Digital health startups fundraising levels in 2021 doubled that of 2020, Rock Health report says

There were 23 digital health companies that went public last year, according to the report, nearly triple the eight that debuted in 2020. Of that amount, 15 exits were mergers with special-purpose acquisition companies, and eight were traditional initial public offerings. In contrast, there were only two SPAC-led exits and six traditional IPOs in 2020.

The trend of SPAC mergers is likely to continue this year, Zweig said, but it is too early to anticipate the death knell for health-tech IPOs.

“It’s important to consider the number of SPACs that have formed, and many have yet to deploy their capital,” she said. “We’ll have to wait and see if they even can.”

The maturing sector carries risk of overvaluation, especially as many early-stage rounds have drawn in larger amounts. The average Series A round last year was $18 million, and the average Series B round was $43 million. It had been $13 million and $35 million for the respective rounds in 2020.

“From the startup standpoint, if they’re raising high-valuation Series A and B rounds, they will need to show that extraordinary performance baked into that high raise,” Zweig said. Some of the products, such as those in demand during the pandemic, can naturally deliver those promises, she said, adding others might find it more challenging to meet their performance benchmarks.

But even for startups that have a longer reach to meet their goals, what was different in 2021 was the proliferation of tools and companies that help organizations and digital health services cooperate better, said Adriana Krasniansky, lead author of the report. In other words, she said, companies no longer have to build full-stack technology capabilities and can instead leverage or acquire existing ones.

The bullish investor sentiments are likely to endure this year, with added attention to areas that might have previously been considered niche, Krasniansky said.

Carolyn Witte, CEO and co-founder of Tia, a women’s health provider in the Flatiron District, concurred on a mental model shift. She said “2021 was the year that women’s health finally became niche no more, and the industry, including investors, started to wake up to the huge opportunity in women’s health.”

“Investors used to ask ‘Why are you cutting out half the population? Isn’t that pretty limiting?’” Witte said. As her company raised funds—to the tune of $100 million in a Series B round last year—investors appeared to have understood Tia’s value.

Witte said she expects dollars will continue to flow into companies that offer comprehensive platforms over solutions that address only specific issues.

“I expect we’ll continue to see a lot of investor interest and fundraising,” she said, “in companies that treat women not as body parts or life stages but as whole people with complex physical, mental and emotional health needs across their lives.”