The seemingly-constant stream of funding announcements in March drove digital health funding to a new record.
Startups raised $6.7 billion across 147 deals in the first quarter, according to a new report by Rock Health. And they’ve been raising rounds at a much faster pace than previous years.
Much of the activity was driven by large, so-called “mega-deals” of $100 million and up. This helped prop up the average deal size from $31.7 million last year to $45.9 million so far in 2021.
In total, the first quarter brought a whopping 25 mega-deals, including:
Startups are also raising big rounds twice as fast. In 2017, it took 12 years for startups to raise their first “mega deal.” Now, it takes an average of six years. They’re also raising funding rounds closer together. Since January of 2020, 88 startups have raised two or more rounds, according to the report.
Even with the eye-popping numbers, investors still seem to be pouring money into similar sectors as in previous quarters. Many of the deals fell under on-demand healthcare services, which include startups like Hims and Ro, as well as research and development, and population health management.
Looking specifically at startups built around health conditions, mental health startups led the pack with large rounds raised by Lyra, BetterUp and Ginger, even outpacing primary care.
As far as exits are concerned, several startups have turned to a buzzy investment vehicle, special purpose acquisition companies. This involves an acquiring entity spinning up a publicly traded shell company which then merges with the startup, sometimes resulting in a faster route to the public markets– though some experts question whether the way most SPACs are structured is sustainable.
In total, 10 digital health companies either went public or announced plans to go public via a SPAC in the first quarter, according to Rock Health
A handful of companies also found exits through mergers. Three notable deals include UnitedHealth Group’s $13.5B acquisition of Change Healthcare, Grand Rounds’ merger with Doctor on Demand, and Cigna’s purchase of MDLive.
The authors of the report, Rock Health COO Megan Zweig and Research Lead Jasmine DeSilva, celebrated that digital health was “all grown up.” But they also cautioned investors to exercise judgment in an exuberant market.
“Bursts of heightened activity– particularly from an investment and exit standpoint– must also be examined with caution. This means closely evaluating untested business models, new investment vehicles, skyhigh valuations, and funding trajectories that don’t match the recent past,” they wrote. These departures from a more tempered market will enable breakthrough winners and impact. But we also anticipate some Icarus-esque endings.”
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