Rock Health’s Q3 Digital Health Market Update showed that investors have found comfort strolling down a path of “focused funding,” with last quarter’s innovation story shifting from transaction volume to market positioning.
The U.S. digital health sector logged $2.4B in venture funding across 110 rounds in Q3 2024, bringing year-to-date funding to $8.2B.
- While Q3’s 110 rounds marked a slowdown from 136 in Q1 and 133 in Q2, average investment size held steady at $22M quarter-over-quarter, indicating that investors are honing their focus while continuing to make sharp plays.
- The analysis also noted that investments are overlapping with partnerships, with companies keen to support startups they’ve already worked with in crowded spaces like healthcare AI – as seen with NVIDIA and Hippocratic AI.
The real narrative behind last quarter’s activity was what Rock Health referred to as “tapestry weaving,” or digital health players building up their offerings to compete with legacy leaders and market incumbents. The related graphic was easy on the eyes.
- While Q3 mergers and acquisitions were also low at just 21 moves – versus a quarterly average of 37 last year – companies like Dario and Fabric are using M&A to integrate new capabilities and expand their footprint.
- Like weaving a tapestry, both Dario’s addition of Twill and Fabric’s acquisition of TeamHealth VirtualCare stitched together different solutions to create a more robust platform and address a broader range of customer needs.
Tapestry weaving isn’t exactly an easy hobby. It involves integrating different products, teams, and go-to-market strategies that all have a chance of backfiring along the way.
- Big acquisitions help compete for big contracts, but they can also strain the acquirer’s balance sheet.
- CVS is an easy example. In the last six years, CVS used $88B to add a major payor, a clinic operator, and a home-care provider to its flagship pharmacies. The entire company is now valued at less than the cost of those three moves ($83B current market cap).
The Takeaway
Although the raw count of digital health investments continues to drop off, activity volume isn’t the same as activity quality. The tapestry weaving trend is a reminder that the “true impact of digital health innovation is shaped in the details,” through its investment structures, targeted partnerships, and post-M&A playbooks.
