Consumer Digital Health How Market Shift Is Leading to New Opportunities Written by SVB Analytics: Steve Allan CFA Head of SVB Analytics
[email protected]
Scott Winder Director
[email protected]
Alex Lee Manager
[email protected]
Emily Wengel Associate
[email protected]
Table of Contents 3 Consumer Digital Health: Introduction & Financing Trends Overview 9 Healthcare Consumers: Fundamental Needs of the User 13 Financing Trends: Shift Toward Clinically Driven Consumer Health 17 Fitness/Wellness: Adapting to the Market 22 Disease Management: Growth Opportunities 28 Market Outlook: Assessing Consumer Health Opportunities 30 About the Authors 31 About Silicon Valley Bank and SVB Analytics
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Consumer Digital Health: Market Shifts to Focus on Engagement and Improved Patient Outcomes Consumer Digital Health Companies address the needs of patients and healthcare consumers
Investment trends in digital health are shifting from consumer wellness applications to clinically driven solutions that drive better health outcomes at lower costs. This next wave of financing focuses on encouraging consumers and patients to change health-related behaviors, underscoring the greater opportunities for companies with solutions that create value for payers, providers, employers and consumers.
This is the second in a series of reports from SVB Analytics examining Digital Health. In this report we: • Analyze broad consumer health trends and business models • Examine the shift in investments from consumer wellness to clinically focused solutions • Describe adaptation strategies of consumer wellness and wearables companies • Explore potential areas of opportunity in disease management Consumer Digital Health
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Digital Health Landscape Genetic Screening
Social Support
Focus on Health Outcomes
Disease / Medication Management
Digital Therapeutics / Pill Plus
Employers / Payers
Professional Search
Insurance Search
Education
Fitness / Wellness / Wearables / Tracking
Enterprise Wellness
Enterprise Health Management
Patient Engagement / Benefits
Data Driven Payers
Focus on Healthcare Costs
Patients / Consumers
Risk Adjustment / Payer Administration Patient / Professional Interaction
Remote Monitoring
R&D
Telemedicine
Patient-Clinician Communication
Value Based Care
Clinical
Operations
Patient Surveillance
Electronic Medical Records
Image Management / Analytics
Decision Support & Analytics / Predictive Medicine
Population Health Management
Practice Management & Operational Workflows
Operational
Life Science / Other
Marketing / Customer Experience
Networking / Education
Care Coordination / Communication
Systems / Healthcare Professionals
In our first report, we provided a framework that landscaped the digital health sector. In this report, we focus on consumer digital health investment trends. Consumer Digital Health
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Focus on Consumer Health: Categorizations Patients / Consumers Genetic Screening
Social Support
Disease / Medication Management
Digital Therapeutics / Pill Plus
Professional Search
Education
Patient / Professional Interaction
Remote Monitoring
Insurance Search
Fitness / Wellness / Wearables / Tracking
Telemedicine
Patient-Clinician Communication
For our analysis, we looked at three key themes: clinical enablement, consumer activation and education and transparency. We also grouped consumer digital health into seven categories, and focused on fitness/wellness and disease management.
