Report: Digital Health Fund Reaches $3.4B in First Quarter Filled with Mega Deals

Digital health startups raised $3.4 billion in 132 deals in the first quarter, according to RockHealth’s latest funding report. Although investment in Q1 exceeded the previous two quarters – companies recorded $2.7 billion in Q4 and $2.2 billion in Q3 – the authors say this is likely not a return to the funding environment seen in 2021 and early 2022. All in all, the Q1 Mega Group deploys their dry powder stocks from 2021 onwards, indicating that established players and investors in the sector are trying to gain a foothold in this market. Rock Health’s Mihir Somaya, Galen Shea and Adriana Krasnianski write. For one, digital health has seen a relatively high number of mega deals worth $100 million or more after a drought over the past two quarters. The report notes six mega-deals in Q1, accounting for 40% of the quarter’s total digital health funding. Among those deals are kidney care company Monogram Health’s $375 million raise, staffing startup ShiftKey’s $300 million round and clinical trial platform Paradigm’s $203 million Series A round. Specifically, Paradigm is co-founded by ARCH Venture Partners and General Catalyst. But digital health companies still aren’t going public. The report found zero IPOs in the first quarter, and digital health shares traded nearly 50% lower in early 2023 than in early 2021. The lackluster public markets may be one reason for the boom in mega deals. – Platform startups need more money. The report also showed an increase in the volume of Series D+ rounds compared to the previous year compared to other levels of deals. But it has dropped from $72 million to $58 million in 2022. Funding for digital health may also be delayed in the wake of Silicon Valley’s bank failure. The report argued that not all startups were equally affected by SVB’s bankruptcy, and that later companies had more options when choosing a new bank. “It is difficult to estimate how much support SVB has had for the startup ecosystem, and the impact of the shutdown and technology innovation may not be fully felt until the quarter,” the report’s authors wrote. “In terms of funding, we expect SVB’s decline to contribute to a more cautious approach to startup financing (debt and equity) over the next few quarters.” Meanwhile, the digital health regulatory landscape is also changing as the COVID-19 public health emergency unfolds. In addition, Congress introduced the Health and Environmental Information Privacy Bill, and the Federal Trade Commission is cracking down on digital health companies that share health information for advertising purposes. “While some lament the digital health Wild West of 2021—unbridled demand, lax regulations, cheap money—the next era of digital health will encourage entrepreneurship and innovation with safeguards that drive innovation rather than stifle it,” the authors write. David Higginson will provide more detail in his HIMSS23 session, “Using Machine Learning Innovations for a More Human Touch in the Home.” Tuesday April 18th from 1:15 – 1:45 pm CT is held in South Building Level 1 Room S104.

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