Digital health funding shows improvement in 2024: Rock Health

Dive Temporary:

Digital well being funding is displaying indicators of enchancment after years of slowed funding, in response to a report by consultancy and enterprise capital agency Rock Well being.  
Within the first half of the yr, U.S. digital well being startups raised $5.7 billion throughout 266 offers — placing the trade on tempo to exceed full-year funding totals from 2019 and 2023. 
The general public markets are displaying indicators of life too. After 21 months with out a public exit, three digital well being corporations emerged onto the New York Inventory Trade or Nasdaq within the second quarter.

Dive Perception: 

Funding in digital well being startups ballooned to greater than $29 billion in 2021, quickly outpacing enterprise capital funding ranges recorded earlier than the COVID-19 pandemic.

However funding started to say no within the latter half of 2022 and continued to sluggish. Final yr, U.S. corporations raised practically $11 billion, the bottom funding quantity seen in digital well being since 2019. 

However this yr the sector is seeing indicators of elevated funding, particularly attributable to early stage offers, in response to the newest Rock Well being report. Seed, collection A and collection B rounds made up 84% of the labeled raises through the first half of 2024.

Unlabeled rounds, the place raises aren’t assigned a letter like A or B, have begun to fall too — one other probably optimistic signal for the funding setting. Unlabeled raises have a tendency to extend when startups want money however don’t meet minimal benchmarks for one more labeled spherical, or need to delay conversations about their valuations, in response to Rock Well being.

Total, 44% of offers have been unlabeled final yr, falling to 40% to this point in 2024. However these rounds are nonetheless elevated in contrast with earlier years; solely 22% of digital well being offers have been unlabeled in 2022, and simply 19% weren’t labeled in 2021. 

The general public markets is likely to be displaying some indicators of enchancment too. Within the second quarter this yr, distant fetal monitoring firm Nuvo went public by way of a merger with a particular objective acquisition firm, whereas precision diagnostics agency Tempus AI and income cycle administration firm Waystar accomplished preliminary public choices. 

The variety of public exits are an enchancment from years previous. For comparability, Rock Well being tracked zero digital well being public exits final yr, and only one in 2022.

In digital well being M&A, there are nonetheless alternatives for startups to be acquired, however offers might face challenges. Bigger digital well being corporations, among the probably consumers, are nonetheless dealing with strain to be conservative with purchases, in response to Rock Well being. Solely 34 startups have been acquired by different digital well being corporations to this point this yr, in contrast with 83 final yr.

However non-public fairness consumers might be an alternative choice for startups trying to be acquired. PE corporations purchased 10 digital well being startups within the first half of 2024. They acquired 9 startups over the total yr in 2023. 

“Even digital well being corporations in tight monetary conditions can go the PE sniff take a look at, so long as they’ve clear enterprise fashions and alternatives for operational enhancements that result in progress,” the report’s authors wrote.