Rock Health, a consultancy and venture capital firm, reports signs of improvement in digital health funding after years of slowed investment. US digital health startups raised $5.7 billion across 266 deals in the first half of the year, potentially exceeding full-year funding totals from 2019 and 2023. Public markets show signs of revival with three digital health companies debuting on the New York Stock Exchange or Nasdaq in the second quarter, breaking a 21-month hiatus.
Investment in US digital health startups surged past $29 billion in 2021, outpacing pre-pandemic venture capital funding levels. However, funding began to decline in late 2022 and continued slowing, with American companies raising nearly $11 billion last year, the lowest since 2019. This year, signs of increased funding are emerging, particularly in early-stage deals. Rock Health’s report indicated that seed, series A, and series B rounds comprised 84% of the labeled raises in the first half of 2024.
Unlabeled rounds, which are not assigned a specific letter like A or B, have started to decrease, potentially signaling a positive shift in the funding environment. These rounds typically increase when startups need cash but do not meet the criteria for another labeled round or wish to delay valuation discussions. Last year, 44% of deals were unlabeled, compared to 40% so far in 2024. However, these rounds are still higher than in previous years, with only 22% of deals being unlabeled in 2022 and 19% in 2021.
Public markets are also showing some improvement. In the second quarter, Nuvo, a remote fetal monitoring company, went public through a merger with a special purpose acquisition company. Additionally, precision diagnostics firm Tempus AI and revenue cycle management company Waystar completed initial public offerings. This year’s public exits mark an improvement from previous years, with no public exits last year and only one in 2022, as tracked by Rock Health.
In US digital health mergers and acquisitions, there are still opportunities for startups to be acquired, although deals might face challenges. Larger digital health companies, which are the most likely buyers, are under pressure to be cautious with their purchases. Only 34 startups have been acquired by other digital health firms so far this year, compared to 83 last year. However, private equity buyers might be another option for startups seeking acquisition. PE firms acquired 10 digital health startups in the first half of 2024, compared to nine for the entire year of 2023.
Rock Health’s report mentioned that even digital health companies in challenging financial situations could attract private equity interest if they have clear business models and opportunities for operational improvements that lead to growth.
