How Will COVID-19 Impact 2020 Digital Health Venture Funding?

Digital health venture funding got off to a record-breaking start in 2020, with $3.1 billion invested across Q1, according to a new report from Rock Health. That $3.1 billion was across 107 deals—more than 1.5 times the total Q1 funding in any previous year.

The firm’s researchers noted that although coronavirus has created “twin crises of a global pandemic and massive economic shifts that will rapidly impact all market sectors, including digital health,” but digital health solutions can “immediately combat the pandemic.”

Rock Health surveyed 12 health care investors in mid-March. They said that while the emerging funding environment looks grim, both startups and investors are feeling a sense of resolve to not waste the crisis and to build on the momentum established in Q1.

“The health care industry is hardly immune to the financial stresses of the economy at large and although digital health startups are at the center of the response to COVID-19, they’re no exception,” the report reads.

But Rock Health researchers believe there are two important factors that could ease the pain of a contraction in digital health funding. First, venture capital firms are sitting on record levels of cash—funds that have been raised but not deployed. Because venture fund partnership agreements make it difficult for limited partners supplying the capital to back away. “Defaults” are a rare event, they said.

Secondly, digital health startups can be “uniquely positioned to play both an outsized role in ameliorating the immediate effects of the crisis and in driving sustained, positive changes in its aftermath,” according to the report.

Digital health companies offer technologies that support the delivery of care virtually through scaling the medical workforce and the increase in amount and speed of R&D for diagnostics and treatments. Telemedicine, in particular, is a light in the darkness: “We expect [telemedicine] adoption to tick up significantly this year, and are cautiously optimistic that consumers and providers who use telemedicine for the first time will remain long-term users.”

Rock health also notes that the investors it surveyed also expect virtual care to gain traction: 100 percent of them believe telemedicine is positioned for greater growth in 2020 than originally anticipated due to the pandemic and the nationwide calls for people to use telehealth services as their first choice in dealing with health issues during this time.

“The most significant problem facing health care is a historic mismatch between supply and demand. This was true before the onset of the pandemic and it will remain true after COVID-19 peaks,” said Rock Health President Tom Cassels. “The human capital (MDs and nurses) mismatch is most acute today, hence the liftoff for telemedicine and remote patient monitoring solutions. If there is one thing that I am confident in predicting, it is that overcoming COVID-19 will reinforce that health care cannot go back to a time when virtual or automated care was not normal operating procedure.”

Read the full story here.

Read the original Rock Health report here.

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