This is the third in a series exploring the telehealth sector and the Triangle-based companies behind its rise as a complement to traditional healthcare delivery. Check out previous articles and videos here. 

On the surface, telehealth startups are just like any other startup. 

They seek to disrupt an industry using new technologies. They compete for the same capital, talent and visibility. And they seek financial sustainability and profitability so they can add jobs and create value in the world.

They also face the same barriers to scalability—funding (or the lack there-of), capacity and market demand. But unlike other startups, after they conquer those barriers, telehealth companies also must navigate the complex web of regulations and rules unique to the healthcare industry.

In the second article in this series, I argued that the Triangle’s existing talent and the strength of both its healthcare sector and entrepreneurial ecosystem could position the state to lead the expansion of the telehealth industry nationwide. That’s true. 

But it’s also true that the regulatory landscape and the share of funding NC-based telehealth companies receive from venture capitalists and other funders will also impact NC’s ability to lead the sector.

So far, the state’s record in both areas is spotty. Regulations are lagging behind the innovations occurring in the sector. And venture capital investments to healthcare-focused companies have risen and fallen over the past decade. But to better understand NC’s current regulatory and capital landscape impacting the telehealth sector, we’ll let data speak for itself.

Funding Telehealth Companies 

Venture capitalists have long been interested in and invested in healthcare-focused startups, but investments have increased in the past few years. The increase could be due to more opportunities, termed “deal flow” by investors. In a 2015 report, PwC argued that the Affordable Care Act (ACA) incented innovation in the healthcare sector.

“As venture capitalists we look for big markets and healthcare is important to every person, applicable to every human being, and is going through incredible disruption right now,” says David Jones, partner at Bull City Venture Partners, offering some insight into why VCs’ interest in the healthcare sector has grown.

Indeed, healthcare focused startups are popular both globally and nationally among venture capitalists. According to CB Insights, health-oriented startups received 14 percent of the total number of venture capital deals nationally and 11 percent globally in the third quarter of 2016.

The National Venture Capital Association (NVCA) does not break out investments in telehealth companies from general healthcare-focused categories. Instead, NVCA categorizes healthcare investments in two categories: healthcare services/systems and healthcare devices/supplies. Telehealth technologies could fall under either category, thus it’s unclear what share of the reported funding telehealth companies receive.

Nationally, the two categories of healthcare-focused startups received $8.72 billion in venture capital investments in 2015. So far, national investments are at $5.52 billion in 2016. But as the chart below shows, investments in healthcare-focused startups have increased of late and once Q4 figures are reported, 2016 could outpace 2015.

Crafting laws regulating and promoting the use of telehealth technologies will be important for its expansion and adoption. Like all other startups, the local companies designing telehealth technologies will need capital to scale.

For now, both variables seem to point to a less than rosy picture. But both regulations and deal flow can—and often do—change. 

Should NC seek to position itself as a telehealth thought leader, both variables will require as much attention as building the local workforce, innovation and healthcare communities.

But perhaps the sector will gain momentum through a source other than the capital and regulatory environment it seeks—the telehealth focused startups could drive it themselves. Stay tuned for the final piece in this series where we’ll explore the startups shaping the industry in NC.