Among the healthcare technologies venture firms be looking at most closely at in 2020, various artificial intelligence and machine learning applications are atop this list, of course. But so are more nuts-and-bolts tools like administrative process automation and patient engagement platforms, VCs say.

Other, more leading-edge technologies – genomics-focused data and analytics, and even quantum computing – are among the areas attracting investor interest this year.

"We expect 2020 to mark the first year where health IT venture firms will start to look at quantum computing technology for upcoming solutions," Dr. Anis Uzzaman, CEO and general partner of Pegasus Tech Ventures, told Healthcare IT News.

"With the breakthrough supremacy announcement from Google validating the technology and the subsequent launch of the service Amazon Braket in 2019, there is sure to be a new wave of entrepreneurial activity starting in 2020."

He said quantum computing technology holds a lot of promise for the healthcare industry with potential breakthroughs possible throughout the health IT stack from operations and administration to security.

Among the promising companies, Uzzaman pointed to Palo Alto-based QC Ware, a startup pioneering a software solution that enables companies to use a variety of quantum hardware platforms such as Rigetti and IBM to solve a variety of enterprise problems, including those specifically related to healthcare.

He also predicted artificial intelligence would continue to be at the forefront for health IT venture firms in 2020 as it becomes more clear which startups may be winners in their initial target sectors.

"There has been consistent growth of investment activity over the past few years into healthcare startups using artificial intelligence to target a range of areas from imaging to diagnostics," he said.

However, Uzzaman also noted regulation and long enterprise sales cycles have largely slowed the ability for these companies to significantly scale their revenues.

"Therefore, we anticipate 2020 will be the year where it will become clearer to health IT venture firms who will be winners in applying artificial intelligence to imaging, pathology, genomics, operations, diagnostics, transcription, and more," he said. "We will also continue to see moderate growth in the overall investment amount in machine learning and AI companies, but will see a notable decrease in the number of companies receiving an investment.

Uzzaman explained there were already some signs in late 2019 that there could be late in a short-term innovation cycle for artificial intelligence with many companies, particularly those applying machine learning and AI to robotics, shutting down.

"However, we anticipate many companies will reach greater scale with their solutions and separate themselves from the competition, which will translate into more mega funding rounds," he said.

Ezra Mehlman, managing partner with Health Enterprise Partners, explained that at the beginning of each year, the firm conducts a market mapping exercise to determine which healthcare IT categories are rising to the top of the prioritization queue of its network of hospital and health plan limited partners.

"In the past year, we have seen budgets meaningfully open for automation solutions in administrative processing, genomics-focused data and analytics offerings, aging-in-place technologies – and, in particular, patient engagement platforms rooted in proven clinical use cases," he said. "We are actively looking at all of these spaces."

He pointed out that in 2018, more than $2 billion was invested into artificial intelligence and machine learning healthcare IT companies, which represented a quarter of the total dollars invested into digital health companies that year.

"We view this as a recognition of two things: the meteoric aspirations that the market has assigned to AI and machine learning's potential, and a general sense that the underlying healthcare data infrastructure has reached the point of maturity, where it is possible to realize ROI from AI/machine learning initiatives," he said.

However, he said Health Enterprise Partners is still waiting for the "breakout" to occur in adoption.

"We believe we have now reached the point where category leaders will emerge in each major healthcare AI subsector and the usage will become more widespread – we have made one such investment in the clinical AI space in the last year," Mehlman said.

Heading into 2020, Mehlman said companies that cannot deliver high-six-figure, year-one ROI in the form of increased revenue or reduced cost will struggle, and companies that cannot crisply answer the question, "Who is the buyer and what is the budget?" will be challenged.

"If one applies these tests to some of the areas that have attracted the most healthcare VC investment--social determinants of health, blockchain and digital therapeutics to name a few – the number of viable companies sharply drops off," he said.

Mehlman noted that while these sound like simple principles, the current environment of rapidly consolidating, budget-constrained hospitals, vertically integrating health plans, and big tech companies making inroads into healthcare has raised the bar on what is required for a healthcare startup to gain meaningful market traction.