In 2019, U.S. digital health startups raised a total of $7.4 billion—the second largest funding year ever—but for the first time since 2011, the number of investments in this space fell year-over-year (YoY), according to a new report from Rock Health.
Rock Health, a venture fund dedicated to digital health, has been tracking such deals since 2011. Last year, 359 U.S. digital health startups raised the $7.4 billion from 627 investors. After jumping 32 percent across 2017 to 2018, the average deal size dipped to $19.8 million in 2019. Overall, digital health entrepreneurs continue to have access to near-historic levels of funding, the firm’s analysts noted.
As Rock Health analysts anticipated at the close of 2018, which was a record-breaking year, the growth trajectory of venture investment in digital health slowed in 2019. Total venture funding was 10 percent below 2018’s record-setting high of $8.2 billion.
According to the firm, the drop was arguably driven by a small change in the number of late-stage deals year over year—just two late-stage deals in 2018 accounted for the $0.8 billion YoY change in total funding. In an interesting twist, they noted, two of the companies in the IPO class of 2019—Peloton and Livongo—together raised $655 million back in 2018; this accounts for 80 percent of the difference in funding between 2018 and 2019. Moderation, rather than contraction, best describes the trend going into 2020, analysts contend.
What’s more, the report revealed that nearly 60 percent of active digital health investors in 2019 had previously made an investment in the sector. Repeat investors have been in the majority in digital health for four years (compared to first-time investors), but 60 percent repeat investors is a new high.
Further, after a three-year IPO drought, six digital health companies entered the public market in 2019: Livongo, Health Catalyst, Phreesia, Change Healthcare, Peloton, and Progyny. As of Jan. 1, 2020, the combined market cap of the six IPOs is $17 billion. “The flurry of IPOs in 2019 is validating for the venture model of long-tail investing—a small number of companies generating a large share of the returns—in digital health,” analysts concluded.
Finally, the findings showed, M&A continues to provide most of the liquidity to digital health investors in terms of deal count, as 112 U.S. digital health companies were acquired in 2019—40 percent fewer than the 188 acquisitions at the M&A peak in 2015. Large healthcare incumbents and new entrants alike are buying their way into digital health, with some examples of this being:
- Amazon acquiring Health Navigator, adding online symptom checking and triage tools to Amazon Care.
- Google acquiring Fitbit in a deal that gives the tech giant access to troves of personal health data and healthcare partnerships, in addition to health tracking hardware.
- UnitedHealthcare’s Optum acquired Vivify Health, adding patient monitoring capabilities to the increasingly growing payer-provider.
