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

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