May 18, 2020
from LexBlog – May 18, 2020
Despite the changes and uncertainty rippling across the entire venture-backed startup ecosystem, the digital health sector saw its best first quarter since analysts began tracking its performance more than a decade ago, logging $3.1 billion across 107 deals, according to Rock Health. StartUp Health put the figure even higher, reporting $4.5 billion raised in health innovation funding.
But these record-breaking numbers are not expected to hold up for the rest of 2020, researchers said. Supply chain disruptions, market upheaval, hiring slowdowns and reduced growth projections are roiling the healthcare sector, and 67% of digital health investors surveyed by Rock Health say startups will likely have a tougher-than-usual time raising capital this year.
A strong start followed quickly by a pullback aligns with larger trends from the wider startup ecosystem, where investors in January backed a record 126 privately held companies headquartered in the Silicon Valley before cooling down to 60 in February and 44 in March, according to Fenwick’s Silicon Valley Venture Capital Flash Report on investment activity in the first quarter of this year.
But even with all of the economic uncertainties the pandemic has brought, digital health—which saw $8.2 billion in investment in 2018 and $7.4 billion last year—is expected to remain strong as the country’s healthcare needs change and as patient-consumers become ever more comfortable engaging with digital health technologies going forward.
Average deal sizes for digital health startups spiked in Q1 at $29 million—which compares to $19.5 million in 2019 and $21.5 million in 2018—Rock Health said. In normal times, this would indicate an open IPO window and lively M&A dealflow ahead. But these exits could be more elusive in 2020 as a global recession takes hold.
Top Venture Deals of Q1 2020
The largest digital health financings in the first quarter of 2020 include the following:
M&A and IPO
According to PitchBook data, the first quarter of 2020 saw little in terms of exits for venture-backed digital health startups, with the two transactions noted below representing the quarter’s main deals.
The pandemic has brought massive changes to the American business landscape, and 11 out of 12 healthcare investors surveyed by Rock Health say they believe the IPO window has already shut for this year.
But there will still be significant opportunites in the year ahead for digital health companies as healthcare providers look for new tools to combat the virus and patients flock to telehealth and other digital innovations that can help them access care.
We will be watching closely to see what the rest of 2020 has in store. To help our readers stay abreast of the many changes happening so quickly in the VC and startup space—and the broader business environment—we’ll continue to publish regular updates on this blog. Also follow me on Twitter for additional news and insights.
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