2019 closed out the decade with $7.4 billion in digital health deals and a spike of six health tech IPOs, according to Rock Health’s latest funding report.
Over the last decade the amount of yearly funding in digital health deals has generally been on the rise; however, 2019 saw a slight decrease in funding from 2018 ($8.2 billion). This wasn't surprising to Rock Health, which predicted this turn of events last year.
“As we anticipated at the close of 2018, a record-breaking year, the growth trajectory of venture investment in digital health slowed in 2019. Total venture funding was 10% below 2018’s record-setting high of $8.2 billion,” the authors of the report wrote. “This drop was arguably driven by a small change in the number of late-stage deals year over year — just two late-stage deals in 2018 accounted for the $0.8 billion (year-over-year) change in total funding.”
The average size of the deal also shrunk slightly from 2018’s $21.6 million average to $19.8 million in 2019. The report notes that a majority of this year's investors are return investors (60%).
The other major news story this year was the six digital health IPOs after a multi-year lull. Those companies include Livongo, Health Catalyst, Phreesia, Change Healthcare, Peloton and Progyny.
“As of January 1, 2020, the combined market cap of the six IPOs is $17 billion,” authors of the report wrote. “The flurry of IPOs in 2019 is validating for the venture model of long-tail investing — a small number of companies generating a large share of the returns — in digital health.”
Mergers and acquisitions continue to be a popular exit strategy for digital health companies with 112 such deals, according to the report. Perhaps most notable here is Google’s pending acquisition of Fitbit.
WHY IT MATTERS
While the fundings may have seen a slowdown in funding this year, it is hardly represents an end of digital health investments, the report's authors wrote.
“Over the final months of 2019, a dozen-plus conversations with fellow investors indicate that the peak of the current investment cycle is moving into the rearview mirror,” they wrote. “Though anticipating broader market turbulence and a 'less open' IPO window, investors expect to continue deploying capital — though potentially at a slower pace than in recent years — to technology companies that address the massive challenges and opportunities in US healthcare.”
The new report also highlights a growing popularity in digital health IPOs, which could be an indicator of how companies may exit in the future.
THE LARGER TREND
Rock Health has been reporting on digital health funding since 2011, when it recorded $1.1 billion in funding deals. Since then the industry has seen deals grow exponentially. The size of the deals has also grown significantly from $12 million in 2011 to $19.8 million in 2019.
“Across the last decade, digital health has grown from a blip on the radar of investors to a robust sector receiving nearly one in ten venture dollars invested in the [US],” the authors of the study wrote.