Dive Brief:
- Global digital health funding declined in the second quarter, and the number of deals reached its lowest level since 2014, according to a new report by CB Insights. But there are some bright spots in the sector, like larger check sizes and an increase in exits.
- Startups raised $2.9 billion across 235 deals worldwide, a 26% decline quarter over quarter, according to the market research firm.
- But the annual average deal size for the first half of 2024 reached $16.7 million, an increase of 40% from 2023 — a sign that investors are inking few deals with higher price tags.
Dive Insight:
The digital health funding ecosystem has faced a turbulent few years, with investment in the industry skyrocketing in 2021 amid the COVID-19 pandemic.
But those sky-high funding levels didn’t last. Analysts and industry watchers tracked an investment dip beginning in 2022. Rock Health, a digital health venture capital firm and consultancy, noted more startups quietly raising money from existing investors and looking for extension rounds or unlabeled raises to stay afloat last year.
Digital health funding cools in second quarter
However, some research firms have found signs of improvement or stabilization in digital health funding in 2024.
Though investor dollars flowing into the space fell quarter over quarter in the latest CB Insights analysis, other metrics suggest “a maturation of the landscape alongside a shift in investment strategy,” Ja Lee, managing analyst for healthcare at the market research firm, said in a statement.
Larger check sizes are one change, she said. Another is a declining focus on early-stage investments, which have typically made up 60% or more of all digital health deals, according to the report.
In 2024 so far, early-stage deals have dropped to 51% of all investments, as investors look to “more built-out solutions,” Lee said.
The U.S. market — already a dominant player when it comes to digital health — is pulling in a larger proportion of investments too, driven in part by growth in mid- to late-stage deals. U.S. investments make up 61% of deals in the second quarter, up from 54% last quarter.
Average check size increases so far in 2024
Another potentially bright spot for the digital health market is an uptick in exits, according to the analysis. The report found 32 exits in the period, a 23% increase quarter over quarter.
The quarter saw two initial public offerings, one merger with a special purpose acquisition company and 29 mergers and acquisitions. Three companies utilizing artificial intelligence went public during the second quarter, including precision medicine firm Tempus AI, drug discovery company XtalPi and remote pregnancy monitoring company Nuvo Group.
