First half digital health investment — a true rebound or a ‘dead cat bounce’? A Gimlety look at Rock Health’s H1 report.

July 30, 2024 | by

Gimlet EyeFirst, your Editor assures our Readers that no felines were harmed or poorly thought of. It’s just words expressing concepts!

In ever-dapper Mr. Market’s picturesque and blunt language of finance, a ‘dead cat bounce’ is a temporary improvement, a short-term recovery that does not reverse the reality of the long-term downward trend, which resumes shortly thereafter the pick-me-up. It’s applied to assets, stock prices, market sectors, and even political polling. 

So…let’s debate the point. Is digital health investment in the US recovering, or taking a few lungfuls of air at the surface before sinking again?

Rock Health’s first half (H1) report. It is, like most of theirs, heavy on the optimistic ‘glass half full’ view. Its headline ‘Resilience Leads to Brilliance’ is certainly a catchy rhyme or meme, but in this Editor’s Gimlety View, an overstatement. It does look like the logjam in funding and M&A has broken, but where’s the brilliance?

Let’s take a cold look at the Rock Health findings for the first half (H1) of 2024. Rock Health only looks at US digital health fundings above $2 million and includes some companies those of us in the professional field do not consider ‘digital health’. FTR:

  • US digital health startups raised $5.7B across 266 deals. Average deal size: $21.4 million.
  • The action was in Series A and B raises, which were roughly comparable to prior years. Series C and D were anemic, with Series C especially lagging even anemic 2023.
  • 40% of H1 2024’s fundraises (107 deals) were unlabeled; by quarter, Q1 47% and Q2 33%. This is only slightly down from the 44% for full year (FY) 2023.
  • The top ‘value propositions’ for fundraising companies were disease treatment (including food as medicine), non-clinical workflow, R&D, clinical workflow, on demand healthcare and precision medicine. The first two are no change from FY 2023. The biggest shifts up from FY2023? Clinical workflow, on-demand healthcare, and precision medicine. These categories are not defined by Rock Health.
  • The top ‘clinical indications’ are mental health, cardiovascular, oncology, weight management, reproductive/maternal health, and neurology. Again, the first three are basically little changed from FY 2023. The big upward shift was funding for reproductive health.
  • “AI momentum underpinned deals in categories next on the list, including nonclinical workflow ($896M), R&D for pharma and medical devices ($737M), and clinical workflow ($639M).”
  • Until Q2 2024, there had not been any into the public markets for 21 months. Starting in May and June, there were three: fetal monitoring Nuvo (public exit via SPAC (!!) in May) and two in June: revenue cycle management company Waystar and precision diagnostics Tempus AI.
  • There were only 66 acquisition deals made in H1, about half between digital health companies. Private equity acquired 10 companies and 12 in “other”. 

In nearly every metric above, H1’s trends are comparable to 2023 extrapolated to a full year, as well as in line in numbers to pre-inflationary 2019–the investments in absolute terms are worth less. 

But overall, it is as if the boom of 2020-2022 never happened except in the wreckage of overfunded/foolish funded companies. And 2023 was marked by four tech bank lender bankruptcies and many high profile bankruptcies such as Babylon Health, Quil Health, and Pear Therapeutics. 2024 should look better than 2023, by that logic.

But let’s factor in the following for 2024 H2:

  • The raises are there and they’re fairly steady–but with only a few exceptions, usually AI related, they are far less than in the past, again using 2019-2020 as a baseline.
  • At the same time, layoffs are also prevalent and substantial at all levels, indicative of retrenching. And there is little real hiring versus resume collection.
  • This is an election year like no other in the US, UK, and France, as well as political and terror turmoil worldwide. 
  • Two active wars in Ukraine and Israel, possibly a third on the horizon with major impact (Taiwan)
  • Drying up of now unwanted Chinese capital that fed into Sand Road VCs
  • The very underdiscussed FTC/DOJ pre-merger notification and Merger Guidelines–and a hostile FTC

Socially and physically, there’s little respite, from the fool’s spectacle of the opening Olympic ceremony to increased volcanic activity worldwide seen from Yellowstone to Italy. Natural disasters add to nervousness. 

As usual, there are two metrics missing from Rock Health’s analysis: companies in deep trouble or bankrupt. Capital destruction matters. Granted, Rock’s report is about digital health investment, but considering what and why it fails is part of the investment picture. What comes after all those rounds and exits? 

  • Bankruptcies: Cue Health, Cano Health, Invitae, SmileDirectClub (late Dec 2023)
  • On the way: 23andme, NeueHealth (probably 2025), Amwell (which avoided delisting by a reverse stock split)

There is also the shutdown of Walmart Health’s telehealth / remote health unit, formerly MeMD, acquired by Fabric. There is also the Veradigm mystery–delisted and as of May, up for sale, despite having positive revenue. Added context: the failure of melding retail health with clinic operations–Walgreens’ VillageMD, CVS scaling back Oak Street, Amazon folding Clinic into One Medical.

AI is also proving to be ‘not all that’. Health systems are using them to automate procedures and some interfaces with patients. But the investment/payout equation is still tilted heavily to the former.

Conclusion: this Editor is leaning towards ‘dead cat bounce’ through this year unless something drastically changes, as in improves.

Agree? Disagree? Comment below!

Referenced: Rock Health FY 2023 report, Rock Health Q1 2024 ‘flat spin’ report, Mobihealthnews

Digital health’s Q1 according to Rock Health: the New Reality is a flat spin back to 2019

April 11, 2024 | by

Though it’s busier, and no banks collapsed, the New Reality takes us back once again to 2019, before the champagne days of 2021 and first half 2022. Rock Health’s Q1 2024 summary of US digital health deals hasn’t a bit of froth to it and is headlined “Great (reset) expectations”. But the highlights show a bit of revival after 2023, where there was, in the immortal words of Frank Zappa, “no way to delay that trouble comin’ every day”.

  • In Q1 2024, there was $2.7 billion in funding across 133 deals, with an average deal size of $20.6 million. This was a great improvement over Q4 2023’s limp $1.9 billion across 122 deals, the lowest funding quarter since Q3 2019. [TTA 8 Feb]
  • 2024’s Q1 was the lowest first quarter by sector funding since 2019, since 2022 and 2023’s Q1’s were the best of their respective years.
  • Number of deals are up but the deal size remains small at $20.6 million–no blockbusters. Q1’s 133 deals beat out each of the past six quarters, but just edged out Q1 2023’s 132. 
  • Unlabeled rounds grew from 2023: 48% to year 2023’s 44% of the total. Labeled rounds, predicted to make a comeback in 2024, haven’t come back quite yet.
  • Deal structures are getting very, very creative. DecisionRx gave Carlyle Group the option to convert a $100 million debt facility to 25% of outstanding shares, which is trading a lot of equity in the company for not a lot of money. Transcarent has a $125 million Series D that tags a sweetener of 2.5x to funders should the company M&A or IPO. This Editor noted the structure of Dario Health’s February acquisition of Twill as “a dizzying chronicle of funding legerdemain that this Editor hasn’t seen since her airline days”. 

It wasn’t a surprise that AI was ‘the thing this year’ in attracting funding–almost as much as financial success being redefined as bottom-line profitability, conservative (what we used to call sandbagged) forecasts, and an emphasis on outcome data.

