Startups, Telemedicine, Health Tech

Digital health funding hits another high mark for 2020

Digital health companies once again set a record for funding in 2020, according to a report by Rock Health. They raised a total of $5.4 billion in the first half of the year.

So far, digital health funding in 2020 is on track to outpace previous years. Chart courtesy of Rock Health.

 

Despite the devastating economic effects of the Covid-19 pandemic, digital health companies continued to close funding rounds in the first half of 2020. After startups started off the year strong, experts expected investments to flatten off due to the pandemic. But so far, digital health companies are on pace for a record 2020, bringing in a total of $5.4 billion in the first half of the year, according to a report by Rock Health.

“We looked at all of these headwinds and we kind of made the prediction that we were coming off a record-setting first quarter of funding, and we said, this is unlikely to last,” Rock Health Research Analyst Sean Day said in a phone interview. “We were surprised. The deals kept coming in.”

Investments slowed in March and April, before surging again in May and June. At the beginning of the pandemic, many firms said their first priority was to triage existing portfolio companies before making new investments, possibly leading to the spring slowdown. A summer stock market rally may have also encouraged more deals.

So far, a total of 214 digital health investments were made this year. The average deal size, at $25.1 million, was well above the previous record of $21.5 million set in 2018.

Two segments are poised to double in funding: Companies that offer on-demand healthcare services, which can include anything from at-home urgent care to video visits, and remote monitoring companies.

Telehealth and behavioral health companies have also gotten a lot of attention during the Covid-19 pandemic, and that was reflected in the funding data. On the state and national level, lightened regulations have made these services easier to access. For instance, Medicare made changes that would allow providers to be reimbursed for in-home telehealth visits, and the Food and Drug Administration temporarily loosened restrictions around the use of software tools for mental health.

Of the $5.4 billion raised so far this year, a total of $926 million went to telemedicine companies. Roughly $588 million went to behavioral health startups.

Where those investments came from remained relatively consistent. Venture capital firms continued to lead digital health investments, at 67%. Even with the challenges posed by the pandemic, corporate VCs remained active, accounting for roughly 14% of the deals.

Surprisingly, health systems and other provider organizations continued to be the most active strategic investors, despite being among those hit hardest by the pandemic. Health systems have faced both declining patient volumes and additional expenses from responding to Covid-19, yet they led 34% of all corporate venture deals for digital health so far this year.

It’s difficult to say how the rest of the year will play out for digital health, but investors seem cautiously optimistic.

“The fundamentals of the space haven’t changed and investment activity seems to bear that out,” Day said. “We have some guarded optimism at this point.”

Here are the largest funding rounds so far this year:

Photo credit: Feodora Chiosea, Getty Images

This story has been updated with comments from Sean Day.

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