Fenwick’s Sixth Annual Digital Health Investor Summit started on an upbeat note with Rock Health’s Megan Zweig sharing the venture fund’s mid-year funding report. After the uncertainty brought by the 2016 presidential election and the political drama surrounding the future of the Affordable Care Act, it would not seem surprising to see investors take a step back from digital health. As it turns out, investment in the sector by the middle of 2017 hit $3.5 billion—a record in terms of both the number and size of deals.

Resilient Investors

Zweig credits investor resilience in part to the shift to value-based care and the rise of consumerism in healthcare. While these trends may have been set in motion by the passage of the Affordable Care Act, they have been embraced by both payers and patients and are likely to be central to the healthcare market going forward.

Peter van der Goes of Goldman Sachs reported that public healthcare investors have shown the same resilience. He noted that the market for healthcare IT rose significantly in the election’s aftermath along with the broader market. Publicly traded stocks in the sector took a hit after the failed attempt at healthcare reform, but even if investors don’t see a reason to take valuations higher, they don’t seem to be abandoning the sector either.

Where Have All the IPOs Gone?

So far the number of exits, however, has not matched the increases in investment during the year’s first half. There have been no digital health IPOs so far in 2017. Nevertheless, Zweig indicated that Rock Health anticipates the market for IPOs may return soon. The IPO pipeline includes seven digital health “unicorns,” and another dozen well-capitalized companies are waiting in the wings as well.

Van der Goes said he expects M&A exits to continue at a steady pace in the sector, noting that buyers are focused on assets they can scale. Larger deals appear to be increasing with four deals valued in excess of $1 billion so far in 2017 (compared to three for all of 2016). The total value of deals year-to-date stands at $10.8 billion in comparison to a total of $20.6 billion in 2016 (which included IMS’s $13.2 million acquisition of Quintiles).

Partnering Beyond Providers

Van der Goes said that acquirers continue to be sponsors, healthcare strategics and some horizontal IT players. He expects that going forward the pool of buyers for digital health companies will likely expand. He noted that pharmaceutical companies (which need to leverage data to improve their R&D productivity), payers (beyond United Health, an active acquirer), and others (including Alphabet, IBM, GE and McKesson) will become more active in the space.

Speakers on the summit’s corporate development panel represented several different approaches to partnering and acquisitions. Steve Sweeny of Medtronic said that his company oftentimes partners with an eye to an acquisition, noting his team doesn’t like to “create value to see it walk out the door.” On the other hand, David Icke of BD said an acquisition can follow from an investment, though not necessarily as a general rule. In the case of Illumina, Srini Kodali said his firm was open to “developing joint IP in the right area and could spin it out.”

Pivoting to B2B

Digital health companies are increasingly pivoting to a B2B model, said Zweig in the opening presentation. In a recent survey by Rock Health, 61% of companies that launched with a B2C model had converted to a B2B or B2B2C model.

Rebecca Lynn of Canvas Ventures echoed that observation in her interview with CNBC’s Chrissy Farr during the closing session. “Customer-facing companies have all pivoted to B2B,” Lynn explained, adding that we see a similar trend in the FinTech space. She noted that consumers have a tendency to take an ‘ignorance is bliss’ approach when it comes to investing in tools to improve their health—particularly in healthcare where consumers don’t pay related costs directly.

The Allure of AI

The panelists expressed varying degrees of skepticism at AI-centric deals. David Icke quipped that AI has come to stand for “algorithm included.” Lynn said she is somewhat suspicious of startups that claim “AI can solve everything.” She said AI can solve up to 80% of any healthcare problem, but there likely will always be a need for a human component.

Conversely, she said services companies are not necessarily bad investments as long as there is a process that can be scaled.

As the digital health sector matures we expect to continue seeing more and larger deals, greater diversity in both private and public investors, and business models that continue to be refined as startups gain market experience and understanding. Businesses will continue to leverage Big Data and AI in digital health opportunities. But entrepreneurs should keep in mind that much of healthcare is a service business and the best solutions to healthcare problems may also require a human component or intervention.