  • Companies that claimed AI in their products or services accounted for 45 deals with $1.1 billion of Q1’s funding, or 40%, versus 2023’s 33% of funding. 

Rock Health’s analysis made much of outcomes data and that showing efficacy is now more important--and at earlier stages. It serves to differentiate players in the market (something we marketers have known about forever). For funders it can illuminate the value for their investment. And funders will scrutinize x 3.

  • Companies, unable to satisfy public shareholders so easily pleased in the SPAC and IPO palmy days of 2021-23, are leaving, not entering, public markets. Veradigm had to delist this year because of Nasdaq financial reporting problems from bad software despite being financially healthy–and acquiring ScienceIO. Rock Health does not include the recent pending delistings of Clover Health and Amwell. Both NextGen Healthcare and SOC Telemed went private last year. Others were acquired: Science 37, BenefitFocus, Castlight, Signify Health, and Tabula Rasa. Four went out of business: Babylon Health (Ch. 7 US, administration in UK), Pear Therapeutics (Ch. 11, IP sold), UPHealth (Ch. 11), and Better Therapeutics (closure).
  • Rock Health sees this as an important ‘recalibration’ for valuations, particularly for startups. “Startup valuations stem from expected investor returns at exit, and funders often use comps from publicly-traded players’ market capitalizations to triangulate company potential.”

Rock Health concludes that the expectations around exits have shifted drastically. The predicted return of M&A hasn’t yet. Their latest projection is that companies “may embark on dual-track processes, pursuing IPO and M&A exit pathways concurrently to keep options open”. For now, for digital health, it’s the end of growth-minded forecasting and the start of reporting their financials conservatively, with plenty of outcomes attached–as if they were being publicly traded and had quarterly earnings calls with analysts and journalists on their tail.

Editor’s note: Notably missing from their summary was the usual charts of raises by series stage (A, B, etc.) and digital health sector (mental health, cardiac, etc.).

2023 was buying time, 2024 is face the music time: Rock Health

February 8, 2024 | by

Rock Health’s year-end wrapup, which usually makes a splash, didn’t this year. It was released this year in conjunction with the JP Morgan Healthcare Conference in the week after New Year’s, which almost guaranteed it would fly below the radar.

Another analogy: if you were doing aerobatics, 2023 for digital health was maintaining a flat spin from altitude if you could (left/above), 2024 would be getting out of the flat spin and into level flight before you and the ground had a meeting, so to speak.

Rock Health’s summary of 2023 was minus their typical frothiness:

  • It was back to 2019 across the board, as if 2020-21 never happened.
    • Full year 2023 raised $10.7 billion across 492 US deals. It was the lowest amount of capital invested since 2019, which finished with $8.1 billion across 413 deals. By comparison, 2022’s total was $15.3 billion across 577 deals.
    • Q4 2023 was the lowest funding quarter since Q3 2019, with an anemic raise of $1.9 billion across 122 deals.
  • M&A was left for dead, unexpectedly so from their earlier projections. (Note to Rock Health–it could be the negative attitude toward deals emanating from Washington)
  • A and B stage companies had trouble raising money in the usual lettered way. 81% of currently active venture-backed startups that raised a round in 2021 didn’t raise a labeled one in 2023. Some resorted to ‘extensions’ that further diluted existing ownership or unlabeled rounds that left more questions about when the next raise was going to be. Unlabeled rounds hit an all-time record of 44% of total raises, double that of 2022. (This Editor notes that there were no analyses of C and D rounds, because there were so few.)
  • “Silent rounds” of financing happened but were hard to gauge–and because they were inside, didn’t measure the attractiveness or competitiveness of the company in the real market. It was pure, simple survival of the company and the investment.
  • Startup shutdowns, in their view, were no higher than usual–less than 5% of venture-backed US digital health companies (i.e., have raised >$2M).

In this Editor’s view, the percentage does not capture the prominence of the startup shutdowns: Babylon Health, Quil Health, Pear Therapeutics, OliveAI, Smile Direct, Cureatr, SimpleHealth, The Pill Club, Hurdle. It also doesn’t count Amazon shutting down Halo, Cano Health’s parting out before this week’s bankruptcy, as well as Bright Health’s (now NeueHealth) divestitures and shutdowns through 2023 leading to their becoming a very different company in 2024. 

For 2024, Rock Health is seeing:

  • The return of labeled raises (A, B, C etc.) In their view, many companies will not be able to manage this without moving into ‘hot’ areas like obesity care (cue the Ozempic), value-based care enablement, or AI. Those that can’t will either have ‘down’ rounds or close (see this week’s closing of Astarte Medical in the NICU segment because they wouldn’t integrate AI).
  • M&A will increase, with acquirers buying low among the now cash-strapped companies. This Editor would add that both DOJ and FTC will have their say about this, having published new Merger Guidelines in December.
  • Publicly traded companies will ‘recalibrate’, which is a polite way of saying a lot of companies will face delisting. As of 31 December 31, 2023, at least 17% of public digital health companies trading on the NASDAQ or NYSE were noncompliant with listing standards. This Editor notes that 23andMe is the latest cracked SPAC in jeopardy. Some will rally, the strongest may IPO. BrightSpring Health IPO’d on 26 January, Waystar’s is pending. 

Their sobering conclusion. Too many companies were created in the last few years of the boom. “2024 will be a year of recalibration and consolidation. Some startups will rally, finding that high capital efficiency and exceptional offerings pay off to secure them their next major fundraise. Others will need to make the tough call to wind down operations or accept lower-than-hoped-for M&A offers, particularly in saturated segments.”

At last, Rock Health and TTA have met on similar ground. This Editor’s take back in December. From ‘Signs of the next phase in 2024’:

“…the board is being cleared of the also-rans and never-should-have-beens. They are like dead plants and brush that need to be cleaned out so that new growth can happen. We are cycling through some of them already as we move to a New Reality and winding this up.”

Additional TTA views on 2024: The New Reality permeating JPM, and Peering through the cloudy crystal ball into 2024

News roundup: Waystar’s $8B IPO plan takes delay, Perficient to buy SMEDIX, PicnicHealth buys AllStripes, MDLIVE buys Bright.md, Sage garners $15M, Cureatr shuts suddenly, Calibrate reorganizes, BetterUp lays off 16% (updated)

October 26, 2023 | by
  • It’s a Tale of Two Cities…the best and worst of times, depending on what company you’re with.

Waystar files for the first IPO of 2023 in healthcare. Revenue cycle management (RCM) and payments software company Waystar filed a registration statement with the Securities and Exchange Commission (SEC) last week, after filing a draft with the SEC in August. Waystar, formed from RCMs ZirMed and Navicure, isn’t profitable (2023 first half net losses of $21 million on $387 million revenue) but it is big–30,000 provider organization customers in a subscription model generating $4 billion in healthcare payment transactions last year. The offering on Nasdaq under WAY potentially values the company at $8 billion.

The IPO offering is being led by JPMorgan Securities LLC, Goldman Sachs, and Barclays Capital. Swedish global investment firm EQT Partners and the Canadian Pension Plan Investment Board became majority investors in 2019 with Bain Capital retaining a share. Waystar also acquired that year Connance, Ovation Revenue Cycle Services’ transaction services tech, PARO and Digitize.AI.

