Digital behavioral health, women's health seeing strong growth in venture capital funding: report

Digital health companies are on pace for another strong year of venture capital fundraising, with behavioral health and women's health companies on the rise.

Digital behavioral health companies have raised a total of $416 million through the third quarter of this year. That's 8% of the overall $5.5 billion that digital health companies have raised in venture capital funding in 2019, Rock Health says in its third-quarter report.

Ten women's health digital startups brought in $177 million in funding through the third-quarter of 2019 and funding for this sector has increased 812% from 2014 to 2018.

Digital health companies raised $1.3 billion in venture capital in the third quarter of 2019 and the industry is on pace for the second-largest funding year, Rock Health reported. While the third quarter saw a slightly slower pace compared to the same period in 2018.

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Startups in the sector are on track to raise an estimated $7.3 billion by the end of the year—1.3 times more than 2017, though short of the record $8.3 billion invested in 2018.

Large deals are driving the funding trend in digital health, with investors placing bigger bets on a small number of companies, according to Rock Health. The average deal size in 2019 is $20.9 million, up 32% from 2017 and in line with 2018’s $21.7 million average deal size.

Digital behavioral health—which Rock Health defines as solutions that address needs from basic mental wellness through the treatment of disease including meditation solutions— is showing signs of a maturing investment sector with. These companies are attracting more funding and larger deals with a greater number of later-stage companies.

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"This is an area of enormous need given alarming increases in suicide and depression rates, a symptom of the mental health epidemic that affects 50% of Americans at some point in their lives," Rock Health analysts wrote.

The number of digital behavioral health companies has grown from just one in 2012 to 16 in 2016. The average behavioral health deal size so far in 2019 is $26 million—up 73% from 2018. Overall digital health deal size is down 4% across the same period.

So far this year, four behavioral health companies have raised rounds of $50 million or more. Those include telebehavioral health platformTalkspace; Quartet, a platform that enables providers to collaborate on treatment plans; Pear Therapeutics, a company that offers software-based therapeutics for substance use disorder and opioid use disorder, and Calm, an app for sleep, meditation, and relaxation.

Since 2016, 30%-40% of annual behavioral health deals have been Series B or later stage—with 60% of companies early-stage, there’s still a robust pipeline of emerging companies, Rock Health reports.

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Women's health companies in the digital health space appear to be following the same trajectory, with 16 rounds of funding closed in 2018—two years after behavioral health companies raised the same number in 2016. 

2018 was the first year for which 30% of the women’s health deals were Series B or later stage, and that has continued in 2019, Rock Health said.

The three largest rounds in women’s health so far in 2019 include Nurx ($52 million), which provides online access to medical providers and delivery of birth control, home HPV testing, and the HIV prevention medication PrEP; the Pill Club, an online prescription and delivery service for birth control and contraceptive; and Cleo, an app that provides benefits to working families. 

"With women as the primary healthcare decision-makers and healthcare workers, we are relieved women’s health is emerging as a significant investment sector," Rock Health researcher Sean Day wrote. "Startups are tackling the full spectrum of women’s health needs across contraception, fertility, pregnancy, maternity, OB/GYN, and menopause."