Clinical Enablement
Consumer Activation
Education and Transparency
• Disease Management
• Fitness / Wellness
• Medical Education
Disease/Medication Management Digital Therapeutics
• Monitoring
Remote Monitoring
• Communications
Telemedicine Patient-Clinician Communication
More Clinically Focused
Fitness Wellness Wearables Tracking
Education Social Support Genetic Screening
• Provider Search Professional Search
• Insurance
Insurance Search
Less Clinically Focused Consumer Digital Health
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Consumer Digital Health Financing Trends Overview
70%
$3,500
60%
$3,000
50%
$2,500
40%
$2,000
30%
$1,500
20%
$1,000
10%
$500
0%
Total Funding ($M)
Percentage of Total Funding
Investments in Consumer Health Companies as a Percentage of Total Digital Health Investments (2011 to Q2 2016)
$ (Consumer) Consumer Funding (%)
$0 2011
2012
2013
2014
2015
2016 (E)
About 55% of all digital health investments since 2011 have been in companies whose technologies interface with the consumer in some manner. This reflects the convergence of technologies to drive and measure improved health outcomes and cost savings, and funding is following. Source: Rock Health Database; 2011-2016Q2 SVB Analytics Analysis 2016(E) is extrapolated based on 2016HY
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Strategic Investors Actively Investing in Consumer Digital Health
Total Funding ($M)
Consumer Digital Health Investments (2011 to Q2 2016)
Top Strategic Investors Focused on Consumer Health
$3,000
60%
$2,500
50%
$2,000
40%
$1,500
30%
$1,000
20%
$500
10%
$0
0% 2011
2012
2013
2014
2015 2016 (E)
Crossover Investments Financings without Strategic Investor Financings with Strategic Investor % of Deal Count with Strategic Investors
1 2 3 4 5 6 7 8
The number of deals with strategic investors participating has slowly increased over time, as tech, life science, healthcare and insurance companies seek to partner and collaborate with startups. * Crossover investments represent investment rounds greater than $100M that are led by a crossover investor Source: Rock Health Database; 2011-2016Q2 SVB Analytics Analysis 2016(E) is extrapolated based on 2016HY
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Strategic Investors Shift to More Clinically Focused Investments Clinically Focused Consumer Digital Health Investments* (2011 to Q2 2016) $2,000
Other Consumer Digital Health Investments* (2011 to Q2 2016) $2,000
50%
$1,800
$1,800
$1,600
40%
$1,400 $1,200
30%
$1,000 $800
20%
$600 $400
10%
$200
Total Funding ($M)
$1,600 Total Funding ($M)
50%
40%
$1,400 $1,200
30%
$1,000 $800
20%
$600 $400
10%
$200
$0
0% 2011
2012
2013
2014
2015
2016 (E)
Crossover Investments Financings without Strategic Investors Financings with Strategic Investors % of Dollar Investments with Strategic Investors *Includes Clinical Enablement Companies
$0
0% 2011
2012
2013
2014
2015
2016 (E)
Crossover Investments Financings without Strategic Investors Financings with Strategic Investors % of Dollar Investments with Strategic Investors *Includes Consumer Activation and Education and Transparency Companies
Strategic investors have recently shifted their attention to clinically focused startups as they begin to see how technologies designed to affect patient behavior can generate better health outcomes and cost savings. * Crossover investments represent investment rounds greater than $100M that are led by a crossover investor Source: Rock Health Database; 2011-2016Q2 SVB Analytics Analysis 2016(E) is extrapolated based on 2016HY
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Healthcare Consumers:
Fundamental Needs of the User
Consumer Digital Health
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Overview:
Empowering Patients Is Key to Fixing Healthcare System Challenge
Fundamental Need
Lack of choice and price transparency
ConsumerFriendliness
Poor health literacy
Knowledge
Lack of tools to manage health and wellness
Engagement
Solution Improve consumers' access to healthcare and their user experience by making healthcare easier to use
Create access to education and relevant and personalized health information
Engage and affect behavioral change in healthcare consumers to better manage their own health
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Consumer Digital Health Framework Knowledge
Engagement
Genetic Screening
Disease / Medication Management (incl. Fitness/Wellness)
Social Support
Remote Monitoring Digital Therapeutics / Pill Plus
Education
Professional Search Insurance Search
Patient-Clinician Communication (incl. Telemedicine)
Consumer-Friendliness Challenge: Lack of choice and price transparency Solution: Improve consumers' access to healthcare and their user experience by making healthcare easier to use
Knowledge Challenge: Poor health literacy Solution: Create access to education and relevant and personalized health information
Engagement Fitness / Wellness / Wearables/ Tracking (for leisure)
Consumer-Friendliness
Challenge: Lack of tools to manage health and wellness Solution: Engage and affect behavioral change in healthcare consumers to better manage their own health
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Consumer Digital Health Framework Knowledge