A comparative factor is that its main competitor, R1 RCM, is public.

It’s been over a year since the last digital health company went public, but any speculation that this is a dambreaker for health tech IPOs would be premature, even in the ever-optimistic view of Rock Health. FierceHealthcare, Waystar release

Update: The WSJ reports that the Waystar roadshow to pitch the IPO to investors, scheduled for this week, has been delayed to December at earliest, pushing the IPO into 2024. Sometime. IPOs for other companies have gone south. Reuters

What is more typical are these three acquisitions and consolidations, mainly in the healthcare software and data collection areas, as time goes on and fresh funding rounds grow scarce.

Perficient, a ‘digital consultancy’, is in agreement to buy SMEDIX, a $12 million in revenue healthcare software engineering firm headquartered in San Diego, California, with offshore operations located in Cluj-Napoca, Romania. Acquisition cost was not disclosed. Closing is anticipated in January 2024. SMEDIX President and CEO Fayez Sweiss will join Perficient in a key leadership role and the release mentions the addition of 175 skilled global professionals.

Patient community, clinical data, and patient-reported evidence collector PicnicHealth is acquiring AllStripes, a platform for rare disease data and patient access. PicnicHealth’s partnerships are primarily with pharmaceutical companies and nonprofit research organizations for patient data. AllStripes generates research-ready evidence to accelerate rare disease research and drug development, as well as a patient/family-facing app connecting them to treatment research. AllStripes had a $50 million Series B funding round in 2021 and PicnicHealth had a $60 million Series C round in 2022 backed by new investor B Capital Group plus existing investors Felicis Ventures and Amplify Partners. But as is usual of late, the acquisition cost is not disclosed. Release

In TelehealthLand, MDLIVE is buying Bright.md. Announced at HLTH, MDLIVE, part of Cigna unit Evernorth, will add Bright.md’s asynchronous telehealth capabilities to its existing platform. The expansion will target their virtual urgent care area, adding chronic disease management and wellness visits in 2024. Asynchronous telehealth adds an information gathering and triage option to standard virtual consults in gathering initial information, optimally directing the patient to the right care at the right time. Acquisition costs (again) were not disclosed. MDLIVE also announced a care coaching option within its virtual primary care program. MDLIVE works with employers and health plans which gives them in total a 43 million member base. Healthcare Dive, FierceHealthcare

Sage scored a $15 million Series A. Funding for their senior housing care platform was led by Maveron with participation from Distributed Ventures, ANIMO Ventures, and Goldcrest Capital. The platform consolidates and coordinates nurse call and care information for residents. This follows on their August 2022 $9 million in seed funding.  Mobihealthnews

Also typical of late are closings, reorganizations, and layoffs.

NYC-based Cureatr shut down suddenly Tuesday 17 October. According to the sketchy reports on places like Reddit, it was with three days notice to staff nor severance and done on a Zoom call. Systems were shut down on Friday but not the website which is still up. Cureatr was a comprehensive medication management company with staff pharmacists working with topline providers like New York Presbyterian, Northwell, Penn Medicine, and DaVita. Surprisingly, they bought a competitor, SinfoniaRx, only last March. Posters on Reddit describe new hires starting in the last two months and people yet to start who had already left their jobs. From Glassdoor, posters state that the company went bankrupt after not getting more financing. Things went south fast. What is going on now is a bad rerun of the 2007-8 period when funding dried up and companies ran out of runway fast, a period that this Editor experienced firsthand at Living Independently Group. Shotgun takeovers and sudden closings. Thanks to HISTalk 23 Oct for the heads up.

Another NYC former high-flyer, ‘metabolic health’ weight loss digital health coach Calibrate, was sold in a ‘reorganization’ to private equity firm Madryn Asset Management along with other investors. Prior to the sale, Calibrate raised about $160 million in funding. With scarcity of their GLP-1  drug therapies Ozempic and Wegovy and insurers refusing coverage of their over $1,700 direct-to-consumer regimen (not including medication cost), plus new competitors like Teladoc, Calibrate lost patients, received rafts of angry social media postings, refunded millions to them, and laid off 150 staff in July 2022 with 100 departing last April. Weight loss/obesity management remains hot, but in more payer and employer-centered models, to which Calibrate announced it was pivoting to this summer. MedCityNews

Calibrate was one of the companies out of Redesign Health, which has developed about 50 health tech companies, the latest being Harmonic Health for care management of dementia patients and family support. 

Telemental health is also going wobbly, with BetterUp recently laying off 16% of its workforce or 100 employees. BetterUp provides virtual behavioral change coaching for corporate performance, including mental health. Their base is primarily enterprise clients with a B2C offering. The brief report in the Daily Beast states that the company has missed financial targets starting with last year and “grappled with internal tumult for many months, including a rebellion by its army of coaches last spring.” Back in the palmy days of 2021, BetterUp raised $300 million through a Series E in a total of seven funding rounds and achieved a $4.7 billion valuation, which is not likely to be the same now.

Yes, this is the company that employs Prince Harry, Duke of Sussex as its chief impact officer. No one quite knows what he does, how much time he spends on company business, nor what he is paid–which are issues with the employees, especially those facing or contemplating The Ax. The prince has made some corporate appearances at conferences. The CEO characterizes his duties as expanding “global community reach”. Perhaps this Editor is cynical, but Prince Harry a/k/a ‘This One’ is beginning to resemble one of his ancestors, Edward, the Duke of Windsor, without the splendid sartorial style.  The Mercury News manages to spin a whole article about this and Netflix. Certainly, a lesson to be learned about celebrity employees.

Rock Health Q3 funding roundup: shrinking to fit ‘the new normal’ = the doldrums

October 2, 2023 | by

Let’s discuss the bad news first. Rock Health‘s tracked funding for digital health startups and M&A this quarter was the second lowest quarter in funding since Q4 2019–an anemic $2.5 billion across 119 deals. (Q4 2019: $2.1 billion). Q3 2023 was almost identical to Q2’s $2.5 billion across 113 deals [TTA 11 July]. Year-to-date is now $8.6 billion raised across 365 deals. The past four of five quarters were all in the $2 billion funding range with deal numbers in the low hundreds.

If Q4 replicates Q3, 2023 in this Editor’s projection will wind up in the $11 billion range with under 500 deals. Year 2023 would find itself in a gulf between 2019’s total of $8.1 billion and 2020’s startling runup of $14.3 billion.  Interestingly, Rock Health doesn’t go there as they used to in palmier times.

Here’s another depressing fact. If adjusting for inflation about 20%, in 2019 dollars the funding for Q3 would be about $2 billion, less than Q4 2019. In other words, 2023 looks like it will be a rerun of 2019, flat as a pancake, without a swan event on the horizon to pull everything up.

Getting back to Rock Health’s report, the reasons for funding staying in the horse latitude doldrums are understandably circular. Forecasting a slower economy wet blanketed by high interest rates leads to less capital raises. Less capital, less funding for startups, less IPO activity, lower portfolio valuations. Doing deals in this constrained environment requires, in Rock Health’s terms, ‘a more conservative mindset’ which further depresses funding. Unappetizing circles feed on themselves until they work themselves out slowly, or a ‘swan’ event blows a hole in it.

