From investments to exists, 2020 was a banner year for digital health. Despite Covid-19’s impact permeating through all aspects of healthcare delivery and our daily lives, 2020 served as a call to action for healthcare innovators and investors alike, solidifying the prominence and importance of healthcare technology today, and the sea change that continues to ripple across the globe. 

As detailed in Rock Health’s 2020 Market Insights Report released earlier this month, investments in digital health reached a whopping $14.1 billion in 2020 — a 72% increase over 2018, the last highest-performing year — spread across 440 deals. 

2020: The year of digital health resiliency 

While VCs and digital health startups initially had grave concerns about how a public health pandemic would impact deal flow and capital, Covid-19 seemed to serve as a catalyst for digital health investments, M&As and public market activity, with minimal disruption. In 2020, we saw seven new digital health IPOs with a combined market cap of $37 billion by the end of the year, with annual M&A activity also increasing from 113 deals in 2019 to 145 in 2020.

In a recent discussion with Rock Health’s chief operating officer, Megan Zweig, she noted that she was somewhat surprised by the market’s resilience and investors’ ability to bounce back. “Venture capitalists obviously didn’t face the same type of challenges as many others in the healthcare world, but the pace of deals and amount of capital deployed following an initial period of uncertainty was surprising,” she said, speaking to investor sentiment following the early days of Covid-19. 

Perhaps the 2020 healthcare transaction of the year was the $18.5 billion merger of Teledoc and Livongo (“Teledongo”), which brought together the companies’ core competencies of telehealth capabilities and chronic care management, respectively. 

Other 2020 public market highlights include telehealth platform Amwell’s IPO, which raised $742 million in September 2020, and unicorn GoodRx, a platform that lets consumers shop for the most affordable prescriptions, which raised $1.1 billion in 2020. Both of these IPOs commanded stock prices well above what was initially anticipated.

This flurry of activity has continued through 2021 so far, with Exits & Outcomes finding nearly $650 million in announced and unannounced funding, inclusive of equity deals and debt financing, across nearly 30 deals from January 11 - 20, 2021 alone.  

Just last Wednesday, consumer-facing digital health startup Hims & Hers completed its merger with special purpose acquisition company (SPAC) Oaktree Acquisition Corp., in a deal valuing the company at $1.6 billion and shepherding in $280 million in proceeds to fund growth, reinvestment, and product expansion. And earlier this month, UnitedHealth Group bought Change Healthcare in a more than $13 billion deal, bringing Change’s analytics capabilities to the payer. 

Common components in digital health IPOs and investments both this year and last? The rise of platform-driven business models, continued growth in direct-to-consumer plays, and the evolving virtual care marketplace, especially a greater push for a hybrid of virtual care and in-person care.  

“It was really interesting to see the incredibly swift, almost immediate uptick and demand for virtual care,” said Zweig, who also noted that activity decreased as in-person options became available again. Accordingly, virtual care may need to be integrated with consumers’ existing relationships with their most trusted healthcare stakeholder: their provider.  

Advances in the technology itself - from asynchronous visits to AI-enabled chatbots to help triage care - is valuable and can improve access, but also needs to be placed within the context of the existing provider-patient relationship. "We're not ready or set up for a full shift to virtual, mainly because it's not about replacing analog with a digital version. It's about reimagining care delivery with newly integrated tech tools. Take telemedicine. It's not about just enabling face to face virtual visits—it's about using technology to scalably connect with patients in a holistic, ongoing fashion," added Zweig.

Perhaps one of the most notable trends in virtual care and digital health investments last year was the surge in demand for digital mental healthcare, which saw a 2.9x increase in funding in 2020. Per Rock Health’s report, the largest rounds for companies offering behavioral health services were raised by Amwell ($194M), Headspace ($140M), Lyra Health ($110M), and Mindstrong ($100M). 

Commence the report releases 

There’s been no shortage of coverage and analysis on the healthcare investments landscape, with Rock Health’s 2020 Market Insights being just one example. Additional reports that have recently been released include: 

• Startup Health

• Silicon Valley Bank

• CB Insights report

• Mercom Capital Group

• Healthcare Growth Partners Semi-Annual Health IT Market Review

2020 also saw emphasis on the importance of diversity in digital health and better representation from women and minorities in the field. In 2020, Rock Health and Dr. Ivor Horn launched a new Diversity in Digital Health initiative, with the accompanying report including insights and findings from 678 digital health startup leaders, offering insight into the current state of diversity. 

Zweig noted that Rock Health was prompted to conduct the research due to a lack of hard data on diversity in digital health. “Because it's so important to move the dial on diversity and equity in healthcare leadership, we wanted to learn from the experiences of different groups of innovators. This past year, we started to baseline our understanding by gathering data on racial / ethnic representation at digital health startups," she explained.

What’s on the digital health tap for 2021

As we look ahead to 2021 and beyond, there are a few notable trends we can expect to see, with one being the proliferation of a new tech stack to help fuel innovation and speed to market. In a recent a16z video, general partner Julie Yoo details the new tech stack requirements for virtual-first digital health companies and the characteristics necessary for success. In addition, SPACs will continue to serve as a new vehicle towards IPOs.

There is also mounting evidence to suggest that digital health platforms will continue to command healthcare’s investment dollars and represent a significant opportunity for increasing returns — able to deliver value and solve foundational problems in a way that hasn’t been possible before and that is unique to platform technology capabilities. 

Will we continue to see growth and investments in digital health continue at the same fervent pace? There has been a back and forth around the investment levels in digital health for years, and current macroeconomic conditions are leading to more questions.

For digital health investment, at least, there is one firm offering a clear answer. 

“I don’t think we're in a bubble,” said Zweig. “The fundamentals are there. I do think that a lot of the proof points that investors are looking for, like the fact that regulation turned on a dime, as did reimbursement, and the fact that consumers and providers actually did start using these tools more regularly, bode incredibly well for the future of the industry.”

Continue the conversation with Seth Joseph at seth@summithealth.io