Engagement
Consumer-Friendliness Challenge: Lack of choice and price transparency Solution: Improve consumers' access to healthcare and their user experience by making healthcare easier to use
Knowledge Challenge: Poor health literacy Solution: Create access to education and relevant and personalized health information
Engagement
Consumer-Friendliness
Challenge: Lack of tools to manage health and wellness Solution: Engage and affect behavioral change in healthcare consumers to better manage their own health
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Financing Trends:
Shift Toward Clinically Driven Consumer Health
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Financing Trends: Historic Investment Trends Weighted Toward Wellness Total Capital Invested by Category (2011 – Q2 2016) $3,000
Total Capital Invested ($M)
$2,500 Disease Management
$2,000
DiseaseMonitoring Management Remote Remote Monitoring Communications Communications
$1,500
Fitness / Wellness $1,000
Fitness / Wellness Medical Education
$500
Provider Search Medical Education
$0 2011
Provider Search Insurance Insurance Search 2012
2013
2014
2015
More Clinically Focused
Clinical Enablement
Consumer Activation
Education and Transparency
Less Clinically Focused
2016 (E)
The advent of the quantified self movement in the early 2010s attracted significant capital, especially in the fitness and wellness category. Source: Rock Health Database Q2 2016, Pitchbook, 2011-2016 Q2; SVB Analytics Analysis 2016(E) is extrapolated based on 1H 2016
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Financing Trends: Rise of Clinically Driven Consumer Health Percentage of Total Deal Count Over Time by Category (2011 – Q2 2016) 100% 90%
DiseaseManagement Disease Management
80%
Remote Monitoring Remote Monitoring
70%
Communications
60%
More Clinically Focused
Clinical Enablement
Communications Fitness / Wellness
50% 40%
Medical Education
30%
Fitness / Wellness Provider Search
20% Insurance Medical Education Provider Search Insurance Search
10% 0% 2011
2012
2013
2014
2015
More Consumer Focused Education and Transparency
Less Clinically Focused
2016 (E)
There has been a gradual shift toward increased investment activity in the more clinically focused categories of disease management, remote monitoring and communications. Source: Rock Health Database Q2 2016, Pitchbook, 2011-2016 Q2; SVB Analytics Analysis 2016(E) is extrapolated based on 1H 2016
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Financing Trends: More Clinically Focused Companies Receiving Early-Stage Funding Investment Amount by Stage of Development (2011 – Q2 2016) Clinical Enablement
Consumer Activation
Disease Management Monitoring Communications
100
$1,200
80 70 60
$600
50 40
$400
$200
30 20
0 2011 2012 2013 2014 2015 2016 (E) Early Mid Late Total Deal Count
90 $1,000
80 70
$800
60 $600
50 40
$400
30 20
$200
10 $0
100
90 $1,000
Funding ($M)
Funding ($M)
$800
$1,200
100
90 $1,000
Medical Education Provider Search Insurance Search
80 70
$800 Funding ($M)
$1,200
Education and Transparency
Fitness/Wellness
60 $600
50 40
$400
30 20
$200
10
10 $0
0 2011 2012 2013 2014 2015 2016 (E) Early Mid Late Total Deal Count
$0
0 2011 2012 2013 2014 2015 2016 (E) Early Mid Late
Total Deal Count
The clinically focused areas of disease management and patient-provider communications are seeing an increase in early-stage funding, indicating new startup formation; consumer activation and education and transparency companies are maturing, with fewer early-stage rounds raised. Source: Rock Health Database Q2 2016, Pitchbook, 2011-2016 Q2; SVB Analytics Analysis 2016(E) is extrapolated based on 1H 2016 Early – Seed and Series A, Mid – Series B and C, Late – Series D and later
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Fitness/Wellness: Adapting To The Market
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Fitness/Wellness: Decline in Valuations and Investment Size Median Pre-Money Valuation of Fitness/Wellness Companies (2011 – Q2 2016)
Median Invested Capital of Fitness/Wellness Companies (2011 – Q2 2016) $20
$40
$18 Median Invested Capital ($M)
Median Pre-Money Valuation ($M)
$35 $30 $25 $20 $15 $10 $5
$16 $14 $12 $10 $8 $6 $4 $2
$0 2011
2012
2013
2014
$0
2015 1H 2016
Series Seed
2011 Series A
2012
2013
2014
2015
1H 2016
Series B
Valuations and financing round sizes have declined in 2016 due to increased competition and shifting investor interest toward clinical applications, forcing wellness companies to adapt. Source: Pitchbook, 2011-2016Q2; SVB Analytics Analysis
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Fitness/Wellness: Companies Adapt to Changing Marketplace Strategy
Description
Strategic Exit
Sell business to strategic partners
Acquire
Acquire companies to build clinical programs
Partner
Partner with academic institutions to conduct clinical studies and provide ancillary data
Develop
Develop features or pivot business model in order to collect real world data or gather clinical-grade data
Examples
As investors move toward more clinically focused strategies, wearables and wellness companies are executing different strategies to adapt to this shifting landscape.
