The digital well being sector has entered a brand new period in relation to funding, now divorced from the feverish circulate of capital it noticed in 2020 and 2021. Startups on this house should shortly modify to a fundraising panorama that’s characterised by decrease test sizes, fewer offers and smaller cohort of traders, in keeping with a brand new report from Rock Well being.
If digital well being funding continues on the tempo it has maintained all through the primary half of the yr, 2023 will mark the sector’s lowest yearly fundraising complete since 2019, the report stated.
In 2020 and 2021, traders have been taking dangers amid low rates of interest. There was a mammoth inflow of funding {dollars} flowing into digital well being startups, and firms and traders alike shortly turned accustomed to lofty valuations and excessive funding spherical totals.
Final yr, the digital well being business skilled an acute slowdown within the funding house — the sector’s 2022 world funding complete was $25.9 billion, which is 57% much less than 2021’s report excessive of $59.7 billion. The funding decline has continued in the course of the first six months of 2023 (H1 2023), marking a brand new establishment.
Digital well being startups within the U.S. raised $6.1 billion throughout 244 offers in the course of the first six months of this yr, in keeping with Rock Well being’s report. The typical deal dimension throughout H1 2023 was $24.8 million — down from $31.2 million in H1 2022 and $39.6 million in H1 2021.
Nonetheless, H1 2023’s megadeals — those who complete $100 million or extra — have been similar to megadeals from prior years. Twelve megadeals went to U.S.-based digital well being startups throughout H1, making up 37% of complete funding {dollars}. The typical megadeal dimension for H1 2023 was $185 million, which is near the typical megadeal dimension of $188 million in 2021.
The report identified that H1 2023’s megadeals occurred at quite a lot of funding phases — there have been two megadeals at Collection A, one at Collection B, two at Collection C, and 6 at Collection D or increased.
Most of those megadeals concerned corporations centered on value-based care enablement, at-home care or know-how to enhance healthcare’s workforce administration. For instance, within the value-based care enviornment, Try Well being raised $166 million, Arcadia snagged $125 million and Vytalize Well being pulled in $100 million. Within the residence well being house, Monogram Well being acquired a $375 million deal, and Writer Well being raked in $115 million.
There have been additionally some megadeals for startups aiming to assist suppliers enhance nurse staffing ranges — Shiftkey bought $300 million, ShiftMed snagged $200M and MedShift acquired $108 million.
One other key development from H1 2023 was that fewer traders have been concerned in digital well being offers. A complete of 555 traders participated in digital well being funding rounds in H1, down from 775 in H1 2022 and 832 in H1 2021. The report additionally famous that just about three-fourths of H1 2023’s dealmakers have been repeat digital well being traders. Because of this many generalist traders have stopped pursuing one-off offers within the digital well being house, in keeping with the report.
Digital well being’s new fundraising panorama poses a problem for startups — they’re determining how they’ll elevate new capital with out considerably shrinking their valuation or receiving dangerous press related to a down spherical.
Because of this 41% of H1 2023’s offers have been unlabeled funding rounds. Because of this startups raised cash however selected to not publicly label the trouble with a sequence or spherical title. Rock Well being stated this was the best proportion of unlabeled raises because it started monitoring digital well being funding in 2011.
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