Rock Health’s H1 2023 digital health funding report confirmed the writing on the wall. We’re in a new market cycle, so it’s time to buckle up for fewer rounds, lower check sizes, and a smaller cohort of sector investors.
Here’s the first half of the year by the numbers:
- US digital health funding totaled $6.1B across 244 rounds ($24.8M average)
- Q2 contributed only $2.5B across 113 rounds (Q1 saw $3.6B across 131 rounds)
- Unprecedented 41% of H1 rounds weren’t tagged with a series or round label
- 12 mega-rounds over $100M accounted for 37% total funding
If the funding trend makes one thing clear, it’s that H1 2023 began to separate the best from the rest in Startup Land. (Chart: Funding Trend)
- We’re now on pace for the lowest funding year since 2019, and the fact that only 555 investors participated in digital health fundraises in H1 2023 (down from 775 in H1 2022) is another confirmation that we’re in the beginning of a new cycle.
Despite the slowdown, H1 counted 12 mega-rounds comprising 37% of total funding, and the $185M average check size rivaled the $188M seen during 2021’s peak mania (Chart: Mega-Rounds). Investors are now competing to crown the next class of household-name startups, particularly in three transformation areas:
- VBC enablement (Strive Health $166M, Arcadia $125M, Vytalize Health $100M)
- Non-clinical workflows – bonus points for “Shift” in name (Shiftkey $300M, ShiftMed $200M, MedShift $108M)
- At-home care (Author Health $115M, Monogram Health $375M)
The other major story from H1 was the staggering 41% of digital health rounds that were “unlabeled,” the highest share since 2011 (Chart: Unlabeled Raises). Most founders raise unlabeled capital for one of two reasons, both surefire signs of the times:
- To delay haircuts to previously-established valuations
- To avoid bad PR associated with a down round or a smaller-than-expected lettered raise
The Takeaway
The new funding cycle naturally brings growing pains, and the stopgap cure for those pains has been the unlabeled rounds that Rock Health referred to as “a battlefield tactic, not a long-term strategy.” When we eventually see the return of lettered funding rounds, Rock Health makes the case that founders should reset their valuations to match truly sustainable profitability and growth targets, which would ultimately position them for better long-term success.