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Fitness/Wellness: Exit to Sports and Fashion Companies “If you don’t have a brand, it is hard to be legit in this space.” – Sonny Vu, Chief Executive and co-founder of Misfit
Sports Fitness Apparel
Fashion Tech
Date
Deal Value ($M)
Invested Capital (IC $M)
EV / IC Multiple
2/12/2016
$85M
$16M
7.4x
8/5/2015
$235M
NA
NA
2/4/2015
$474M
$18M
26.3x
2/4/2015
$85M
$6M
13.7x
12/6/2013
$150M
$24M
6.3
11/11/2015
$250M
$64M
3.9x
3/25/2014
$100M
$37M
2.7x
Software
Target
Hardware
Acquirer
Facing declining investor interest, companies that are not adopting clinical strategies are instead choosing to sell to sports and fashion retailers. Among those, software-focused firms are receiving the highest exit multiples. Source: Capital IQ SVB Analytics Analysis Wall Street Journal - Fossil Group to Buy Misfit for $260 Million
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Fitness/Wellness: Companies Partner, Acquire or Develop Clinical Technologies 2013
2014
2015
Consumer
Acquire
Acquisition
Clinical • Has “FDA approval… [and] understands how to run a clinical trial with hospitals and wellness providers.” • 87 patents, >500 trillion data points • “Partnered… for diabetes prevention”
Acquisition + Personnel
Partner $6.5B IPO
Develop
Kickstarter: Branded as DIY Vital Signs Device
2016
Regulatory: Announces Plans for 510K Submission
$10.5M Series A
• Forms clinical advisory board • Announces plans for clinical trials
• Two 510k approvals • Real-time patient monitoring on physician smartphone • CEO of Spectros becomes Chief Medical Officer of Jawbone
Partnership: Study on weightloss and breast cancer prevention Announcement: 200 clinical studies run on Fitbit / Fitabase App Hire: VP Digital Health from Walgreens
Used for clinical development $35M and regulatory approval in Series B U.S. and China
Jawbone, Fitbit, and Scanadu started in consumer wellness and have made acquisitions, formed partnerships and started internal developments to adapt to the changing marketplace. Source: Company Press Releases, Mobihealthnews, FastCompany, clinicaltrials.gov, Fitbit S-1 Consumer Digital Health
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Disease Management: Growth Opportunities
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Disease Management: Approaches to Engaging Patients Percentage of Total Capital Invested by Category* (2011 – Q2 2016)
30% 62%
General Disease Management and Vitals Monitoring
Solutions that help patients manage any type of disease
Medication Management
Solutions that help patients adhere to and manage their medications
Disease Specific
Solutions that help patients manage one specific type of disease or disorder
8%
Disease management and remote monitoring companies are shifting to focus on a specific disease to help patients and providers better manage the condition as opposed to providing general solutions aimed at patients facing different diseases. *Includes both Disease Management and Remote Monitoring companies and deals Source: Rock Health Database Q2 2016, Pitchbook, 2011-2016 Q2; SVB Analytics Analysis
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“I don’t think you can scale a business in healthcare without working directly with the clinical entities like payers and providers.”
