The first half of 2018 has been another standout six months for digital health investments, which comprised a total of $3.4 billion according to Rock Health’s latest midyear report. While this comes in just a hair under the $3.5 billion recorded by the seed fund during the same time last year, a couple of key trends and last year’s weaker finish gives digital health investors a strong shot at exceeding 2017’s record-setting totals.
Rock Health tracked 193 digital health deals in the first six months of the year, with the size of the average deal increasing to $17.9 million, from $16.4 million in FY2017. Along with noting a few standout deals — HeartFlow, Helix, Collective Health, and Livongo, all of which exceeding $100 million — the report stressed that these investments were increasing across every stage of investment. That being said, the seed fund did also observe a 23 percent decline in the number of seed stage investments and a substantial increase in Series Bs.
The first six months of 2018 also continued digital health’s steady increase of return investors — whereas repeat investors comprised 51 percent of total backers last year, 62 percent of investors were repeat backers in the most recent analysis period and, according to the authors, were a likely driver of the first half’s larger late-stage deals. Of note, these backers seem to be a healthy mix of healthcare mainstays and well-practiced digital health investors, the authors wrote.
“In previous years, we questioned whether potential ‘tourist’ investors, attracted by the hype and excitement surrounding digital health, would develop the conviction, patience, and expertise required to succeed in healthcare investing,” the authors wrote. “The data are definitive — since 2016, there have been more repeat investors than new investors in digital health, and the spread between the two is growing.”
Although the first half’s 60 disclosed digital health acquisitions are on track with last year’s activity, both have remained below the higher M&A activity of 2015, according to the report. Roughly half of these took the form of one digital health company acquiring another, with telemedicine M&As among the most common.
Other trends noted in the report include growing investor confidence surrounding digital health products demonstrating evidence-based validation, such as from large clinical trial data or FDA approval, and the growing overall support for behavioral health startups, many of which involve a virtual or on-demand component.
“We expect the momentum of the first half of the year to carry throughout 2018,” the authors of the report wrote. “Venture investment is on pace for another record-breaking year in terms of total funding, number of deals, and average deal size. With a robust and well-capitalized startup pipeline, and new enterprise entrants with big ambitions to grow their healthcare capabilities, we anticipate more exits in the near future.”