Industry Trends

Investors Sink Nearly $15 Billion into Digital Health Companies in First 6 Months of 2020

The pandemic has enabled developers of Electronic Health Record (EHR), Laboratory Information Systems, ePrescription software and other digital health technologies to attract investment capital at record rates. In 2020, digital health companies set a new funding record of $14.8 billion. Halfway into 2021, that record has already been eclipsed with $14.9 billion in funding raised, a 138 percent increase over the $6.3 billion raised during the first six months of last year. Those are the findings of a new report from market research firm Mercom Capital Group.

Record 1H for Digital Health Funding

Total corporate funding for digital health, including venture capital, public market and debt in 1H 2021 was $19 billion, Mercom reports. Digital health companies raised $7.7 billion in 195 deals in Q2 2021 compared to $7.2 billion from 179 deals in Q1 2021, a 7 percent increase. The $7.7 billion raised in Q2 was also 175 percent above the $2.8 billion in 161 deals in Q2 of 2020. The top digital health venture capital deals in 1H:

  • $540 million raised by Noom;
  • $500 million raised by Roman;
  • $300 million raised by Capsule;
  • $300 million raised by Hinge Health; and
  • $300 million raised by KRY.

Telemedicine Commands the Lion’s Share of Capital

Not surprisingly, Telemedicine attracted more capital than any other venture capital-funded category in 1H 2021 with $4.2 billion, more than tripling the $1.7 billion raised by the second-place category, Wellness. The massive fund-raising success of Telemedicine belies the actual decline in telehealth utilization since the apex of the COVID-19 crisis. The third most money was raised by mHealthApps with $1.6 billion, Analytics with $1.5 billion and Clinical Decision Support with $1.1 billion.

Consumer-Focused Companies Prove More Attractive than Practice-Based Ones

Of the $7.7 billion invested in digital health companies during Q2, $5.3 billion (69 percent in 129 deals) went to companies that focus on providing services to consumers. Practice-focused companies received $2.4 billion in 66 deals, accounting for the remaining 31 percent of Q2 venture capital investments.

Mergers and Acquisitions Continue to Dominate

Mergers and acquisitions (M&A) remain the most popular exit strategy, with no fewer than 136 companies acquired during the first six months of the year, the most 1H transactions that Mercom has ever recorded since it began tracking digital health capital flows in 2010 and almost double the 83 companies acquired in 1H 2020. Of the 73 M&A deals that went down in Q2 of 2021, 43 involved consumer-focused companies and 30 involved consumer companies.

Top 5 Digital Health M&A Deals in First Half of 2021

Acquiring Company Target Price
Microsoft Nuance Communications $19.7 billion
Optum Change Healthcare $13.0 billion
Datavant Ciox $7.0 billion
KKR Therapy Brands $1.5 billion
Boston Scientific Preventice Solutions $925 million

Source: Mercom Capital Group

More Digital Health Companies Going Public

Not a single digital health company went public in all of 2020. Six months into 2021, 12 already have, the biggest 1H total for any year since 2010. Among these, 10 companies, including Bright Health, Doximity and Priva Health, initiated IPOs; the other two—23andMe and Hims & Hers merged with special purpose acquisition companies

Takeaway

Emboldened by the massive utilization of telemedicine during the pandemic, investors are pouring capital into digital health companies at record rates with producers of consumer-facing telemedicine technologies leading the way. It is a trend that is likely to continue despite the short-term curtailment in telemedicine that has accompanied the receding of the coronavirus threat and restoration of something approaching pre-pandemic market conditions.

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