IPOs remain on a starvation diet. This is reasonable based on the continued cracking of SPAC-funded companies, touted as the alternative to IPOs. Further depressing the market were total hull loss bankruptcies of Babylon Health, Pear Therapeutics, and Friday Health. This Editor will add to this the troubles of Cano Health, Bright Health, SimpleHealth, The Pill Club, Hurdle, and Quil Health, plus the dancing on the edge of Clover and Oscar Health. NextGen Healthcare decided that 41 years of being a public company were enough, and went private two weeks ago.

Overall, what there is of funding is shifting over to disease treatment, non-clinical workflow, and healthcare marketplace/value-based care as the top three value propositions so far this year. In 2022, these three categories were #5, 3, and 8 respectively. Examples of companies are Vivante Health and Synapse Health. Mental health, surprisingly with the recent implosions and a crowded field, remains far in front as the #1 clinical area though in funding only half of full year 2022. Nephrology (renal health) and neurology are the up and comers.

Rock Health’s writers try to put the most optimistic face on this continued slide with phraseology like “digital health’s new reality is “smaller but mighty” and even the well-worn ‘new normal.’ But right now, it’s hard to suss out the ‘mighty’ or normal part. Rock Health’s Q3 report

Rock Health’s first half funding roundup adjusts the bath temperature to tepid, the bubbles to flat

July 11, 2023 | by

The ‘new normal’ continues, as the bubbles vanish and the poor duck’s feathers are getting soggy and cold. Rock Health’s roundup of digital health funding (US only) continues the chilly flat-to-downward trend to funding. What money and fewer funders are out there which persist in their dedication to healthcare are betting cautiously, minimizing their risk on the table in lower unlabeled funding rounds and pre-vetted concepts. 

  • First half 2023 (H1) funding closed at $6.1 billion across 244 deals. Average deal size was $24.8 million, the lowest since 2019.
  • Breaking down by quarter, Q2 2023 funding hit a new low– $2.5 billion in funding across 113 deals, lower than Q4 2022’s ‘hole’ of $2.7 billion. By comparison, Q1 2023 funding totaled $3.5 billion over 131 deals, adjusted from the earlier report of 132 deals [TTA 5 Apr]. The collapse of three banks, most notably Silicon Valley Bank in March, clearly affected Q2.
  • Given the trend, Rock Health projects that 2023 funding will fall well below 2022, between 2019’s $8.1 billion and 2020’s $14.3 billion

Delving into the numbers:

  • Those ‘generalists’ who jumped into the digital health pool in 2021-22 jumped out. H1’s 555 investors had a 71% repeat rate, meaning that those who knew the water saw some opportunity or put on their wet suits. The overall total dropped from 775 in H1 2022 and 832 in H1 2021.
  • Unlabeled raises were suddenly the way to go. 101 of 244 deals–41%–had no series or round attached. This unprecedented move avoids the spectre of down rounds for companies needing to raise funds–down rounds affect valuation. Interestingly, 67% of these companies’ prior raises were in 2021 and 2022. 37 of them were Series B or lower. 
  • Mega deals inhabit a different territory. H1 had 12 mega deals, 37% of total funding dollars, and was at the 2021 norm of $185 million. Half were at Series D and growth/PE. They clustered in value-based care, non-clinical workflow, and that former mouse in the pumpkin coach, in-home and senior care. This level of funding also gravitated to the pre-vetted: incubated by VCs included Paradigm (clinical trials) and Monogram Health (kidney care).  Recently funded Author Health, long in stealth, will operate in a narrow slice of mental health funded by Medicare plans.
  • Zero IPOs, but acquisitions and shutdowns/selloffs continue. Acquisitions continued on a track of about a dozen per month, down from 2022’s average of 15. On the gloomier side, quite a few companies simply ran out of runway after raising a little or a lot of funding. These hit the lights at the end resulting in hull loss: Pear Therapeutics, SimpleHealth, The Pill Club, Hurdle, and Quil Health. If they were lucky, they had intellectual property worth something to someone–Pear to four buyers including a former founder, 98point6’s AI platform business to Transcarent–or subscriber bases worth acquiring, such as Pill Club to Nurx, SimpleHealth to TwentyEight Health. This does not count Amazon shuttering Halo and leaving subscribers in the lurch. (Nor Amazon’s dodgy approach to privacy getting Federal and private scrutiny, which this Editor explores here and here.)

To this Editor, 2023 will be a ‘grind it out and survive’ year for most health tech and digital health companies. Survivors will carefully tend their spend, their customers (who will be doing their own cutbacks), and watch their banks. The signature phrase this year was written in 1950, another uncertain time, by Joseph L. Mankiewicz and uttered with flair by Bette Davis in a classic film about the theatre, ‘All About Eve‘: “Fasten your seatbelts; it’s going to be a bumpy night.”   Rock Health Insights

Wednesday roundup: Owlet BabySat monitor clears FDA; Rosarium Health seed $1.7M led by Rock Health; Optum Startup Studio shuts; CareRev lays off 100, changes CEOs; pet telehealth Fuzzy shuts, leaves workers and vendors in lurch

June 21, 2023 | by

Owlet’s BabySat medical pulse-oximetry device receives FDA clearance. The wire-free sock design connects to a mobile app and tracks pulse rate and oxygen saturation level. The app alerts parents and caregivers when those readings fall outside ranges set by a physician. Launch is projected for later in 2023. Unlike other Owlet socks and systems, it will be by physician prescription only for babies that the doctor determines should have additional monitoring at home. There is a button for interested consumers (and presumably clinicians) to be notified of release information. Owlet release, Owlet product page, Mobihealthnews.  The original Smart Sock continues to be offered as a consumer product outside of the US and Canada. Owlet’s Dream Sock tracks non-clinical quality sleep quality indicators, including heart rate, average oxygen, wakings, and baby movements. In December 2022, FDA accepted Owlet’s de novo application for an enhancement to Dream Sock that provides heart rate and oxygen notifications in addition to sleep monitoring tools [TTA 18 Mar]. Perhaps these mean a turnaround is in the offing in this now much smaller company. They received a $30 million private placement lifeline in February, but the stock on the NYSE, while rising, is still well below $1. [TTA 16 May].

Rosarium Health receives a pre-seed round of $1.7 million from Rock Health and two other investors. It’s surprising because Rosarium is in the business of medically necessary home modifications to enable safe aging at home. Not your typical digital healthy, sexy, techy, buzzy Rock Health investment. But one that bears a few important checkmarks: since 2019, the Centers for Medicare & Medicaid Services (CMS) has covered home modifications in two different programs: Medicare Advantage (MA) through supplemental benefits, and Medicaid, through Medicaid Waivers (Section 1115 Waivers) or Medicaid Managed Care programs. In the current environment, that assurance of payment makes it most attractive indeed. Rock Health was joined by Primetime Partners with participation from Flare Capital. Rock Health release

Just when you think it’s getting better….

