Dive Brief:
- Digital health startups pulled in a record-breaking $57.2 billion in funding in 2021, up 79% from 2020, according to CB Insights.
- The explosive growth was driven by digital therapeutics and mental health technology, both of which saw capital inflows more than double compared to 2020. Geographically, the U.S. remains the dominant force, raising more in one quarter than companies in Asia did throughout 2021.
- M&A activity increased, too. The number of mergers and acquisitions, 574, was up 44% on the prior year. Analysts at CB Insights expect M&A activity to remain high as dominant players start to consolidate a fragmented industry.
Dive Insight:
After years of steady growth, 2021 was the year global digital health funding took off. The 79% jump in funding to just over $57 billion smashed last year's record of $32 billion. U.S. companies alone raised more than that in 2021. Five years ago, digital health companies raised a total of $13.5 billion in 2016, less than a quarter of 2021's total.
Megarounds of $100 million or more fueled the record year. The number of megarounds almost doubled last year, rising from 78 in 2020 to 154 in 2021. In the fourth quarter, mega-rounds accounted for more than half of all funding.
The U.S. was the home of the megaround in 2021. U.S. companies raised eight of the 10 largest rounds of the year. Megarounds accounted for 63% of all digital health funding in the U.S. in the fourth quarter.
The willingness of investors to bet big cemented the status of the U.S. as the focal point of the digital health industry. Funding in Asia hit new highs in 2021, with companies raising $2.8 billion in the fourth quarter alone. Yet, at $10.8 billion, U.S. funding in the fourth quarter exceeded capital inflows in Asia for all of 2021. Europe lags further back, with companies raising $1.1 billion in the fourth quarter.
While the geographic split of the market is holding steady, the types of startups targeted for investment are changing. Funding for digital therapeutics companies took off, rising from $1.5 billion in 2020 to $3.4 billion in 2021. The jump in funding comes as the industry, led by the now-public Pear Therapeutics, tries to work through barriers that could stop digital therapeutics from becoming part of routine care.
Mental health was the other hot sector in 2021. Again, funding more than doubled, climbing from $2.3 billion to $5.5 billion as the pandemic exposed the need for scalable mental health treatments. While 2021 was a big year for mental health startups, it could be eclipsed in the near future. With two-thirds of the deals being early-stage investments, companies could raise much bigger sums as they mature.
The past 12 months suggest exits await investors who can help digital health companies establish the value of their offerings. The jump in M&A activity, which CB Insights sees as the start of a period of consolidation, was supported by an open IPO window and SPAC mergers. Almost 100 digital health companies arrived on public markets in 2021, primarily via the traditional IPO route.
