- U.S. digital health startups nabbed a record $29.1 billion in funding in 2021, nearly double the investment volume in the year prior, according to a new report from Rock Health.
- That was across 729 deals, with an average deal size of almost $40 million. Digital health companies catalyzing research and development in biopharma and medtech brought in the most funding, helped by pandemic-era adoption of real-world evidence and decentralized trials, the seed fund said.
- Most of the funding growth was driven by megarounds of $100 million or above. Last year had 88 such deals, which brought in $16.6 billion — more than half the year's total.
Last year was a momentous one for health tech funding. Stimulated by COVID-19 driving increased adoption of digital health tools, it topped all of digital health's annual funding records with six months of the year left to go, zooming past the former record set in 2020 of $14.9 billion.
And the year boasts four of the five biggest digital health deals since Rock Health started tracking in 2011, led by weight-loss platform Noom, which brought in $540 million in a Series F round in May.
That record was trailed by Ro, which brought in $500 million in a Series D in March; wellness platform Mindbody, which nabbed a $500 million commitment from a group of investors in October; and health software company Commure, which brought in $500 million in two Series D rounds in September.
Along with the medtech and biopharma R&D companies, which brought in $5.8 billion in funding, investments in digital products supporting disease treatment grew by more than two-and-a-half times between 2020 and 2021 as coverage pathways for digital therapeutics widened.
Additionally, healthcare marketplaces experienced a more than three times year-over-year funding growth, spurred by upticks in direct-to-consumer marketplaces, caregiver marketplaces and clinical job boards.
Digital health companies in the mental health space remained at the top spot for clinical indications, raising $5.1 billion last year — $3.3 billion more than any other clinical indication, and nearly double the $2.7 billion they raised in 2020. The pandemic has greatly exacerbated conditions like depression and anxiety, and a crop of startups addressing mental health have emerged and raked in a horde of funding as a result. Such mental health services are becoming more integrated into broader virtual care platforms, which is driving investment as well, Rock Health said.
Investors also increased funding for startups managing diabetes and musculoskeletal care. MSK care alone grew sixfold between 2020 and 2021, reaching $1.4 billion in funding last year, with virtual MSK clinics Hinge Health and Sword Health completing multiple funding rounds in 2021.
In past years, the pace of venture funding wasn't always matched by exit activity, Rock researchers noted. That wasn't the case in 2021, which had a record 23 public exits, nearly triple 2020's eight.
The year also averaged almost 23 digital health exits via merger or acquisition every month, almost double 2020's average.
The digital health market has been red-hot since 2020, stoked by coronavirus tailwinds. The frenetic pace of activity has given rise to fears of a bubble.
"Our take on 2021? The digital health market wasn't an across-the-board bubble, but it wasn't placid water either," Rock Health researchers said, noting 2021 was a historic year for venture funding across numerous industries, and the digital health VC landscape saw new funds and growth firms participate last year.
"As digital health VC went into overdrive, many startups saw opportunity in these market conditions and raised multiple rounds close together," researchers said, while increased competition to get in on the ground floor in early-stage deals pushed up valuations. That bullish early-stage behavior could impact later Series C and D activity this year, Rock Health said, causing increased pressure on companies to sustain growth as they mature to back up sky-high valuations.
A few signs indicate continued acceleration in the digital health market, according to the report. Digital health adoption appears to be stabilizing, not flatlining, as the country becomes increasingly acclimated to the long-term presence of COVID-19. Providers are continuing to offer virtual care options. Additionally, there are some macro signals that the investor community is interested in digital health for the long haul, with a relatively balanced mix of new and repeat investors.
The growing rate of digital health exits also suggests the market is maturing, with Rock Health noting it expects digital health's exit pace to "stay hot" in the near future.