  • Optum Startup Studio fades to black–report. Startup Studio was Optum’s startup incubator and graduated over 100 early-stage companies that received mentorship and a chance to pilot their offerings through Optum’s companies and systems plus receive $25,000 to $50,000 in non-dilutive grant funding. The report in Axios attributed the program’s end to a reorganization within Optum that left mentors like Liz Selvig, who joined it in 2022, out in the cold. The timing could not have been worse for just-shuttered fertility planning startup Bunnii. Optum’s abandonment quickly killed interest from a potential lead investor who looked at Optum’s program and piloting as a vote of confidence. This Editor notes that the website and application pages are still live.  If this report is incorrect, we invite Optum to contact us.
  • CareRev, a short-term nursing/CNA staffing app platform, reportedly is laying off 100 employees or one-third of its staff. The same reports claim $100 million raised to date, but Crunchbase lists ~$50 million through a Series A in April 2021. Earlier this month, CareRev’s co-founder and CEO, Will Patterson, BSN, RN, resigned after The Information inquired on allegations that he used drugs and encouraged employees to try LSD and cannabis. CareRev subsequently named Brandon Atkinson, formerly COO of cardiac digital health Cleerly Health. Release. Becker’s
  • Fuzzy, a veterinary care digital health/e-commerce startup based in San Francisco, folded last week without paying employees or vendors. It raised about $80 million through a Series C from 2016. Backers included Icon Ventures, Greycroft, Crosscut, and Matrix Partners, private vet practices in the US, UK and Germany plus individual investors. Its $15/month subscription-based model included 24/7 live chat and telehealth, ship-to-home prescriptions, educational content, vet-curated pet items, and programs for nutrition, training, and obedience. The bad part: reports from employees on Twitter and Glassdoor indicated that the company stopped paying health insurance and salaries two weeks ago but were not formally notified of the company shutting until Saturday 16 June, and that vendors as well as contractors were misled on payment for weeks. The website is dark and CEO Zubin Bhettay’s LinkedIn profile plus Twitter handle are gone. Coverager

Digital health’s funding time machine dialed back to 2019–before the SVB implosion: Rock Health

April 5, 2023 | by

Rock Health’s 2023 Q1 report tries to put a good face on an implosion. The good: Q1 followed their Retro Time projection; the 2020-first half 2022 bubble was over, but digital health was snapping back to 2019 funding levels. The bad: while things were snapping back, Silicon Valley Bank (SVB), the favored bank of most Silicon Valley VCs and the companies they funded, imploded due to mismanagement.  This Editor would add two corollary nervous-making bank failures on SVB’s heels: Signature Bank (some East Coast healthcare, but too many uninsured deposits and a lot in crypto, taken over by Flagstar Bank/NYCB) and Credit Suisse (pending a Swiss government shotgun marriage with UBS). Add another unnecessary Federal Reserve rate hike to kill growth and the end of the pandemic PHE regulation suspensions that fueled telemental health, plus inflation at about 8-10%…. Like that 1949 Studebaker Starlight coupe, are we coming, or going?

Sidebar: This Editor has heard from other sources (not Rock Health) that ‘dry powder’ (funds) are low for VCs and barely existent on the provider (health system) side. Their own investors, now leery, are cutting back on their exposure. Where there is dry powder, fintech and biopharma are seen as better bets. VCs sense the bottom hasn’t yet been found in digital health valuations. Payers like UHG and CVS are making big deals but not in digital health. If they are, they are small ‘pocket lint’ pickups. Private equity? Largely kicking tires. Family offices and high net worth individuals are generally staying out of the healthcare picture unless there are other compelling (usually personal) reasons to invest. (Theranos still hangs heavy over these last two funders.)

Back to Rock Health, total Q1 funding was $3.4 billion across 132 deals. Yet only six mega deals (over $100 million) accounted for 40% of the funding early in the quarter: Monogram Health (in-home care, $375M), ShiftKey (PRN nurse scheduling, $300M), Paradigm (drug trials, $203M), ShiftMed (another healthcare workforce scheduler, $200M), Gravie (broker benefit solution, $179M) and Vytalize Health (MSO for providers, $100M). To call these ‘mega deals’ is an overstatement. In 2021 or even in 2022 these would have been seen as outstanding Series A and decent Series B-D+ raises. In 2021, the top mega deals crested $500 million.

The remaining 126 sliced up the remainder ($2.043 billion) of the pie, with a median value of only $16 million per deal. Throwing in the six ‘mega deals’, the overall median increased to $25.9 million. That tracks closely with 2019/2022, allowing for some inflation. Comparisons with full year medians: 2019–$19.8 million, 2020–$31.9 million,  2021–$39.9 million, 2022–$26.7 million. 

The IPO window remains closed tight. No easy exits for investors in late-stage companies. Those that went public during the bubble, with few exceptions, have cracked. From the report: “Digital health stocks started 2023 trading almost 50% lower than they did at the start of 2021, pushing some recently-exited players like Pear Therapeutics to explore going private.” (Under $1.00 per share, Pear is currently exploring a sale in toto, in parts, or merger.) According to this chart shown by Arundhati Parmar, MedCity News’ editor-in-chief, during his VC panel at ViVE [TTA 31 Mar], only two of 17 publicly traded digital health companies that went public have share prices in excess of their IPO: Progyny (also profitable) and HealthEquity. Many are near or below the critical $1.00 mark. (This chart does not include Babylon Health which is trading around $5 and reorganizing to become a US company.) He also pointed out that only two of the 17 are profitable.

These deals now also come with strings attached: valuation adjustments and operational revamps which usually mean staff layoffs, but can also be operational in closing/selling off lines of business. Growth is not the key metric anymore–profitability or a road to it is. Recent examples are Komodo Health and Carbon Health, where their substantial fundings ($200 and $100 million respectively) were tied to jettisoning LOB and staff. 

Last but certainly not least in putting a damper on digital health funding and growth is the end of the prolonged pandemic PHE. This relaxed rules for telehealth platforms around HIPAA compliance and also in mental health prescribing without in-person visits of DEA-controlled substances in Schedule 2 and 3-V. This puts a definite halt to telemental health’s expansion, fueled by drug prescriptions and none-too-fussy signups (see: Cerebral) but also too many virtual players in one niche (Mindstrong ceasing business with remaining assets bought out by SonderMind). New telehealth platforms largely complied with HIPAA but penalties for non-compliance are returning and platforms have to secure data. FTC is an added factor with its own privacy microscope.

Even the eternally optimistic Rock Health likens 2023 in digital health to a stormy sea with “turbulent waters’ resulting in “patched up ships and resilient mindsets.” Now that is a stunning mix of metaphors. Your Editor chooses a classic phrase penned by Joseph L. Mankiewicz and uttered with flair by Bette Davis in ‘All About Eve‘: “Fasten your seatbelts; it’s going to be a bumpy night.” And it’s only Q1. Also Mobihealthnews

Rock Health puts a kind-of-positive spin on digital health’s ‘annus horribilis’ 2022–a boring 2023

January 13, 2023 | by

Your Editor will be blunt. 2022 was a bucket of cold water, a bursting of bubbles, and generally an annus horribilis (as the late Queen Elizabeth referred to 1992, 30 years prior) for digital health, healthcare tech, and healthcare in general.

Here are the highlights of Rock Health’s 2022 full-year report on digital health funding for US-based digital health companies, published late last week and presented this week at JPM, through the gimlet eye of your Editor: 

Total funding for 2022 was $15.3 billion. There were 572 deals, averaging a deal size of $27 million.

