VC Slump In 2023 Hits Digital Health Hard, Claims Report

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There is no doubt whatsoever that financing when it comes to digital health companies remains in the doldrums. A new report has gone on to find out that funding has halved for the second year in a row, dipping to $13.2 billion from a peak of over $57 billion in 2021.

It is well to be noted that the data on the annual State of Digital Health report from CB Insights goes on to show that the number of deals that are being signed is well down, with a 2023 tally of just under 1,400, the lowest that has been recorded in a decade.

So, what is the reason behind this steep decline? A major factor is that mega-rounds that were valued at $100 million or beyond have all but disappeared when it comes to digital health, likely amid recognition of the challenges when it comes to developing a sustainable business within the industry, whereas in total, the size of venture capital deals has seen a dip since 2021.

Since that record year, for instance, digital therapeutics- DTx pioneer Pear Therapeutics went bankrupt and had sold in parts last year, in spite of bringing three FDA-approved prescription therapies to the market, while Akili has gone on to draw back from reimbursed prescription sales of its attention-deficit hyperactivity disorder- ADHD due to a direct-to-consumer approach.

It is well to be noted that there was a sharp decline in VC funding throughout almost all industrial sectors in 2023, with deal numbers along with funding totals falling to six-year lows. However, digital health has gone on to suffer greater dips in funding than the overall average.

When we talk of the positive side, the median deal size in total remained at $4 million, which, as per CB Insights, happens to be the highest on record.

Although the investors in digital health may be pretty hesitant so as to strike a deal now rather than in 2021, they happen to be putting even more skin in the game in which they do see value, the study says.

It is well to be noted that the top categories when it came to investment happened to be care delivery as well as navigation tech, such as patient portals to drive access, followed by tracking, imaging, as well as diagnostics tech.

Major highlights of the year went on to include three mega-rounds, all for US companies that had a $175 million Series E for Devoted Health, which is a provider of tech-enabled Medicare Advantage health plans; a $125 million third round for Headway, which goes on to connect patients with mental health providers covered through insurance; and a $100 million Series B for AI in drug discovery specialist Iambic Therapeutics.

Apparently, 4 new digital health unicorns went on to emerge, led by Devoted Health, which happens to be at present valued at almost $13 billion, in addition to Headway, EmployerDirect Healthcare, which supports employers who go on to self-fund healthcare coverage, and health operating system developer Commure. But the report notes the herd has gone on to shrink from 97 in 2023 to 94, with losses that happen to be outpacing unicorn births due to start-up exits, down rounds, and, of course, shutdowns.

It is worth noting that the M&A activity is also picking up, almost doubling in the fourth quarter, and consolidation within the digital health category is most likely to continue if the funding remains sparse and IPOs remain out of reach, says the report.