– TJ Parker, CEO
Source: Interview with TJ Parker, August 19, 2016 Consumer Digital Health
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How PillPack Is Taking on Medication Management: An Interview with TJ Parker, CEO, PillPack Operating in the Clinical Space
Problem
Online pharmacy that uses technology to help people take medication in a timely manner
Consumer health companies need to develop sound business models because the patient is not the only customer – the payer is also the customer.
Advice to Entrepreneurs
Most EXPENSIVE patients take 5+ prescriptions / day and have trouble coordinating their medication.
•
•
Spend time with your consumers: figure out their pain points and understand their core problems. And whether you can solve their problems with technology alone or if you need to become a provider. Know who your customers are and what they are willing to pay for.
Solution
Poor Adherence
Key Success Factors for Consumer-Centric Disease Management: Expertise in Both Healthcare and Technology | Patient-Centric Design Manage complexity for patients • Automated sign up and refills • Coordination with payers • Staff available 24/7
“The healthcare system is moving towards a pay for performance model. Pharmacy should do the same and no one is truly doing that today.” Source: Interview with TJ Parker, August 19, 2016 Consumer Digital Health
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Disease Management: Increasing Focus on Behavioral Change and Complex Disease Management Number of Investments in Disease Management and Remote Monitoring Sectors (2011 – Q2 2016) 25
Behavioral Change Psychiatry Metabolic
20
15
“Remote Monitoring 1.0”
Cardiovascular Respiratory
10
Degenerative and Complex Diseases
5
0 2011
2012
2013
2014
2015
2016 (E)
Orthopedic Oncology Neurology
There has been a steady rise in investments in companies aimed at behavioral change, while the niche targeting complex diseases is more nascent. Source: Rock Health Database Q2 2016, Pitchbook, 2011-2016 Q2; SVB Analytics Analysis 2016(E) is extrapolated based on 1H 2016
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Disease Management: Opportunities in Complex and Degenerative Diseases Total Medical Expenditure, by Chronic Conditions in U.S. 2013 ($B) $-
$50 $100 $150 $200 $250
Metabolic
24%
Psychiatric Cardiovascular
22% 11%
Orthopedic * Oncology Neurology
Difference
10%
$500 $400 $300 $200 $100
14% 10% 9%
-3% 1% -8% -8% -5%
$-
Metabolic
34%
6%
9%
Respiratory
Total Investments in Disease Management and Remote Monitoring Sectors by Chronic Conditions in U.S. 2011-Q2 2016 ($M)
Psychiatric
15%
Cardiovascular
19%
Respiratory
12%
Behavioral Change Psychiatry Metabolic
“Remote Monitoring 1.0”
Cardiovascular Respiratory
Orthopedic *
6% 2% 4%
Oncology Neurology
Degenerative and Complex Diseases Orthopedic Oncology Neurology
*Excludes trauma or injury-related conditions
Degenerative and complex diseases, which are difficult to manage and account for a significant portion of U.S. medical expenditures, have received comparatively lower digital health investments, signaling the space is ripe for disruption. Source: Rock Health Database Q2 2016, Pitchbook, 2011-2016 Q2; SVB Analytics Analysis AHRQ - Total Medical Expenditure by Conditions in US, 2013
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Market Outlook:
Assessing Consumer Health Opportunities
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High-Flyers
Progression to Clinically Driven Consumer Health Solutions 2016–20 Exits
2014–18 2012–16 2010–14 Remote Monitoring 1.0 • Led by the medtech sector • Point solutions • Rely on traditional reimbursement
Fitness/ Wellness • Rise of quantified self movement • Tech investors galvanize market with investments into consumer hardware and software • Focused on fitness and wellness
Disease Management • User-friendly cloud/mobile solutions, clinical-grade devices and data analytics • Engage patients to actively manage their health • Target financiers focused on controlling health benefit cost and improving outcomes
Digital Therapeutics • Predictive and personalized clinical intervention • FDA-regulated, providerprescribed, combination solutions • Demonstrate clinically proven efficacy and cost savings
We have seen the sector's focus move from traditional devices aimed at a specific solution to consumer devices. Now, the focus is on digital solutions for disease management. Going forward, clinically proven software and hardware will be integrated to drive better health outcomes and cost savings. Source: Pitchbook, Company websites SVB Analytics analysis
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About the Authors
Head of Analytics
[email protected]
Steve Allan, CFA
Scott Winder
Steve Allan is the Head of SVB Analytics, responsible for the three areas of information services provided to the innovation economy: Strategic Advisory Services, Compliance Valuations, and Insights. Strategic Advisory Services provides consultative guidance around valuations, benchmarking and inorganic growth strategies. Compliance Valuations issues valuation opinions for private companies. Insight focuses on studying trends and opportunities in the private venture-backed innovation ecosystem. Steve brings a strong financial background and passion for entrepreneurship to his role at SVB Analytics.
