Investors poured $14.7 billion into digital health companies so far in 2021, already outpacing all of 2020’s record-breaking funding.
The first half of the year closed with 372 deals and an average deal size of $39.6 million, investment firm Rock Health reported Tuesday. More than half of these deals (59%) in the first half of 2021 came from 48 mega deals of $100 million or more.
Funding hit $14.6 billion in 2020 with 460 deals.
Public exit activity ballooned with 11 closed initial public offerings and special purpose acquisition companies, with another 11 SPACs expected to close in 2021. In 2020, seven digital health companies exited to the public markets.
2021 is on pace to more than double 2020 in terms of both number of deals (372) and companies funded (359).
And the sector isn’t showing signs of slowing down: The last week in June saw more than $1 billion in funding.
Digital health companies raised $3.1 billion in June, almost triple that of June 2020, in which they raised $1.1 billion, when digital health funding numbers began to accelerate after the first COVID-19 shutdowns.
“We’re seeing an increase in round sizes, new investors, and the pace at which funding is happening in digital health. There’s an acceleration of exits, as well as the emergence of combined companies that can address health care more broadly. It is exciting to see how quickly everything is happening this year,” said Michael Pimental, partner and co-founder at CVS Health Ventures, in the report.
Looking at where investors placed their bets, biopharma/device R&D raked in the most dollars with $2.7 billion raised, and companies delivering on-demand healthcare services brought in $2.6 billion.
Digital health startups addressing mental health, cardiovascular disease and diabetes banked top dollars from investors, with $1.5 billion, $1.1 billion and $957 million, respectively.
“We’ve seen continued investor interest in on-demand models, comprehensive primary care, behavioral health, fitness, and prevention. But what’s most refreshing to us is the sheer number of deals happening. It’s a great sign for the industry at large,” said William Greineisen, Ph.D., director of strategy and corporate development at Cox Enterprises.
Among active investors, Tiger Global continues its funding blitz, participating in 14 funding rounds for U.S. digital health startups. These rounds amounted to $1.8 billion, 12% of digital health funding so far this year. While information about Tiger’s share of these deals isn’t public, given their role as lead investor on many of them, it’s safe to assume Tiger’s betting big on the digital health venture market, Rock Health reported.
With plenty of dry powder on hand, direct-to-consumer digital health companies are increasingly attracting more funding dollars and accounted for 25% of all funding deals. That’s the largest percentage in Rock Health’s 10-year tracking history. Mega deals in the first half of 2021 included Noom ($540 million), Ro ($500 million) and Capsule ($300 million).
So far, 2021 also has seen accelerated M&A activity as healthcare customers are pushing digital health companies to bundle services, integrate complementary offerings and build out one-stop shops that reflect all the best the market can offer.
The first half of 2021 saw 131 digital health M&A deals with an average of 22 deals each month, compared to last year’s monthly average of 12. Overall, 2021 is on pace to set a 1.8x year-over-year increase in M&A deals relative to 2020.
Big tech companies like Amazon, Microsoft and Google are also getting in on the acquisition action, working to integrate digital health features into their software solutions for enterprises. In April, Microsoft acquired AI medical transcription technology company Nuance to bolster its capabilities for healthcare customers.
“To us, acquisitions like these hint at traditional tech companies’ strategic plans for digital health, using relationships they’ve already established within enterprise teams (from email servers to cloud storage) as entry points for expanded service relationships,” Rock Health researchers wrote.
The momentum in 2021 also introduces new risks for investors and entrepreneurs, Rock Health executives said. The speed and amount of investment will test the marketplace’s current and future capacity to design and deliver digital health solutions, then scale them into sustainable companies.