Rock Health Funding Trends for 2021

Regular Digital Health Wire readers could probably guess that 2021 was a spectacular year for digital health funding, and Rock Health’s latest full-year report confirms that investment in the space topped even the most bullish expectations.

  • Total funding for US digital health startups climbed to $29.1B across 729 investments, nearly doubling 2020’s former record of $14.9B. The growth was shaped by 88 different $100M+ rounds combining for $16.6B, including four of the largest digital health raises of the decade: Noom ($540M), Ro ($500M), Mindbody ($500M), and Commure ($500M). [Chart 1]
  • M&A activity grew at a similarly breakneck pace, with 272 M&A moves easily eclipsing 2020’s total of 146. Last year also saw a record 23 companies go public through either SPAC mergers (15) or IPOs (8), shattering the previous record of 8 exits set in 2020. [Chart 2]
  • The most funded value propositions of the year included R&D catalysts such as decentralized trials ($5.8B) and on-demand healthcare ($4.5B). Healthcare marketplaces were among the fastest growing segments, with 3.2x funding growth driven by D2C marketplaces like Mindbody and caregiver marketplaces like Honor. [Chart 3]
  • Mental healthcare was the most popular clinical indication among investors ($5.1B), raising $3.3B more than any other clinical focus. Outside of the pandemic’s less-than-stellar impact on many people’s mental health, this area has seen a funding frenzy due to the rise of virtual behavioral health platforms such as Lyra Health and NOCD. [Chart 4]

Bubble Watch

Despite last year’s record breaking digital health funding, Rock Health’s view on the market was that it “wasn’t an across-the-board bubble, but it wasn’t placid water either.” Many companies are exceeding pre-pandemic projections by wide margins, and it’s possible that historical digital health benchmarks are too low, as opposed to today’s valuations being too high. If these companies can find a way to sustain their momentum beyond the pandemic, there’s a chance we could see a repeat performance in 2022.

Digital Health Funding Tops $21B in 2021

With three months left in 2021, digital health funding has reached a staggering total of $21.3b across 541 deals.

To put that number into perspective, last year was the first year that total digital health funding surpassed $10b, and 2019’s total was a small-by-comparison $7.9b.

These figures are from Rock Health’s Q3 2021 Digital Health Funding Report, which analyzed how 2021’s financing boom is shifting market expectations and creating a landscape that’s ripe for consolidation.

Funding themes remained similar to prior years, with investors focusing on value propositions such as R&D software and clinical indications like mental health. R&D funding was lifted by mega rounds from XtalPi ($400m) and Reify Health ($220m), while mental health services saw an influx of capital at Spring Health ($190m) and SonderMind ($150m).

Most funded value propositions:

  1. R&D catalysts ($4.7b)
  2. On-demand healthcare ($3.4b)
  3. Treatment of disease ($3.1b)
  4. Fitness & wellness ($2.9b)
  5. Non-clinical workflow ($2.1b)
  6. Consumer health information ($2.0b)

Most funded clinical indications:

  1. Mental health ($3.1b)
  2. Cardiovascular disease ($1.4b)
  3. Diabetes ($1.4b)
  4. Primary care ($1.4b)
  5. Oncology ($1.2b)
  6. Substance use disorder ($793m)

Industry Impact

This year’s unprecedented funding signals that investors are betting on a continued surge in healthcare innovation, but the wave of new entrants is creating a clutter of digital health options for patients and providers. As the market begins to call for more unified offerings, companies are turning to M&A for the answer.

The 216 digital health M&A deals through the first three quarters of the year have already eclipsed the 146 deals in 2020. Companies like Headspace and Ginger have combined to vertically integrate their solutions to provide their user base with a deeper well of resources. Other deals, like K Health’s recent Trusst acquisition, are focusing on horizontal integration to serve multiple channels with a single tech interface.

Regardless of the strategy, the rate of the dealmaking is causing many to wonder if company valuations can continue rising at the same pace for much longer, but for now it seems like we could be in the early innings of another record breaking Q4.

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-- The Digital Health Wire team