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Digital health funding shows 'measured momentum' this year, report says
Things are looking up for the digital health sector – at least a little bit.
Digital health startups in the U.S. raised $5.7 billion across 266 deals in the first half of 2024, a report from Rock Health on Monday found. If that pace continues, deal counts and funding dollars could surpass totals from 2019 and 2023. Digital health startups raised $8.2 billion across 420 deals in 2019, and $10.7 billion across 498 deals last year, the report said.
The "pandemic-fueled funding cycle" from 2020 to 2022 remains hard to compete with, according to Rock Health. Investors were flocking to health-care companies during a booming market, and funding peaked at $29.2 billion in 2021.
Rock Health said that Series A activity was especially strong in the first half of this year, though Seed rounds and Series B checks were also popular. Seed, Series A and Series B funding made up nearly 85% of all labeled raises for the period, the report said.
The firm calls rounds without a public title (like Series A, for instance) "unlabeled rounds." Startups will often raise unlabeled rounds to avoid taking valuation haircuts and push through challenging markets, though they often don't stave off tough conversations forever.
Rock Health said the overall percentage of unlabeled digital health deals peaked at 55% in the fourth quarter of 2023, and it decreased to 47% and 33% in the first and second quarters of 2024, respectively.
"This waning could mark the beginning of our return to a 'more normal' cadence of labeled raises," the report said.
Many Healthy Returns readers can probably guess what's coming next: artificial intelligence drew investors to many early-stage digital health companies in the first half of this year. Nearly 40% of all the digital health companies that raised Series A rounds use AI, and 34% of the sector's total funding went to companies that deploy the tech in some capacity.
The ground may also be thawing in the digital health IPO market, which went almost two full years without seeing any public debuts. The health-care payment software vendor Waystar and the precision medicine company Tempus AI went public in June, while the pregnancy monitoring company Nuvo went public via SPAC in May.
Rock Health said this exit activity mirrors the slight uptick in IPOs across broader markets.
To sum it all up, "early-stage checks are growing, the proportion of unlabeled deals is tapering, and the digital health IPO market is showing early signs of life," the report said.
We'll have to see what the rest of the year has in store.
Feel free to send any tips, suggestions, story ideas and data to Ashley at ashley.capoot@nbcuni.com.
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