top of page

Digital health funding settles down in 2023 with fewer deals, lower check sizes

After a wild ride in 2020 and 2021, the digital health funding market is entering a new reality with fewer deals and smaller average check sizes.

Investment in digital health startups began to cool off in 2022 after hitting record highs in 2021 fueled by the shift to telehealth and digital technology during the COVID-19 pandemic.

In the first six months of 2023, U.S. digital health startups raised $6.1 billion across 244 deals, with an average deal size of $24.8 million, according to an analysis by Rock Health, a venture fund dedicated to digital health. While that $6 billion seems like a hefty amount of cash, that's down considerably from $10.4 billion raised in the first half of 2022 and an eye-popping $15.1 billion raised in the first six months of 2021.

Digital health startups brought in $2.5 billion across 113 deals in the second quarter of 2023, following $3.5 billion raised over 131 deals in the first quarter.

The second quarter of this year joins the third and fourth quarters of 2022 as recent sub-$3 billion quarters, Rock Health reports. Digital health funding in Q2 dropped 53% from $4.3 billion in the second quarter of 2022 and a whopping 108% from $8.4 billion raised in Q2 2021. This latest quarter is more on par with the $2.9 billion raised in the second quarter of 2020.

If funding keeps at this pace in the second half of 2023, digital health is on track for the lowest funding year since 2019, Rock Health projected earlier this year.

Along with smaller total funding numbers, there's also a continued trend of fewer investors participating in digital health deals. In the first half of 2023, 555 investors participated in digital health fundraises, down from 775 in the first half of 2022 and 832 in the first half of 2021.

Additionally, 71% of the first half of 2023’s dealmakers were repeat digital health investors.

"To us, this signals that generalist and crossover investors are moving away from one-off participation, leaving a smaller group of focused digital health investors to lead sector activity," Rock Health researchers and report authors Mihir Somaiya and Madelyn Knowles wrote.

Rock Health researchers also noted that an unprecedented 41% of all raises in the first half were "unlabeled" rounds, or a capital raise without an associated round label, such as Series A, as startups try to avoid valuation crunches while extending cash runway. This marks the highest proportion of unlabeled raises since Rock Health began tracking sector funding in 2011.

"Unlabeled raises are one way for startups to protect their prior valuations while they continue to make progress, but they’re a battlefield tactic, not a long-term strategy," Somaiya and Knowles wrote.

Despite the overall low funding climate, the first half clocked 12 megadeals, or funding deals that raised $100 million or more, comprising 37% of total funding dollars. Three digital health sectors attracted major cash from investors: value-based care enablement (Strive Health, $166 million; Arcadia, $125 million; Vytalize Health, $100 million); nonclinical workflow and practice management (Shiftkey, $300 million; ShiftMed, $200 million; MedShift, $108 million); and at-home care (Author Health, $115 million; Monogram Health, $375 million).

“In this market, we are seeing true differentiation between the startups that are shining and those that are failing. Cash availability from 2021 to early 2022 may have made that differentiation harder to see, but it was always there," said Alyssa Reisner, lead director and investment principal, CVS Health Ventures, as cited in the report.

Difficult paths to capital and an ice-cold IPO market—with zero digital health exits so far in 2023—create ripe conditions for startups to consider acquisition bids. But the first half of 2023 averaged just over 12 acquisitions of digital health startups each month, down from more than 15 M&A deals per month in 2022 and 14 M&A deals per month over the past five years, Rock Health data show.

The past six months also saw some digital health startups closing their doors or selling off assets. There was the highly publicized bankruptcy of Pear Therapeutics. Less than two years after the digital therapeutics maker went public in a SPAC deal worth $1.6 billion, its assets were sold in an auction for just over $6 million.

In the first half of 2023, digital health startups including SimpleHealth, The Pill Club (also known for a select time as Favor), Hurdle and Quil Health close their doors.

In some cases, consolidation among digital health startups enabled some of these innovations and technologies to have a second chance at life. Pear’s prescription digital therapeutics assets were sold off to four buyers, ranging from PDT market competitors to life science players to Pear’s former CEO himself. Twentyeight Health bought SimpleHealth customers in the reproductive care and sexual wellness spaces, Transcarent purchased 98point6’s AI-powered virtual care platform and care business, and ThirtyMadison bought the assets of online birth control clinic The Pill Club.

"While individual startups may come and go, the intellectual property (IP) they create and the services they deliver to end-users can serve as vital additions to the next crop of startups and change-makers in digital health," Somaiya and Knowles wrote.

While the current financial environment is challenging for many startups and investors, Somaiya and Knowles, along with many venture capital leaders, argue that digital health's course correction is necessary to right-size the sector for sustainable growth.

1 view0 comments

Recent Posts

See All


bottom of page