Is the digital health bubble about to burst? That could be the question on some investors’ minds, as two new reports show that venture capital (VC) funding for digital health declined slightly in 2019.
VC funding had been on the rise for three consecutive years before 2019’s downturn.
Global VC funding for digital health drops 6%
Communications and research firm, Mercom Capital Group reported that global VC funding in digital health, including private equity and corporate venture capital, declined in 2019, bringing in $8.9 billion in 615 deals, a 6 percent drop compared to the $9.5 billion in 698 deals raised in 2018.
The report looked at 30 countries that logged digital health VC funding activity in 2019. Predictably, almost two-thirds of the funding was recorded in the United States, where nearly $5.9 billion was raised in 426 deals.
Among the report’s highlights are that within the United States, California companies again received the highest level of funding and signed the most deals in 2019, bringing in $2.1 billion in 124 deals. The report adds that 1,288 investors participated in VC funding rounds for digital health companies last year compared to 1,396 investors in 2018.
In 2019 there were five initial public offerings (IPOs), raking in $1.4 billion. Furthermore, digital health mergers and acquisitions (M&A) activity saw 169 transactions, compared to 223 transactions in 2018. There were 32 disclosed transactions in 2019 compared to 46 disclosed transactions in 2018.
The Mercom Capital Group report revealed that among the top-funded categories in 2019 were telemedicine, which brought in $1.8 billion, followed by data analytics with $1.6 billion. mHealth apps brought in $1.2 billion; clinical decision support $748 million; mobile wireless technology $556 million; and booking with $537 million.
In 2018, data analytics was the top-funded category, followed by mHealth apps, telemedicine, mobile wireless, clinical decision support, and wearable sensors.
While there were slightly fewer deals in 2019, compared to 2018, Mercom Capital Group pointed out that the average size of the deals was slightly bigger, with the average funding deal size being $14.4 million, compared to $13.6 million in the prior year.
“After three consecutive years of growth, venture deals, and dollars for digital health companies declined in 2019. After a long dry spell, there were four U.S. IPOs, but their performance so far has been underwhelming. M&A activity also declined in 2019. The big winners were telemedicine companies, with a 55 percent increase in funding YoY (year-over-year), while digital health products that were powered by AI, brought in over $2 billion,” said Raj Prabhu, Chief Executive Officer of Mercom Capital Group.
The report says that, since 2010, digital health companies had received $44 billion in VC funding in over 4,500 deals and almost $14 billion in debt and public market financing (including IPOs), bringing the cumulative investments in the sector to $58 billion.
Rock Health also records decline
On the other hand, Rock Health reported that In 2019, 359 U.S. digital health startups raised $7.4B from 627 investors. The report says the number of deals fell from 380 in 2018 to 374 in 2019.
“As we anticipated at the close of 2018, a record-breaking year, the growth trajectory of venture investment in digital health slowed in 2019. Total venture funding was 10 percent below 2018’s record-setting high of $8.2B. This drop was arguably driven by a small change in the number of late-stage deals year over year (YoY) — just two late-stage deals in 2018 accounted for the $0.8B YoY change in total funding,” the report says.
In 2018, Rock Health reported that digital health startups had brought in $8.2 billion.
The report states that “though six digital health companies entered the public markets in 2019, exits were a somewhat mixed bag, with M&A below trend at 112 deals across 2019.”
Rock Health warned that IPO activity may even be slower this year following a spate of exits in 2019, since some startups did not live up to expectations. It was a hot market for IPOs in the first half of 2019, the report says. In the second quarter of the year, Rock Health recorded that 62 companies across sectors went public, raising a total of $25 billion from public investors — the most active quarter by deal count in four years.
Rock Health has been tracking digital health funding since 2011.
The 4SightHealth website said the fall in VC funding could be a sign that the digital health technology market could be starting to plateau, with companies and their innovations maturing, while fresh money was starting to dry up for new companies and their innovations.