Investors Pouring Billions into Digital Health Ventures

With the COVID-19 pandemic pushing consumers into a new virtual healthcare reality, investors are pouring money into the digital health space like never before. Investment during the first half of the year already has topped the total for all of 2020.

More than $14.7 billion flowed into the digital health sector between January and June 2021, compared with $14.6 billion for the entire calendar year of 2020, according to a report by Rock Health, a venture fund that focuses on digital health. And 2020 was already at a record high for digital health investment. “I don’t think a lot of investors expected to double the pace of last year,” says Bill Evans, CEO and managing director of Rock Health.

In the first six months of 2021 there were 372 deals that averaged $39.6 million. In all of 2020, there were 460 deals, and the average size was $31.7 million, according to the Rock Health report.

Investment in digital health began about a decade ago, Evans says. Small startups with a limited amount of investment have grown to become “mature companies in a position to attract large, late-stage funding rounds,” he says.

Investment dollars are coming from the private market, public market, companies seeking acquisition targets, and special acquisition company (SPAC) trusts, according to the Rock Health report. The main categories attracting investment so far this year were research and development, which drew $2.7 billion for the first half of the year; on-demand healthcare, which pulled in $2.6 billion; and fitness and wellness, which gained $2 billion. Mental health was the top clinical indication drawing investment, attracting $1.5 billion, and companies dealing with cardiovascular disease drew $1.1 billion. Digital health also has seen an increase in funding for startups designed to help people manage substance use disorders.

A report by the consultancy McKinsey & Company documented the much-discussed surge in telehealth because of the COVID-19 pandemic. Overall telehealth utilization for office visits and outpatient care was 78 times higher in April 2020 than in February of that year, according to the report.

Usage has since stabilized as more people are returning to in-person care. As of April, telehealth accounted for approximately 15% of utilization across all specialties. But it was particularly in demand in the behavioral health field, accounting for 50% of utilization for psychiatry and 30% for substance use treatment. The question now for telehealth is whether the loosened restrictions by payers will continue if the pandemic ebbs and the federal government ends the public health emergency that dates back to January 27, 2020.

Rock Health found that an increasing share of investment funding is flowing to direct-to-consumer digital health companies. The largest deals so far this year include Noom, which markets weight-loss services; Ro, a telehealth company that also provides pharmacy services; and Capsule, a digital pharmacy. Noom received $540 million in investment; Ro, $500 million; and Capsule, $300 million.

The large number of mergers and acquisitions is another indication of the vitality of the digital health sector. The first half of the year saw 131 mergers and acquisitions compared with 145 for all of last year, according to Rock Health.

Susan Ladika, an independent journalist in Tampa, Florida, covers business and healthcare.