Q3 2021's health tech funding blows previous years out of the water

Pile of money
Third quarter reports from Rock Health and StartUp Health place digital health funding at $6.7 billion and health innovation funding at $9.7 billion, respectively. Both groups also highlighted increases in fundraising deal size as well as merger and acquisition volume. (Getty/urfinguss)

The health tech investment train maintained its brisk pace as two new venture capital investment reports show even more record-breaking fundraises through the third quarter of 2021.

The data, from Rock Health and StartUp Health, outline third-quarter and full-year funding records—although both sources indicated a slight dip in month-over-month raises.

For example, Rock Health’s report on industrywide digital health funding pegged the third quarter’s fundraising total at $6.7 billion across 169 deals.

This was a fair gain over Q3 2020’s $4.2 billion but a pullback from the $8.2 billion of this year’s second quarter. Rock Health attributed the short-term decline to a dip in overall deal volume as well as a slowdown in $100 million-plus “mega deals.”

Still, the addition of digital health’s second-largest-ever fundraising quarter was more than enough to put 2021 squarely in the lead for digital health’s best-funded year to date.

By Rock Health’s tally, the first nine months alone have brought in a total $21.3 billion across 541 investment deals, dwarfing the $14.6 billion record of 2020.

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Mental health still leads the way across therapeutic areas and now boasts a haul of $3.1 billion raised in 2021, the investment firm wrote. This year’s digital health investors have also opened their checkbooks for women’s health companies, women-led teams and those tackling health equity.

Average deal sizes have more than doubled for early- and late-stage companies alike, Rock Health wrote, while digital health merger and acquisition activity hit a new quarterly record at 79 deals.

“2021’s breakout funding is evidence of an unprecedented mandate for change, across all aspects of healthcare,” Rock Health wrote in the report. “After all the movement in the market so far this year, we’re curious to see what Q4 holds; historically, the final quarter of the year hasn’t been the biggest for funding, but all that changed when Q4 2020’s funding surpassed all preceding quarters that year.”

StartUp Health’s report, which focuses on the larger umbrella of “health innovation,” placed the quarter’s fundraising at $9.7 billion and the year-to-date tally at $31.3 billion. This is up from the $7 billion raised across 2020’s third quarter, the group wrote, and puts 2021 on pace to double the $21.9 billion raised across all of last year.

“Over the course of our decade of reporting, we’ve shown a 17x increase in quarterly funding,” StartUp Health wrote. “In fact, the sector raised more in one quarter this year than 2011–2013 total funding combined. And this quarter we saw more raised than the annual totals as recently as 2016.”

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The group attributed the gains to a substantial increase in deal size, writing that the total number of deals within health innovation “has remained relatively flat.” Further, they wrote that the quarter’s largest health innovation investments were directed at companies like Commure ($500 million raise) and Olive ($400 million raise) that are addressing the “pipes and roads” of the healthcare industry.

The report similarly highlighted a pickup in merger and acquisition activity, which jumped from 54 acquisitions through June to 92 acquisitions at nine months.

StartUp Health closed out its quarterly report with calls for additional funding and entrepreneur support so that innovations from the world’s wealthiest economies may scale globally and “help billions of people around the globe get the care they need.”

“To do that, we can’t take our foot off the gas,” StartUp Health wrote. “We have to double down. We have to be relentless about supporting entrepreneurs, assessing and re-investing in the tools that are working, and putting patients at the center.”

The Rock Health team was a bit more cautious. They predicted that the digital health investment market would moderate “in the coming 12 to 18 months” as startups struggle to meet investors’ lofty expectations.

“We’ve been around long enough to know that good times come and go,” they wrote. “While today’s deal terms may be skewing heavily to favor entrepreneurs, the tables will turn. Relationships built (or fractured) now will be considered—on both sides—if there are tougher times ahead. We counsel the middle way: make smart use of today’s bountiful capital but strengthen fundamentals to weather any forthcoming storms.”