Dive Brief:
- U.S. digital health startups raised $6.1 billion across 244 deals in the first half of the year, putting the sector on track for its lowest funding year since 2019, according to a quarterly report from Rock Health.
- Fewer investors are joining digital health rounds, with only 555 participating in the first six months of 2023 compared with 775 in the same period last year. But some funders are still making big bets, with 12 mega-deals, or rounds worth $100 million or more.
- Digital health funding has fallen since a boom year in 2021, when U.S. digital health startups raised $29.1 billion across 737 deals.
Dive Insight:
Declining investment opportunities following record-levels of funding during the pandemic are causing startups to look to unlabeled raises — bringing in capital without attaching a series label — to avoid hurting their valuations or drawing attention to smaller rounds.
Rock Health’s report found 41% of deals in the first half of year were unlabeled, the highest proportion since the advisory and venture capital firm began tracking in 2011.
“Unlabeled raises are one way for startups to protect their prior valuations while they continue to make progress, but they’re a battlefield tactic, not a long-term strategy,” report authors Mihir Somaiya and Madelyn Knowles wrote.
Meanwhile, even though conditions look ideal for acquisitions, Rock Health noted an average of 12 digital health startup deals each month in 2023, down from 15 deals per month in 2022. Startups may be waiting for higher bids or could be nixing public deal announcements altogether, especially if deal terms were disappointing, the report noted.
But some investors are still pouring money into digital health companies. The report clocked 12 mega-deals in the first half of the year, making up 37% of the period’s total funding amount. Average mega-deal size was $185 million, close to 2021’s $188 million.
Some investors are even incubating startups themselves. For example, kidney care company Monogram Health — which raised $375 million earlier this year — was incubated by Frist Cressey Ventures.
“To the extent that some investors double down with outsized bets on incubated, ‘de-risked’ startups, their investments shift the overall fundraising landscape,” the report’s authors wrote. “This creates a circular pattern in which a few investors’ big bets inform and reinforce the investment market trends they’re betting on.”
