Venture-backed digital well being firms raised an all-time excessive of $6.7 billion in new capital within the first quarter of 2021 because the Covid-19 pandemic fueled the adoption of latest know-how, based on venture firm Rock Health. Ro led the pack with its $500 million Collection D spherical final month, valuing the three.5-year-old digital main care and digital pharmacy startup at $5 billion. Investments in digital well being topped $1 billion in every of the final two weeks of March, and if the tempo continues, it can far exceed the greater than $14 billion recorded in 2020.
“It isn’t simply funding that has accelerated, I genuinely really feel that the ecosystem shifted in such a solution to enable for extra fast and scaled adoption,” says Megan Zweig, Rock Well being’s chief working officer. The sector has come a great distance because the agency’s first report ten years in the past, when digital well being funding totaled $1.1 billion for the whole 12 months.
There have been a complete of 147 digital well being offers within the first quarter, with a median deal measurement of $45.9 million. This was a rise over the 110 offers seen in the identical interval in 2020, nevertheless it was the uptick in mega rounds of $100 million or extra that stood out. “These firms which might be elevating mega offers have actually confirmed product market match,” says Zweig of the 25 mega offers within the first quarter. “What traders are actually attempting to do is seize market share rapidly by accelerating adoption, and in some methods, permitting [these startups] to have the horsepower to compete with commonplace enterprise healthcare incumbents.”
“It’s signal that this sector is not area of interest anymore,” says Zweig. “It is really attracting a number of the most prolific brand-name funds due to the potential.”
Rock Well being’s view of the digital well being panorama is concentrated on know-how, not service supply, which implies some main offers like Cityblock Well being’s current $192 million Collection C extension to supply higher care to Medicaid sufferers aren’t included. “We solely embrace well being firms that construct and promote applied sciences—generally paired with a service, however solely when the know-how is, in and of itself, the service,” Rock Well being explains on its website.
The highest offers had been in two essential classes: on-demand healthcare companies and know-how functions for analysis and improvement. After Ro, drug discovery startup Insitro had the second-highest spherical at $400 million. The opposite high rounds had been in-home pressing medical care startup Dispatch Well being at $200 million and drug discovery firm Valo Well being at $190 million. These mega rounds will solely serve to encourage new improvements as “a sign to entrepreneurs that now’s the time to construct,” says Zweig. “Now could be the time to lift and to scale.”
Greater deal sizes are being seen throughout completely different ranges of funding—from Collection A to Collection C—and firms are additionally exiting at a quicker tempo than seen in earlier years. A part of that is attributed to the increase in particular objective acquisition firms, or SPACs. For instance, the direct-to-consumer healthcare startup Hims and Hers went public by way of one in every of these blank-check firms valued at $1.6 billion in January. “We’re approaching this with cautious optimism, the place we do assume that having a liquid market is admittedly essential for lengthy term-health, however on the identical time, we do not need entrepreneurs to be going public preemptively,” says Zweig.
The rise in SPACs has raised questions on whether or not there’s an excessive amount of capital flying round with too little diligence within the rush to take firms public. The Medicare Benefit startup Clover Well being (which isn’t included within the Rock Well being report), for instance, is underneath investigation by the Securities and Trade Fee following a short-seller report from Hindenburg Analysis alleging Clover did not disclose a Division of Justice investigation.
Whereas there’ll at all times be particular person success and failures, digital well being goes mainstream, Zweig says, as increasingly know-how traders crossover from different software program markets into healthcare. Earlier this week, Normal Catalyst introduced a $600 million healthcare-specific fund, along with two $500 million SPACs centered on digital well being that had been already public. “It’s signal that this sector is not area of interest anymore,” says Zweig. “It is really attracting a number of the most prolific brand-name funds due to the potential.”