San Francisco-based Rock Health has been tracking digital health funding since 2011 and last year's numbers are in, as the seed fund reports in its annual "Digital Health Funding: Year in Review." Check out some of these crazy statistics for 2014, based on disclosed U.S. deals over $2 million:

  • Digital health funding exceeded $4 billion, nearly as much as the three previous years combined. That's 125 percent growth over 2013.
  • 258 digital health companies each raised more than $2 million.
  • 295 deals averaging $14.1 million closed.
  • 44 percent of all digital health funding involved analytics and big data, healthcare consumer engagement, digital medical devices, telemedicine, personalized medicine involving genetics, and population health management.
  • 314 investors dabbled in the space with one or two deals during the year. That's compared with only 121 dabblers in 2011.
  • 95 merger and acquisition deals occurred, with disclosed transactions amounting to more than $20 billion.
  • Five digital health companies went public, raising a cumulative $1.7 billion.

According to Rock Health Managing Director Malay Gandhi, health care reform underpins the massive deluge of funding flowing into new software-based health-related companies.

"The industry needs to adapt to a new business model so things are changing, money is being moved around, there's margin compression for everybody so it requires the use of technology to solve some of these problems," he says. "It also allows for new entrants to come into the market, as well."

Second, while the health care industry accounts for a large part of the U.S. economy, labor productivity within the space has been declining by 0.6 percent annually for the last two decades.

"It's an industry that's been very good at advancing medical technologies and medical science so we get new drugs, we get new devices, we get new diagnostics," he says. "But [it] has largely not adopted information-based technologies or software-based technologies."

Is the digital health space experiencing a bubble? Gandhi thinks not.

"The companies we have the most experience with--those in our own portfolio--which are a representative sample of the category at least in the early stage side, are building sustainable, revenue-generating businesses," he says. "They are experiencing commercial success because their products work. They improve the healthcare system in explicitly measurable ways, largely by reducing costs, whether administrative or medical."