The digital health sector continues to see growth in venture capital funding, with the first quarter of the year showing an increase in investment for startups. According to a report by Rock Health, digital health companies raised more funds in the first quarter, with the average deal size reaching $24.4 million, up from $15.5 million in the previous quarter.
The report also highlights the return of late-stage investments in the sector, with the median deal size for Series D rounds and later reaching $105 million for the first time since 2021. This increase in funding for more established companies indicates a positive trend for the digital health sector.
After a record-breaking year in 2021, funding for digital health startups saw a slight dip in the following year, leading to fewer funding opportunities and inflated valuations from the pandemic-era investment boom. However, funding remained relatively stable in 2023 and 2024, with investment levels nearly matching those of 2019 when adjusted for inflation.
The funding landscape now reflects a “David and Goliath” dynamic, with early-stage startups driving the number of deals while larger funding rounds are secured by established firms favored by major investors. In the first quarter of the year, digital health startups raised $3 billion across 122 deals, with over 80% of deals categorized as early-stage raises.
The quarter also saw an increase in Series D funding rounds, including three mega-deals worth $100 million or more. This trend towards larger late-stage investments signals a positive outlook for the sector amidst growing uncertainty in healthcare and financial markets.
To adapt to market shifts, digital health startups are exploring strategies such as mergers and acquisitions, modular technology stacks, and partnerships with larger companies. M&A activity in the sector increased in the first quarter, with startups acquiring other startups to enhance their capabilities and offerings.
Modular technology stacks are also being utilized to enable companies to quickly adapt to changes in the fast-paced artificial intelligence space. Additionally, partnerships with larger companies, like Amazon’s Benefits Connector and Eli Lilly’s collaboration with telehealth company Ro, are helping startups gain access to new markets and resources.
Overall, the digital health sector is poised for continued growth and innovation, with startups leveraging strategic partnerships and investments to drive progress in the industry. As the sector continues to evolve, collaboration and adaptability will be key for companies looking to thrive in the dynamic healthcare market.
