Last year, according to Rock Health’s research which only looks at U.S. deals worth $2M or more, 2020 ended with $14.6B in digital health funding. So far, 2021 has already surpassed the $20B mark with three months left in the year. Between Q1-Q3, 2021’s total funding amounted to $21.3B across 541 deals, with an average deal size of $39.4M. Perhaps the most notable news is that Rock saw more dollars going toward women-led companies, women+ digital health, and health equity solutions.
According to Rock, we have seen the three highest-funded quarters ever in the digital health market. After the impressive sprint of Q2’s $8.2B (a quarter that outpaced 2019’s entire annual funding), Q3 experienced a slight funding slowdown that more closely resembled Q1. Q3 2021 secured $6.7B across 169 deals, just beating out Q1 ($6.4B) to be the second-highest quarter of digital health funding ever, surpassed only by its immediate predecessor Q2 ($8.2B).
Overall deal volume decreased in Q3 (169) compared to the funding blitz of Q2 (223). Additionally, while Q1 and Q2 had their funding driven by approximately two dozen $100M mega deals each (22 in Q1 and 25 in Q2), Q3 only clocked in 15 mega deals. These deals added $3.1B to Q3’s funding pot, compared to mega deal totals of $4.1B and $4.5B in Q1 and Q2.
Across Q1-Q3 2021, digital health investors did not depart thematically from prior years, and the most-funded types of companies remained relatively consistent. Digital health companies using software to accelerate research and development, delivering on-demand healthcare services, and supporting treatment of disease continue to reign in the top funded value propositions, similar to 2020. For research and development catalysts in particular, funding was buoyed by Q3 mega rounds from XtalPi ($400M), Reify Health ($220M), and TrialSpark ($156M). This quarter’s deals from Maven ($110M) and Pager ($70M) supported on-demand healthcare, while InBrace ($102M) and Woebot ($90M) bolstered this quarter’s treatment of disease funding.
When it comes to particular clinical or disease areas, investors continue to finance opportunities in mental health, the top-funded therapeutic focus so far in 2021 with $3.1B raised. Digital mental health funding was boosted by Q3 deals from behavioral health provider marketplace SonderMind ($150M) in July and mental health unicorn Spring Health, which received a $2B valuation after a $190M Series C in September.
Alongside these dominant investment themes, 2021’s digital health’s cash infusion is also distributing dollars to emerging areas within the marketplace, including women-led digital health teams, women+ digital health solutions, and digital health companies addressing equity gaps.
Women CEOs are closing more private market digital health deals than ever before, with $3.0B raised across 103 deals so far in 2021. Overall, women CEOs closed 19% of 2021’s digital health deals through Q3, the highest percentage we’ve ever seen. For comparison, Rock reported women CEOs raising 11% of all digital health deals in 2017, and the number has been increasing each year since: last year, women CEOs raised 16% of digital health deals. However, women-led companies are raising, on average, less money relative to their men-led counterparts. Despite raising 19% of rounds, women-led companies accounted for just 14% of 2021’s digital health total funding pot to date, with a $29M average check size for women-led rounds, compared to $42M for men-led rounds.
Funding boosts for women+ digital health
Women+ health isn’t a niche market and 2021 continues to spotlight opportunities within this segment as the COVID-19 pandemic exacerbates care gaps and disparities for women+. 2021 women+ digital health funding through Q3 is already 2.3x larger than the amount raised in the same time period in 2020, bolstered by Q3 deals from Maven ($110M), TMRW ($105M), and Woebot ($90M). Q3 was the second-highest funded quarter for women+ health ever with $443M raised, following Q1 2021 ($631M). In fact, Q3 accounted for 33% of total women+ digital health funding ($1.3B) in 2021 so far. Rock expects there’s more to come for this space as attention and dollars are funneled to previously-overlooked areas for women+, including tailored behavioral healthcare, menopause support, and digital therapeutics.
Health equity efforts gain momentum
Disparities laid bare by the pandemic and national movements for justice have created a crescendo for greater equity in all digital health products, and several early-stage digital health solutions centered on equity raised capital this past quarter. To name a few, Soda Health secured $6M to launch a social determinants of health benefits platform, MiSalud added $5M for its health and wellness app for the Latinx community, Alkeme Health raised $3.5M for its digital mental health platform that centers the Black experience, and Cayaba Care announced $3.2M to build out digital care offerings for underserved mothers.
Digital health’s top three quarters of funding-all in 2021-signal that investors and entrepreneurs are betting on strong, consistent growth in the adoption of healthcare innovation, and these expectations are materializing in increased funding patterns across all stages.
- Average funding for 2021 Series A and B rounds grew 2.1x and 2.6x respectively since 2017. To put this in perspective, this year’s average digital health company’s Series A raise ($18M) exceeds the average Series B raise in 2017 ($17M). In other words, A is the new B.
- The average funding amount for Series C+ rounds in 2021 is 2.3x what it was in 2017.
- In terms of overall deal count, 59% of digital health deals in Q1-Q3 2021 were early to mid-stage (Seed, Series A, Series B) compared to 70% in 2017.
- In 2017, the group of digital health companies that raised their respective Series As were, on average, 3.6 years old, and the group that raised Series Bs were 5.8 years old. In 2021, this shifted to 4.3 and 5.0 years respectively, narrowing the gap between the cohorts.
- Of the 81 companies that raised a Series B between Q1-Q3 2021, 40% (31 companies) raised their Series A less than 20 months prior in either 2020 or 2021. Comparatively, only 22% of 2020’s Series B startups raised their A rounds in either 2019 or 2020, and 24% of 2019’s Series Bs raised their As in 2018 or 2019.
- Overall, Q3 2021 was the largest quarter to date for digital health M&A activity with 79 deals in which a digital health company was acquired or underwent a merger. August alone logged 33 deals-the biggest digital health M&A month ever.
- In contrast to its swell of M&A activity, Q3 saw a slowdown in digital health companies exiting via SPAC and IPO. In Q3 2021, there were three completed SPAC mergers (Sharecare, Owlet, Sema4) and two IPOs (Definitive Healthcare and Cue Health), alongside one announced SPAC and two announced IPOs. This is a departure from the frenzy of Q2, which had four completed SPACs, four IPOs, and seven announced SPACs.
2021’s breakout funding is evidence of an unprecedented mandate for change, across all aspects of healthcare. After all the movement in the market so far this year, it will be interesting to see what Q4 holds — which hasn’t been historically the biggest for funding. Then again, all that changed when Q4 2020’s funding surpassed all preceding quarters that year.