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Digital well being startups raised $3.4 billion throughout 132 offers within the first quarter, in keeping with Rock Health’s latest funding report.
Although funding in Q1 surpassed the final two quarters — the place corporations notched $2.7 billion in This fall and $2.2 billion in Q3 — the authors famous this most likely is not a return to the booming funding surroundings seen in 2021 and early 2022.
“Total, Q1’s mega-deal upticks don’t essentially foreshadow a sector rebound. Reasonably, they point out that the sector’s extra established gamers and traders are looking for their sea legs on this market, selectively deploying these dry powder reserves they’ve been stockpiling since 2021 into groups and tasks they know,” Rock Well being’s Mihir Somaiya, Galen Shi and Adriana Krasniansky wrote.
For one, digital well being noticed a comparatively giant variety of mega-deals, or rounds price $100 million or extra, after a drought through the previous two quarters. The report famous six mega-deals in Q1, which made up 40% of the quarter’s complete digital well being funding.
A few of these offers included kidney care firm Monogram Health’s $375 million increase, staffing startup ShiftKey’s $300 million spherical and scientific trial platform Paradigm’s $203 million Sequence A. Notably, Paradigm was co-incubated by ARCH Enterprise Companions and Normal Catalyst.
However digital well being corporations nonetheless aren’t going for a public exit. The report discovered zero IPOs within the first quarter, and digital well being shares traded almost 50% decrease firstly of 2023 than they did in the beginning of 2021.
The unappealing public markets could also be one cause for the expansion of mega-deals as late-stage startups search for additional cash. The report additionally discovered a rise within the proportion of Sequence D+ rounds relative to different deal phases in contrast with final 12 months. Nonetheless, median Sequence D+ deal measurement is right down to $58 million from $72 million in 2022.
The aftermath of the Silicon Valley Bank collapse might additionally linger for digital well being funding. The report argued not all startups have been affected equally by SVB’s loss, and later-stage corporations had extra choices when it got here to selecting a brand new financial institution.
“It’s onerous to overstate simply how supportive SVB was of the startup ecosystem, and the complete ramifications of its closure and acquisition on expertise innovation is probably not felt till quarters later,” the report’s authors wrote. “On the funding entrance, we anticipate that SVB’s collapse will contribute to the following few quarters of startup financing (debt and fairness) shifting extra conservatively.”
In the meantime, the regulatory surroundings for digital well being can be shifting as the COVID-19 public health emergency involves an finish. Congress has additionally launched a health and location data privacy bill, whereas the Federal Commerce Fee is cracking down on digital health companies sharing health data for promoting functions.
“Whereas some could mourn the Wild West of 2021 digital well being — unbridled demand, lax guidelines, low cost cash — the following period will foster digital well being entrepreneurship and intrapreneurship with guardrails that information innovation fairly than stifle,” the authors wrote.
David Higginson will supply extra element within the HIMSS23 session “Leveraging In-Home Machine Studying Improvements for a Extra Human Contact.” It’s scheduled for Tuesday, April 18 at 1:15 p.m. – 1:45 p.m. CT on the South Constructing, Degree 1, room S104.
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