companies than Rock Health, but it said health startups had received $499 million in venture financing as of July, compared to $156 million in the same period last year.

Just last month, top-tier VC firm Kleiner Perkins Caufield & Byers announced that it was throwing its weight behind Rock Health to sponsor digital health care startups.

So what gives?

What the Journal might have meant is that VC interest in biotech and the more traditional life sciences is on the decline. And there has been some evidence of that this year – in May, a PricewaterhouseCoopers and MoneyTree report said first-quarter funding in life sciences was down 22 percent over the same quarter the previous year.

Investing in biotech tends to take a lot of capital, as well as patience, because it can take a while to see returns and it can sometimes require FDA approval. Those are commitments not all VCs are prepared to make — although some VCs, like Google Ventures, which just affirmed its interest in biotech last week, are holding on.

A Reuters article this week even said that life sciences is getting a “rebirth” in VC funding, as several firms around the world have each raised or are raising $200 million to $400 million funds focused on life sciences, biotech and medicine.

Some funds will continue to focus on traditional biotech but, with the rise of mobile devices that enable “quantified self”-type data tracking and cloud computing, others have been shifting focus to more consumer Internet-style companies, like ZocDoc, for example.

In announcing her firm’s partnership with Rock Health, Beth Seidenberg, a Kleiner Perkins partner in the group’s life sciences practice, told my colleague Eliza Kern that although healthcare has been traditionally difficult to break into, recent advances in tech were opening up new opportunities.

“Now it’s really the time to push that into the healthcare arena,” she said. “It’s the perfect storm that’s happening now.”