Q1 2021 Digital Health Startups Set New Investment Record, Led by On-demand Healthcare, Population Health Management and R&D Tech for Pharma

Fenwick & West Life Sciences Group

Fenwick & West Life Sciences Group

Last year the digital health sector smashed all previous records for both fundraising and consumer adoption of novel technologies. So far, 2021 is already on track to outshine last year’s impressive numbers. Digital health startups raised a record $6.7 billion, according to our good friends at Rock Health, up more than 100% from the $3.1 billion they collectively raised in the first quarter of 2020.

There were 147 financings in Q1 2021, an increase from a quarterly average of 110 last year, Rock Health analysts wrote. However, deal frequency is not the only exciting upward trend we are tracking. More than 25 megadeals (funding rounds of more than $100 million) closed in the first quarter, and round sizes were up across all company stages.

Exit markets also remain healthy, as 10 digital health companies joined the public markets via Special Purpose Acquisition Companies (SPACs), two through the traditional IPO route and 57 being acquired by other companies.

A digital health company founder has more options today than ever before when it comes to raising capital, going public or joining forces with another company. This means that as we move further into 2021, it is still very much an entrepreneur’s market in digital health.

Funding Highlights

On-demand healthcare services, population health management and R&D technologies for pharmaceutical companies remained the best-funded areas of digital health in the first quarter of this year.

That is thanks, in part, to the three biggest megadeals—out of a total of 25—in the quarter:

And while most analysts track digital health fundraising in the U.S., startups based in other countries also closed megadeals in the first quarter of 2021:

  • Brazilian remote-monitoring startup WeCancer raised $530 million.
  • Chinese patient management software company Miaoshou Doctor raised $463 million.
  • Chinese on-demand medical services startup WeDoctor raised $400 million.

Exit Markets

Mature digital health companies have been getting acquired and joining the public markets at a record-breaking clip. In fact, 57 digital health startups were acquired in Q1 2021. Other companies, such as health services startup Signify Health and wearable device maker Movano, both debuted on the public markets via traditional IPOs in the first quarter.

Consolidation in the telemedicine space—still the hottest corner of the digital health sector—has also continued full steam ahead this year. In the first quarter, Grand Rounds Health and Doctor on Demand merged, while PatientPoint and Outcome Health combined to form PatientPoint Health TechnologiesEverlywell acquired two companies to form EverlyHealth, which now offers a range of telemedicine services.

Other sectors, such as the cardiac monitoring space, for example, are also beginning to see consolidation.

For SPACs, however, the narrative may take a different turn following the SEC’s April 2021 announcement that it would classify SPAC warrants as liabilities. There were a record 10 SPAC deals in the digital health space during the first quarter, but that number could drop significantly in coming months as a result. (For more on SPACs, read about the implications for private companies of the SEC’s view that SPACs are in nature similar to traditional IPOs in my colleagues’ analysis: “SEC’s New Guidance on Liability Risks Likens SPACs to IPOs.”)

With or without SPACs, digital health startups that reach maturity are finding exit opportunities, and finding them faster than they did in the past.

Challenges Ahead?

It is an entrepreneur’s market in digital health, with available capital, receptive public markets and acquirers circling the most promising startups. But how long will it last?

In one telling sign that it could last for some time, analysts and journalists have stopped asking whether the digital health sector is a bubble. The COVID-19 pandemic showed that digital health companies can do far more than serve patients in a pinch. They can—and often do—offer consumers a more safe and satisfying healthcare experience in many ways.

Now analysts are far more likely to ask how promising digital health companies will navigate the regulatory landscape, or cope with the healthcare industry’s long sales cycles.

As the sector continues its winning streak, investors should be careful not to approach it with a “Gold Rush” mentality. Driven by that philosophy, other sectors have grown quickly because of an abundance of capital, only to form a bubble that subsequently bursts.

Digital health does not have to follow that same trajectory. It can continue to build on what we have seen so far, which has been truly incredible and impactful.

Questions or thoughts? Drop me a line or reach out on Twitter.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Fenwick & West Life Sciences Group | Attorney Advertising

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Fenwick & West Life Sciences Group

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