Digital health startups raised $3.4 billion in 132 deals in the first quarter, according to Rock Health’s latest funding report.
Although first-quarter investment outpaced the past two quarters — where companies raked in $2.7 billion in the fourth quarter and $2.2 billion in the third quarter — the authors noted that this is not likely not from a return to the booming funding environment seen in 2021 and early 2022.
“Overall, the first quarter mega-deal increases do not necessarily foreshadow an industry rebound. On the contrary, they indicate that the more established players and investors in the sector are trying to find their sea legs in this market, by selectively deploying these reserves of dry powder that they have stored since 2021 in teams and projects that they know,” said Mihir Somaiya, Galen, of Rock Health. Shi and Adriana Krasniansky wrote.
On the one hand, digital health has seen a relatively large number of mega-deals, or rounds worth $100 million or more, after a drought for the past two quarters. The report noted six mega-deals in the first quarter, which accounted for 40% of total digital health funding in the quarter.
Some of those deals included a kidney care company Monogram Health’s $375 million raise, startup ShiftKey’s $300 million round, and clinical trial platform Paradigm’s $203 million Series A round. Notably, Paradigm was co-incubated by ARCH Venture Partners and General Catalyst.
But digital health companies are still not opting for a public release. The report found no IPOs in the first quarter and digital health stocks were trading nearly 50% lower at the start of 2023 than at the start of 2021.
Unattractive public markets may be one reason for the growth of mega-deals as late-stage startups seek more money. The report also found an increase in the proportion of D+ series against other stages of the deal compared to last year. However, the median Series D+ deal size fell to $58 million from $72 million in 2022.
The continuation of the The collapse of Silicon Valley Bank may also persist for digital health financing. The report claimed that not all startups were affected equally by the loss of SVB, and that later-stage companies had more options when it came to choosing a new bank.
“It’s hard to overstate how supportive SVB has been to the startup ecosystem, and any ramifications of its closure and acquisition on tech innovation may not be felt until quarters later,” the authors wrote. authors of the report. “On the funding front, we anticipate that the collapse of SVB will contribute to the next few quarters of seed funding (debt and equity) moving in a more conservative fashion.”
Meanwhile, the digital health regulatory environment is also changing as the COVID-19 public health emergency is coming to an end. Congress has also introduced a health and location data privacy bill, while the Federal Trade Commission is cracking down on digital health companies sharing health data for advertising purposes.
“While some may mourn the digital health Wild West of 2021 – unbridled demand, lax rules, cheap money – the next era will foster digital health entrepreneurship and intrapreneurship with guardrails that guide innovation rather than suffocating it,” the authors wrote.
David Higginson will offer more details during the HIMSS23 session “Leveraging machine learning innovations in-house for a more human touch”. It is scheduled for Tuesday, April 18 from 1:15 p.m. to 1:45 p.m. CT at the South Building, Level 1, Room S104.
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