What You Should Know:
– Digital health funding reached a record-breaking $4.0B in Q3 2020 for a total of $9.4B year to date, according to the latest Rock Health quarterly report.
– Twenty-four (24) digital health companies have raised mega deals of $100M or more through Q3 of 2020. The rise in mega deals reflects a trend towards capital concentration in digital health venture investment.
– On-demand healthcare services is the top-funded value proposition with $2.0B invested across 48 deals through Q3 2020; it is also the value proposition with the most number of deals.
Digital health funding reached a record-breaking $4.0B in Q3 2020 for a total of $9.4B year to date as it continues to be the largest funding year ever, according to Rock Health, a full-service venture fund dedicated to digital health.
Despite the COVID-19 pandemic, the stock market’s sharp recovery and pandemic-initiated policy and regulation changes are driving large competitive moves and commercialization activities in the digital health sector. The Digital Health Market Insights: Q3 Update report reveals 24 large mega deals are driving the top-line numbers. The average deal size in 2020 is $30.2M, 1.5 times greater than the $19.7M average in 2019.
Impact of COVID-19 Accelerating Digital Health Adoption
Since April, Rock Health reports the COVID-19 pandemic has accelerated digital health adoption as it attracted interest from consumers, investors, and entrepreneurs. Deal volume through Q3 in 2020 is up nearly 22% compared to all of last year.” This activity comes amidst a record stock market rebound and hopes for a vaccine before the end of the year—however, medium-term economic uncertainty still looms. The impending risk of future outbreaks, lockdowns, and the upcoming presidential election all create uncertainty around recovery.
Here are three key trends to know from Rock Health’s latest report:
1. Mega deals are on the rise—particularly in virtual care delivery, R&D enablement, and fitness & wellness
Twenty-four (24) digital health companies have raised mega deals of $100M or more through Q3 of 20201. This already doubles the previous annual record of 12 mega deals set in 2018. These deals account for well over one-third (41%) of total digital health funding so far this year with connected fitness company Zwift raising the largest round so far—$450M in Series C funding.
Rise of On-Demand Healthcare Services
Rock Health reports that on-demand healthcare services, representing telemedicine services, prescription delivery, and at-home urgent car is the top funded value-proposition with $2.0B invested across 48 deals through Q3 2020. 56% of on-demand healthcare services deals were Series B or later, and Series B or later deals represented 87% of funding for on-demand healthcare services startups. The top three funded deals in the on-demand healthcare services category are Alto Pharmacy ($250M), Ro ($200M), and AmWell ($194M).
2. Corporate investors double down on digital health
Sixty-four percent (64%) of this year’s investors have previously made investments in digital health—higher than any previous year. Institutional venture firms continue to account for the largest share of transactions (62%), with corporate venture capital (CVC) holding steady at 15% of transactions.
– Corporate investors have made 149 investments in digital health across three quarters this year, which already exceeds the previous record of 145 investments across all of 2017.
– Quarterly investments by the four most active CVC groups—providers, technology companies,8 biopharma, and payers—are all trending upwards over the last 12 months.
– Provider CVCs lead the way with at least 12 investments per quarter in each of the last three quarters.
3. Digital health companies capitalize on the stock market’s sharp recovery and relaxed regulations
Several digital health companies went public over the summer or have announced plans to do so:
– Accolade and GoHealth went public in July
– Amwell, Outset Medical and GoodRx went public in September
high-growth, D2C platform Hims Inc. has struck a deal to go public by merging with a blank-check company, and MDLive’s CEO announced intentions to take the company public early next year. There were only six digital health IPOs in 2019.
Overall M&A activity is down in 2020 compared to prior years. There have been 63 acquisitions of digital health companies through Q3—on track to fall short of the 113 last year and 115 average from the prior three years.
Rock Health Report Background & Methodology
The report produced by Sean Day and Elaine Wang with help from Megan Zweig, Bill Evans, Jasmine DeSilva, Claire Egan Doyle, Derek Goshay, and Nina Chiu sources data from Capital IQ, SEC company websites, Crunchbase, NVCA, press releases, and the Rock Health funding database. Rock Health funding data only includes disclosed U.S. deals over $2M.