COVID-19 has brought changes and uncertainty to the entire venture-backed ecosystem. Nonetheless, the digital health sector saw its best first quarter since analysts started tracking its performance more than 10 years ago: according to Rock Health data, the sector logged $3.1 billion in investment across 107 deals. StartUp Health agrees, but its figure is even higher—$4.5 billion in health innovation funding in Q1 2020.
Average deal sizes for digital health startups in Q1 averaged about $29 million, which compares to $19.5 million in 2019 and $21.5 million in 2018, Rock Health said. The sector is expected to remain strong because the country’s healthcare needs are changing and patient-consumers are becoming more comfortable engaging with digital health technologies.
But there are some shadows on the horizon. The digital healthcare industry, like other industries across the U.S., is facing supply chain disruptions, market upheaval, hiring slowdowns, and reduced growth projections. Sixty-seven percent of the digital health investors Rock Health surveyed say that startups will most likely find it more difficult than usual to raise capital this year.
While venture funding was strong in Q1, M&A and IPO activity was not. According to PitchBook, the first quarter of 2020 didn’t see many exits for venture-backed digital startups. There were two exit transactions reported: Global Healthcare Exchange acquired Chicago-based Lumere, a provider of evidence-based data and analytics solutions for healthcare supply chains and medication formulary management; and health benefits platform company Accolade announced in February that it had filed for an IPO.
The pandemic has brought major changes to the entire American business landscape, and 11 of the 12 healthcare investors Rock Health surveyed said they believe the IPO window has already shut for this year. However, there will still be significant opportunities for digital health companies as healthcare providers look for new tools to combat the virus and patients continue to use telehealth and other digital innovations that can help them access care.
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