  • 2022 was just over half in activity compared to 2021’s “to the moon”: $29.3 billion over 738 deals averaging $39.7 million.
  • 2022 also barely made it past the pandemic year of 2020 with $14.7 billion over 480 deals averaging $30.6 million.
  • 2022 Q4 fell into a hole: $2.7 billion versus 2021’s $7.4 billion

If 2021 matched prior growth trends instead of the bubble it was, 2022 would have been viewed as flat or slightly down. 

Late stage mega deals fell into the same hole. In 2022, 35 digital health startups raised rounds of $100M or more, compared to 2021’s 88 and even 2020’s 43. 

The Covid-driven investment boom across digital health that characterized 2021 is over. The economy with a 6-8% rate of inflation, energy shortages in much of the world, supply chain disruptions, rising interest rates on money, and the rising possibility of recession led to investor cold feet. It ended the 2019-2021 takeoff and started a down cycle.

Recalibration to a ‘more sustainable run rate’ when it comes to investment

“Disrupting healthcare” may sound good, but it has a spotty track record of success. What’s attractive long term? Incremental transformation within conventional healthcare operations that in this Editor’s view cut time, cost, increase reliability, simplify processes and/or workflows, improve interoperability, reduce operational burden, or improve communication. Preferably, a combination of several of the previous!

D2C startups are particularly vulnerable to the economy–they run hot, multiple companies jump in, and then they’re cold. They have to invest a lot of money to establish a presence with consumers and that money is no longer cheap or available. Some with a decent consumer footprint can focus on B2B entry, though that is a long-buy cycle move.

Most companies will be focusing on the near term, with some of the smarter ones planting some ‘seeds’ for the future

A witty note in their report: “In the current VC climate, strong horses will beat out unicorns…though investors run the risk of betting on the wrong equine.” (Editor’s note–it may be hard to tell the difference. And unicorns have horns that poke bubbles.)

What was hot?

  • Series A deals, the conservative bets of VCs. Yet, in Rock Health’s view, these may be riskier: “investors are more likely to pay more on a risk-adjusted basis for a startup than its later-stage funders, twisting the risk-adjusted valuation upside down.” 
  • In clinical indications, mental health stayed top of the pops. Cardiovascular and oncology rose along with dark horse reproductive and maternal health. What fell? Diabetes.
  • In value propositions (sic), on-demand healthcare and R&D flipped positions from 2021. Dark horses nonclinical workflow, disease monitoring, and care coordination moved into the top 5

And what players had problems? Health systems and the tech giants seeking to move into healthcare and away from ad-based or transactional revenue. As we’ve seen, Amazon dumped Care and is facing scrutiny over One Medical, Alphabet is cutting Verily, and Meta is overall pulling back. Microsoft seems to be concentrating on incrementals and Apple has other concerns over sourcing and patents.

Rock Health’s conclusion is ‘kind-of-positive’. (What, you expected doom and gloom?) “We expect that 2023 will be built up on slow, steady, and maybe even boring strategies for healthcare startups and enterprises alike: managing cash, re-structuring to accommodate revenue volatility, and investing in technology infrastructure.”

Is there a way out of the digital health funding black hole? Can it rebound to…2020?

October 28, 2022 | by

The latest CB Insights report tracking global health funding isn’t cheery reading for VCs and their young analysts, associates, and principals. CB’s tracking of Q3 spending, like Rock Health’s [TTA 5 Oct], indicates it’s Back to 2019–not even 2020–with funding of $4.6 billion snapping back to Q1 2019.

In CB Insights’ tracking, 2022 Q1 had funding of $16.1 billion with Q2 slumping to $7.2 billion. Q3 funding was a 36% drop from Q2. (Editor’s note: CB Insights tracks global funding, while Rock Health is US only, with lower totals.) The most affected sectors: clinical trials tech, telehealth, and health IT, though the last two still have high levels of funding.

Unlike Rock Health’s analysis, mental health funding is struggling with 72 deals, a small gain after two straight quarters of decline. CB also identified only three new unicorns (over $1 billion) in Q3: health startup accelerator Redesign Health (which since September has had some reverses), nurse staffing platform Incredible Health, both with $1.7 billion, and UK-based Spectrum Health, with $1.2 billion. M&A/exits have also slumped to 48, the lowest level in five years. IPOs were also down to seven.

It doesn’t look bright for Q4, especially when you look at the miseries of healthcare-related companies like Philips, which reported a €1.3 billion operational loss this past quarter and immediately moved to reduce its global workforce by 4,000. For the young analysts and associates who were just starting or advancing their careers in the VC field, it snapped shut with a suddenness that would make a crocodile envious.

Healthcare Dive, CB Insights (paywalled)

Q3 digital health funding craters nearly 50% to $2.2B: Rock Health

October 5, 2022 | by | 1 Comment

Returning to 2020 and prior trends? The recession and expensive money have hit quite comprehensively in digital health, with Rock Health’s quarterly/YTD tracking that Q3’s digital health funding of $2.2 billion declined to a little over half of Q2’s $4.1 billion. It is the lowest quarter in funding since Q4 2019’s $2.1 billion. Q3’s performance is also reflected in the number of deals completed, tracking at a scant 125 deals.

Are we returning to a prior norm? In looking at YTD 2022 funding ($12.6 billion, 458 deals), it is trending very close to the full year of 2020 at $14.7 billion and 481 deals which in turn was a decent increase from 2019. Allowing that it was kickstarted by carryover from 2021 (Q1 of $6.1 billion), it puts 2021 in sharp relief as a Covid-driven and (in this Editor’s estimation) ‘silly money’ outlier since Rock Health’s tracking started in 2012.

Reviewing Rock Health’s numbers:

  • They project that 2022 will not even attain half of 2021’s funding levels
  • Average deal size YTD is $27 million, $3 million less than 2020 and $12 million less than 2021
  • Raises of Series C and above nearly vanished: only 6, accounting for less than 5% of total funding. Q2, by contrast, had 19 Series C+ raises. And there were only two digital health mega raises of $100M or more compared to 2021’s average of 22 per quarter. Rock Health speculates on the reasons why, including that some were diverted into other funding types such as round extensions and venture debt.
  • Mental health continues to lead the composition of funding by clinical indications, with oncology and cardiovascular moving into the #2 and #3 spots YTD versus 2021, with diabetes moving back to #4. In value propositions, non-clinical workflow jumped to #1 with on-demand healthcare holding on to the #2 spot. R&D fell back to #3 from last year’s #1 spot.

Certainly for those seeking funding, this confirms that the open wallet days for anything labeled digital health are over and not returning.   

The clunk continues: Q2 2022 digital health funding fades to $4.1B in Q2, down 50% from 2021

July 13, 2022 | by

Digital health funding continues to take a plunge. Knocked about by the hangover from the pandemic, a grinding war between Russia and Ukraine, gasoline prices jacked up worldwide, and knock-on inflation and looming stagflation, funding continues to slide. The decline in Q2 digital health deals and funding to $4.1 billion more truly reflects the downturn than Q1’s relatively buoyant $6.1 billion, which benefited from the carryover of deals negotiated during 2021’s boom and closing then [TTA 6 April]. Year over year, it was half of 2021’s high of $8.3 billion.

