Memorandum

Rock Health 3Q21 Digital Health Funding Update: $6.7 billion invested in the quarter, unprecedented $21.3 billion in year-to-date funding through 3Q21 – October 5, 2021

$6.7 billion in 3Q21 compares to $8.2 billion in 2Q21 and $6.4 billion in 1Q21; funding through 3Q21 breaks $20 billion for the first time, blazing past $14.6 billion in 2020

Rock Health published its 3Q21 Digital Health Funding Update, headlined by $6.7 billion in capital raised in the quarter for US-based digital health startups. Closing with 169 deals averaging $39.6 million, 3Q21 marks the second highest quarter of digital health funding on record and only falls short to 2Q21, which saw $8.2 billion in investment. While there could be many explanations for the sequential decline, Rock Health noted that 3Q21 saw lower deal volumes (169 in 3Q21 vs. 223 in 2Q21) and a fewer number of “mega-deals” worth >$100 million (15 in 3Q21 vs. 22 in 1Q21 and 25 in 2Q21). Mega-deals in 1H21 included what was one of the largest single rounds of investment in recent memory, Noom’s $540 million Series F round, which valued the company at a whopping $3.7 billion.

Notably, funding in 2021 through 3Q21 reached a whopping $21.3 billion, surpassing $20 billion for the first time, and already far ahead of last year’s full-year record investment of $14.6 billion. As a reminder, digital health funding through 1H21 totaled $14.7 billion, which means that 2021’s funding already surpassed 2020’s record only six-months into the year. With 541 deals between 1Q21 and 3Q21, the average deal size was approximately $39.4 million.

  • In diabetes digital health companies, there were no “mega-deals,” but there were several important announcements of note. Most recently in September, San Diego-based digital health startup 9am.health secured $3.7 million in seed funding after launching a virtual diabetes clinic, with future plans to create an onboarding platform for those newly diagnosed with prediabetes and type 2 diabetes. In August, Calibrate closed an $100 million Series B to expand the company’s metabolic health offerings for weight loss. Although not a US company (and thus not included in the scope of Rock Health’s quarterly analysis), digital health startup Oviva closed an $80 million Series C round in September, looking to expand European diabetes, weight-loss, and nutrition programs.
  • Mental health, cardiovascular disease, and diabetes continue to attract the most investment in digital health. As it was during first half of 2021, mental health was the most highly funded clinical indication in digital health during 3Q21, bringing in $3.1 billion, or approximately 15% of all US digital health funding in the quarter. CVD and diabetes followed at second and third place, each raking in $1.4 billion (~7% of 3Q21 funding apiece). We are especially encouraged by the focus in CVD and diabetes, given that glycemic control at the population level has declined since the early 2010s as outlined in NEJM. However, while we are excited to see the pace of investment in this landscape, we would also like to see more clinical research that validates the efficacy of digital health programs for people with diabetes by comparing users’ health at baseline to after participation. Furthermore, we also hope to see increased access to CGM, GLP-1s, and SGLT-2s, potentially via digital health solutions, as these innovations will be key to reversing this concerning trend.
  • Rock Health’s 3Q21 report featured a nod to Teladoc, referring to the company’s $18.5 billion merger agreement with Livongo as “market-shaking.” While it has only been one year since Teladoc and Livongo’s merger, Rock Health argued that market consolidation within the digital health arena will be a powerful tool for players who grew during the pandemic and are now looking to new avenues for growth. In the third quarter, there were 79 M&A deals involving digital health companies, with 33 of these coming in August alone. Rock Health tied the accelerating flux of consolidation to consumers’ desire for streamlined health offerings that integrate many features into one unified platform. As we see it, this is what 9am.health and Calibrate are doing by offering digital health programming with supplemental medications for subscribers. As a reminder, 9am.health offers metformin, SFUs, and TZDs while Calibrate provides GLP-1s. 
  • Digital health investments are accelerating and getting bigger. Specifically, Rock Health included three key analyses that indicate the quickening cadence of digital health investment: (i) compared to 2017, the average funding of Series A and B rounds has grown 2.1x and 2.6x, respectively; (ii) during this same period, the average time between Series A and B raises has decreased, as measured by the percentage of companies securing a Series B in a given year who raised a Series A <20 months prior; and (iii) the average age of companies at Series A and B stages has shifted from 3.6 and 5.8 years in 2017 to 4.3 and 5.0 years in 2021.

 

--by Armaan Nallicheri, Hanna Gutow, and Kelly Close