After a record-setting 2018, global venture capital funding in digital health declined in 2019 with $8.85 billion raised in 615 deals, according to a new report.
That's a 6% drop compared to $9.5 billion in 698 deals in 2018, according to a new report from Austin, Texas-based communications and research firm Mercom Capital Group. Total corporate funding for digital health firms, including venture capital, debt, and public market financing, reached $10.1 billion in 2019.
In 2019, debt and public market financing for digital health companies decreased by half from the previous year, with approximately $1.7 billion raised in 20 deals in 2019, compared to $3.5 billion in 21 deals in 2018, Mercom Capital reported.
"After three consecutive years of growth, venture deals, and dollars for digital health companies declined in 2019. After a long dry spell, there were four U.S. IPOs (initial public offerings), but their performance so far has been underwhelming," Raj Prabhu, CEO of Mercom Capital Group, said in a statement.
Since 2010, $58 billion has been invested in the digital health sector, including $44 billion in venture capital funding in over 4,500 deals and almost $14 billion in debt and public market financing (including initial public offerings).
About two-thirds (67%) of digital health funding went to U.S. companies in 2019, with $5.9 billion in 426 deals compared to $7 billion in 420 deals in 2018, a 16% decline in funding year-over-year, the report said. The United Kingdom was second with $853 million, followed by China with $663 million and France with $372 million.
Large funding deals declined in 2019, with eight companies raising $100 million or more compared to 2018 when 16 companies raised over $100 million each.
Back in the second quarter of 2019, Mercom Capital reported that after hitting record levels in 2018, digital health venture funding leveled off in the first quarter of 2019, dropping 19% compared to the first quarter of 2018.
A healthcare report from Silicon Valley Bank issued January 9 signaled investor optimism for fundraising and the IPO market in 2020. U.S. healthcare venture fundraising reached $10.7B in 2019 setting a record for the third consecutive year, according to that report, which included venture-backed biopharma, medical device, diagnostics and tools, and health technology.
Silicon Valley Bank anticipates total healthcare venture fundraising to slow but remain healthy in 2020, reaching about $9B compared to $10.7B in 2019.
The winners in 2019
The big winners in 2019 digital health funding were telemedicine companies, with a 55% increase in funding year-over-year, according to Mercom Capital.
The top-funded categories in 2019 included: Telemedicine with $1.8 billion, closely followed by data analytics with $1.6 billion, mHealth apps with $1.2 billion, clinical decision support with $748 million, mobile wireless technology with $556 million and booking with $537 million.
Digital health products that were powered by artificial intelligence brought in over $2 billion, Prabhu said.
Babylon Health, a UK-based digital chatbot that also links up to provider practices, topped the charts in venture capital funding rounds in 2019 with $550 million. Other top VC funding deals included $250 million raised by Tencent Trusted Doctors, a Bejing-based company formed through the merger of Tencent Doctorwork and Trusted Doctors that provide both online and offline healthcare services and $205 million raised by health insurance startup Collective Health. Digital pharmacy Capsule landed $200 million in funding in 2019 and precision medicine company Tempus scored $200 million in total funding.
There were a total of 1,288 investors that participated in digital health deals in 2019, down from the 1,396 investors that participated in 2018. The top investors in 2019 included F-Prime capital with 11 deals, GV (formerly Google Ventures) and Optum Ventures with eight deals each, according to the report.
The most active VC investors since 2010 were Khosla Ventures, Sequoia Capital, New Enterprise Associates (NEA) and Merck Global Health Innovation Fund (GHI).
Digital health M&A activity
M&A activity also declined in 2019 with 169 total transactions, Mercom Capital reported. That compares to 223 transactions in 2018, a 24% decline in deal activity.
mHealth apps were the most acquired category in 2019 with 27 transactions, followed by practice management solutions with 17 transactions, and telemedicine with 14 transactions.
The top six disclosed M&A transactions in 2019 were Dassault Systemes’s acquisition of Medidata for $5.8 billion; EQT VIII Fund (EQT) and Canada Pension Plan Investment Board (CPPIB), which acquired a majority stake in Waystar for $2.7 billion; Google’s acquisition of Fitbit for $2.1 billion; and Golden Gate Capital’s acquisition of Ensemble Health Partners (51% stake) for $1.2 billion,
The last two the round up the top six include Agfa-Gevaert Group’s acquisition of Dedalus Holding for $1.07 billion, and Baring Private Equity Asia’s acquisition of healthcare IT consulting company, CitiusTech, for $1 billion.
Other major deals in 2019 included Nordic Capital acquiring a majority stake in ArisGlobal for $700 million; JPMorgan Chase acquired InstaMed for more than $500 million; Thomas H. Lee Partners acquired Nextech Systems for $500 million and Hill-Rom Holdings acquired Voalte for $195 million.