Scott Winder is a Director at SVB Analytics, responsible for managing client valuation assignments and issuing valuation opinions. Prior to joining SVB Analytics, Scott was a manager in the Business Valuation practice of Deloitte Financial Advisory Services LLP based in San Francisco. While at Deloitte, Scott provided financial advisory services related to mergers and acquisitions, accounting compliance, tax reporting and strategic planning for clients in the technology and life sciences industries, with particular experience in the biotechnology and biopharmaceutical industry segments.
Director
[email protected]
Scott holds a master's degree in business administration from the Haas School of Business (University of California at Berkeley), and a bachelor’s degree in human biology from Occidental College.
Steve earned a master’s in business administration from Duke University's Fuqua School of Business and a bachelor's degree in finance from the University of Notre Dame.
Manager
[email protected]
Alex Lee
Emily Wengel
Alex Lee is a Valuation Manager at SVB Analytics, responsible for conducting due diligence and financial analysis on valuation engagements for venture-backed companies in the Life Science sectors.
Emily Wengel is a Valuation Associate with SVB Analytics, responsible for conducting due diligence and financial analysis on valuation engagements for early-stage, venture-backed life sciences companies.
Prior to joining SVB Analytics, Alex worked as a consultant for biopharmaceutical companies, diagnostic companies and medical research institutions, assisting in corporate development, product commercialization and strategic advisory activities. Alex holds a master’s of bioscience degree from Keck Graduate Institute and a bachelor’s of science degree in biochemistry from the University of Nebraska-Lincoln.
Associate
[email protected]
Prior to joining SVB Analytics, Emily worked as a business analyst at BioMotiv, an early stage biotech accelerator. Emily graduated cum laude from University of Pennsylvania, where she earned a bachelor of science in economics and a bachelor of arts in biology.
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About Silicon Valley Bank
For more than 30 years, Silicon Valley Bank has helped innovative companies and their investors move bold ideas forward, fast. SVB provides targeted financial services and expertise through its offices in innovation centers around the world. With commercial, international and private banking services, SVB helps address the unique needs of innovators.
About SVB Analytics
SVB Analytics, a non-bank affiliate of Silicon Valley Bank, serves the strategic business needs of entrepreneurs, corporates and investors in the global innovation economy. For more than a decade, SVB Analytics has helped global business leaders make informed decisions by providing market intelligence, research, and consulting services. Powered by proprietary data, SVB Analytics has a unique view into the technology and life science sectors.
This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on information from third-party sources that we believe to be reliable, but which have not been independently verified by us and for this reason we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. SVB Analytics is a member of SVB Financial Group and a non-bank affiliate of Silicon Valley Bank. Products and services offered by SVB Analytics are not FDIC insured and are not deposits or other obligations of Silicon Valley Bank. SVB Analytics does not provide investment, tax, or legal advice. Please consult your investment, tax, or legal advisors for such guidance. ©2016 SVB Financial Group. All rights reserved. SVB>, SVB Financial Group, and Silicon Valley Bank are registered trademarks. 0916-232
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