State of Digital Health 2023: From Gold Rush to Consolidation in a Cooling Market

What You Should Know:

The year 2023 marked a stark shift for digital health, transitioning from the heady days of record-breaking funding to a harsh reality of tightening belts and consolidation, according to a new report from CB Insights.

– The CB Insights report, State of Digital Health 2023, reveals that while the pandemic initially fueled a gold rush of innovation, the tide has turned, leaving a landscape of both challenges and opportunities.

Funding Plummets, Deals Dry Up

Global digital health funding halved for the second consecutive year, plummeting to just $13.2 billion in 2023. This represents a return to pre-pandemic levels, with deals dropping by over a third to 1,397. While the US retained its leadership position, even it faced a near-50% funding decline.

Mega-Rounds Fade, Median Deal Size Holds Firm

The era of mega-rounds exceeding $100 million seems over, with a mere three such deals inked in Q4 – the lowest since 2016. Despite this, the median deal size, at $4 million, remained at an all-time high. This suggests investors are focusing their resources on fewer, more promising ventures.

Unicorn Herd Shrinks, M&A Heats Up

The digital health unicorn herd, once a symbol of the sector’s exuberance, began to shrink. Despite four new births, down rounds, exits, and shutdowns resulted in a net decline to 94. This trend, coupled with a near doubling of M&A deals in Q4, indicates a growing focus on consolidation.

Investors Shuffle the Deck, Care Delivery Reigns Supreme

Andreessen Horowitz roared back to the top investor spot in Q4, while Samsung NEXT and CVS Health Ventures remained active. Care delivery & navigation tech retained the funding crown, with $837 million raised in Q4, followed by monitoring, imaging, and diagnostics.

Looking Ahead: A New Era of Digital Health

The 2023 downturn has reshaped the digital health landscape, but it’s not all doom and gloom. Incumbents can leverage M&A to expand their reach and deepen existing technologies. Investors will likely continue to be cautious, favoring established players and proven solutions. Innovation may take a different form, with a focus on refining existing technologies rather than the constant influx of new startups.