  • 2022’s first half (H1) total of $10.3 billion was down 31% from 2021’s $15 billion. Despite this, it is 63% above the pandemic-stricken 2020’s H1 $6.3 billion. 
  • Average deal size has dropped to $31.2 million from 2021’s full-year $39.5 million and even 2020’s $30.6 million, accounting for inflation in the past two years. Looking at funding size by series year over year, Series A funding is flat but funding for Series B, C, and D+ have dropped substantially.
  • No startups went public but four digital health companies announced plans to go public or were reported to be planning public exits. One SPAC was announced in June to close in Q3, that of VSee and iDoc Telehealth with Digital Health Acquisition Corporation. SPACs, as this Editor has noted, have gone from Funding Hero to Zero under 2022’s economics, causing many SPACs to crack (Owlet, Talkspace) and increased scrutiny by the Feds [TTA 9 June]. SOC Telehealth, an early SPAC, went private after a 90% share price drop [TTA 8 Feb].
  • Average monthly M&A has dropped substantially. 2021’s monthly average of 23 has dropped to 20 in Q1 and 13 in Q2, for a H1 average of 16.
  • Most popular funding areas are mental health (a far ahead #1 at $1.3 billion), oncology, and cardiovascular. Diabetes dropped from #2 to #4, skewed last year by Teladoc’s acquisition of Livongo. Oncology rose to #2 from #6 in 2021. For mental health, given increased Federal scrutiny and legal problems of companies like Cerebral plus the expansion of Teladoc and Amwell into the area, this Editor does not expect telemental health companies to continue to attract this level of funding but may be attractive for M&A.
  • Disease monitoring (a/k/a RPM) as a value proposition moved from #8 to #3 in investment at $1.4 billion. R&D and on-demand healthcare remained in their #1 and #2 positions.

As TTA has noted previously, this was all to be expected. Will 2022 funding perk up like 2020’s did through Q3 and Q4, or fall off like in 2019 as money sits on the sidelines? Rock Health does try to put a rosier shine on the retrenchment in its roundup, as has venture capital–reality can be good for you. Another depressive factor is regulatory uncertainty in multiple areas and Federal involvement, which some companies can work to their advantage. The Rock Health summary discusses this at length. Also Mobihealthnews. 

Digital health funding’s Q1 hangover from 2021’s bender–and Q2 is a question mark, even for Rock Health

April 6, 2022 | by

Chug the Pedialyte and pickle juice, down those milk thistle caps for the liver. It’s a morning after quarter that we knew was coming. After 2021’s mighty year for health tech investment, doubling 2020’s, capped by a $29.1 billion total across 729 deals [TTA 29 Jan], the slump we knew would arrive, did. Rock Health’s tracking of 2022’s Q1 proved to be a less than stellar $6.0 billion across 183 deals. It mildly lagged 2021’s Q1 but was still 75% more than 2020’s depressed Q1 at the start of the pandemic.

Even in January, the 2022 projections were iffy. Silicon Valley Bank projected, based on anemic post-IPO performance, that there would be ‘massive consolidation’ and even acquiring companies to hire talent [TTA 14 Jan]. Rock Health and Silicon Valley Bank noted the waning of SPACs as an easy way to IPO for a variety of reasons, including SEC scrutiny. A combination of both was SOC Telemed. which IPO’d via a SPAC at $10, and was taken private seven months later at $3 per share–after trading at $0.64. SOC was not an outlier–larger telehealth brothers Amwell and Teladoc had taken major share price kicks in the head at 50% and more by February [TTA 8 Feb].

The rest of the story is mixed as the economy continues to open up with the pandemic over, but the stock market is wobbly, inflation soars as does a Russia-Ukraine war. 

  • Average deal size was $32.8 million, again below 2021
  • January was a cheerier month than the following two, with companies raising $3.0 billion. Some of this was carryover from 2021 deals that didn’t quite make it past the post. February slumped to $1.4 billion while March ticked up to $1.6 billion, not a good trend going into Q2.
  • Rock Health’s Digital Health Index (RHDHI), a composite of publicly traded digital health securities, fell 38%, far below the S&P 500’s 5% dip over that same time period.
  • SPACs tumbled along with the market, continuing their fall since 2021. Deals were canceled, taken private (SOC Telemed), and companies sued for misleading investors (Talkspace).
  • Late stage deals continued to roll: mega Series D+ deals in Q1 2022 included TigerConnect ($300M), Lyra ($235M), Alto Pharmacy ($200M), Omada Health ($192M), and Ro ($150M). D and above deal size fell by $16 million. But average deal size fell off at every Series, less so for B and C.
  • Lead clinical investment areas were mental health continuing far in the lead, followed by oncology, cardiovascular, and diabetes. Oncology rose from the fifth spot in 2021 to #2 in Q1, displacing cardio. In value proposition, the top three were on-demand healthcare, R&D, and clinical workflow–this up from the 11th spot.

A weak start for 2022, but only compared to 2021. Q2 and maybe even Q3 will be the test in this mid-term election year. Rock Health Q1 report

Will ’22 digital health investment be historic? Or a question mark? The jury is out.

January 29, 2022 | by

Some say historic, or will it be a historic question mark? It’s only January…Earlier this month, a Silicon Valley healthcare VC funding analysis [TTA 14 Jan] looked at 2021 funding — up over 150%–that was skewed to biopharma and health tech. It noted the SPAC slowdown, anemic post-IPO performance, and a decline in M&A value, while consolidation and buying for expansion will be the trend.

Healthcare Dive spoke to some industry mavens, and came up with a split picture. Some see turbulence ahead due to rising interest rates, a fluctuating market, and political instability leading to tighter purse strings, others see blue skies and lots of money flooding in from new investors in love with health, following the Amazons and Microsofts, fearing that they’ll miss out. Certainly, 2021 was more than warm. Both Silicon Valley Bank in the previous analysis and Rock Health came up with just under $30 billion in 2021 investment.

The feather in the wind: Rock Health’s numbers indicated skyrocketing exits–with SPACs nearly double that of IPOs. Funding hit record mega rounds of $100 million+ that spread to early rounds–10 Series B and one Series A. Mega money means mega pressure to perform in young companies. The SPAC highway increasingly narrowed to a two-lane road by end of year based on regulatory scrutiny and even some timing out (SPACs have to consummate a deal in two years). Exits for investors are to take back money or write off losses, if they get shaky about a company or category, even if they find a more attractive squirrel. Yet the fact is that $13 billion raised by VCs this month has to go somewhere–but will it be in health tech? Time will reveal all.  Also Healthcare Dive on the Rock Health year-end report.

2021’s bubbly $14.7 billion in digital health funding–six months that beat all of 2020

August 3, 2021 | by

Rock Health’s roundup for the first half of 2021 definitely floats that rubber ducky. $14.7 billion in funding went to digital health companies in the US, breaking through full year 2020’s $14.1 billion, itself a record. However, the year to date is skewed by mega deals that may proved to front-load the year.

The first half boasted:

  • 372 deals and an average deal size of $39.6M
  • 48 mega deals which accounted for 59% of total H1 2021 funding
  • 11 closed IPOs and SPACs, with another 11 SPACs expected to close in 2021
  • Tripling prior year in the final month: June 2021 $3.1 billion versus $1.1 billion June 2020

It was no surprise that mental health continued in the lead for the second year, with cardiovascular, diabetes, primary care, and oncology following. Rock Health also tracks ‘value propositions’ which are led by research and development, plus on-demand healthcare neck-and-neck.

Size and stage of deals continued to enlarge. 

  • Average deals per week in 2021 totaled 11 and $548 million, compared to 2020’s seven deals and $285 million
  • The funding shift to Series D and higher levels was profound–$76 to $131 million for about the same number (51 to 54) deals. Series A through C had positive gains but relatively flat
  • Private equity firms and growth funds were more active in digital health venture investment versus venture capital
  • $100+million rounds are becoming ‘average’, comprising 59% of total funding–prompting one to think that the definition of ‘mega’ needs to be upscaled

The mix of businesses is also changing towards B2C. Direct to consumer (B2C) digital health is gaining and now is 27% of all investment, with B2B/B2C and B2B-only declining. This change was driven by big B2C players Noom ($540M), Ro ($500M), and Capsule ($300M).

Consolidation is real. Providers with broad scope are buying niche startups to fill gaps, as well as giants like Microsoft snapping up a Nuance medical transcription. To be expected when there’s pressure to acquire and sell, but often these acquisitions don’t integrate well into large parents. (Ask Philips how Lifeline worked out for them.)

One company–New York City-based Tiger Capital or Tiger Global Management–is a name that popped up repeatedly this year. Their strategy is ‘blitz-funding’: participating in 14 funding rounds totaling $1.8 billion–12% of digital health funding in first half and generally at C or D. OODA, Hinge Health, Komodo Health, and ACO organizer Aledade (not digital health) received investments from Tiger. This isn’t unprecedented, but may scare off other investors except in earlier rounds.

And SPAC salad days are likely over. The easy pickings are over, as investment funding flows in, IPOs remain attractive, the SEC’s increased scrutiny, plus SPAC investment insurance premiums are more costly.

No forecast yet for the year though. (A mistake from a few years ago they won’t repeat!) But if July is any indication, not much is cooling down unless COVID really hits again. Rock Health H1 2021 Report

A smash Q1 for digital health funding–but the SPAC party may be winding down fast

April 7, 2021 | by

An Overflowing Tub of Big Funding and Even Bigger Deals. The bubble bath that was Q1 deals and funding is no surprise to our Readers. Your Editor at one point apologized for the often twice-weekly roundups. (Better the Tedium of Deals than COVID and Shutdown, though.)

Rock Health provides a bevy of totals and charts in its usual quarterly summary of US digital health deals.

  • US funding crested $6.7 bn over 147 deals during January through March, more than doubling 2020’s $3.1 bn in Q1 over 107 deals.
  • Trending was on par through February, until it spiked in March with four mega-deals (over $100 million) over two days: Clarify (analytics), Unite Us (SDOH tech), Strive Health (kidney care), and Insitro (drug discovery). These deals also exceeded 2020’s hot Q3 ($4.1 bn) and Q4 ($4.0 bn).
  • Bigger, better. Deals skewed towards the giant economy size. $100 million+ deals represented 66 percent of total Q1 funding
  • Deal sizes in Series B and C were bigger than ever, with a hefty Series B or C not uncommon any more. Series B raises were on average $49 million and C $77 million. One of March’s megadeals was a Series B–Strive Health with a $140 million Series B [TTA 18 Mar].
  • Series A deal size barely kept up with inflation, languishing in the $12 to $15 million range since 2018.
  • Hot sectors were a total turnaround from previous years. Mental health, primary care, and substance use disorders, once the ugly ducklings which would get their founders tossed out of cocktail parties, became Cinderellas Before Midnight at #1, #2, and #3 respectively. Oncology, musculoskeletal (MSK), and gastrointestinal filled out the Top 6 list.
  • M&As were also blistering: 57 acquisitions in Q1, versus Q4 2020’s 45

Given the trends and nine months to go, will it blow the doors off 2020’s total funding of $14 bn? It looks like it…but…We invite your predictions in the Comments below.

Les bon temps may rouler, but that cloud you see on the horizon may have SPAC written on it. A quick review: Special Purpose Acquisition Companies (SPACs) typically are public companies that raise money through their own IPOs for the express purpose of buying other companies. Often called a ‘blank check’, they have no purpose other than buying one or two other companies–in the latter case, merging them like the announced Cloudbreak and UpHealth last November–and converting over to the company’s identity and business. The timeframe is usually two years. Essentially, the active company goes public with a minimum of the messy, long, expensive, and revelatory process of filing directly with the SEC (in the US). This quarter, Rock Health’s stat on SPACs was that they raised $83.1 bn this quarter, exceeding by $0.5 bn all SPAC activity in 2020, mainly late in the year. Their count was two SPACs closing in Q1 and 8 more announced but not yet closed (counting Cloudbreak/UpHealth as one).

As an exit door for investors, it’s worked very well–but is dependent on private equity and public investors having confidence in SPACs. One thinning of the bubble may be the scrutiny of Clover Health’s SPAC by the SEC [TTA 9 Feb] over not revealing that they were under investigation by the Department of Justice (DOJ). Certainly this was a material circumstance that could dissuade investors, among other dodgy business practices later unveiled. Mr. Market tells a tale; Clover went public 8 Jan at $15.90 and closed today at $7.61. Their YahooFinance listing has a long list of law firms filing class-action lawsuits on behalf of shareholders.

Clover may be the leading edge of a SPAC bust. SPACs are losing their luster because there are too many going through, jamming bandwidth at the bank and law firm level. As time ticks by and deals are delayed, the private funders of SPACs are growing squeamish, according to this report in National Review’s Capital Note (yes, National Review has a finance newsletter). “In the past two weeks alone, four blank-check deals have been halted, with SPAC shares declining significantly from their highs early this year. The slowdown follows an influx of short-sellers into the opaque financial vehicles and a sell-off in high-profile SPACs such as Churchill Capital Corp IV.” Reasons why: lower quality of companies available to go public via SPAC–the low hanging ripe fruit has been picked–and the last mile in SPACs, which is PIPE funding (private equity-investment-in-public-equity financing) is getting skittish. The last shoe to drop? The SEC in late March announced an investigation into SPACs, making inquiries into several banks seeking information on their SPAC dealings, which is alluded to near the end of the Rock Health report. CNBC  (Read further down into the NR article for a Harvard Business Review dissection of the boom-bust dynamics of ‘controversial practices’ like reverse mergers as a forecast of what may happen to SPACs. Increased popularity led to increased negativity in reverse mergers.)

And speaking of SPACs...Health tech/digital health eyes are upon what Glen Tullman and the ‘late of Livongo’ team will be doing with their SPAC, Health Assurance Acquisition Corp., which is backed by Hemant Taneja’s General Catalyst, also a former Livongo funder. Brian Dolan, who is now publishing Exits and Outcomes. His opinion is their buy will be Color, formerly Color Genomics: opinion piece is here. Messrs Tullman and Taneja are also leading Transcarent, a company that brings together employers, employees, and providers in a seamless, app-driven integrated care model. Forbes

The cool-off in SPACs may burst a few bubbles in the bath–and that may be all to the good in the long term.