According to a recent report from CB Insights, global funding for digital health companies has finally stabilised in the first quarter of this year. The sector raised $3.4 billion, which is the same amount as the previous quarter, marking the first time since Q4 of 2021 that digital health funding did not experience a decline. This stability defied the overall trend of decreasing funding seen across all sectors in the venture capital landscape, where funding dropped by 13% quarter-over-quarter.
In Q1, there were 387 deals in the digital health sector, a slight increase from 383 in Q4 of the previous year. This contrasts with the overall venture capital environment, which saw a decline in deals for the fourth consecutive quarter.
Of the venture capital invested in digital health companies in Q1, about 68% went to U.S.-based startups, totaling $2.3 billion. The top nine deals of the quarter, worth a combined $1 billion, all involved American companies.
While U.S.-based startups received the majority of funds from the top deals in Q1, European and Asian companies fared better in terms of deal size. The median deal size for American digital health companies in 2023 so far is $4.5 million, down from $5 million in 2022 and $6 million in 2021. Meanwhile, Asia's median deal size has increased to $4.3 million, compared to $4 million in the past two years. Europe's deal size has been steadily increasing since 2019 and currently stands at a year-to-date median of $3.1 million.
In Q1, mega-rounds (deals worth $100 million or more) in the digital health sector continued to decline. There were only three mega-rounds, representing an 85% decrease compared to the previous year. These three deals accounted for just $575 million and made up only 17% of digital health funding in Q1, the lowest percentage since Q2 of 2019.
The largest mega-round in Q1 was raised by Monogram Health, a Tennessee-based startup offering in-home care services for patients with chronic kidney disease, which raised $375 million. The other two rounds, both worth $100 million, were raised by Carbon Health, a network of primary care and urgent care clinics, and Kindbody, which provides fertility benefits for employees. Kindbody's funding round resulted in a valuation of $1.8 billion, making it the first new unicorn in the digital health space since Q2 of the previous year. The overall trend of fewer new unicorns is also seen in the broader venture capital landscape, with only 13 unicorn births in Q1, the lowest count since Q1 of 2017.
On the positive side, M&A exits showed significant growth for digital health startups in Q1. Global exits more than doubled quarter-over-quarter, increasing from 15 in Q4 of 2022 to 29 in Q1. M&A exits in the digital health sector outpaced the broader venture capital world, which saw less than a 1% increase in Q1.
In the U.S., M&A exits more than tripled, with two out of the three top M&A exits in Q1 taking place in the country. Eir Partners' acquisition of pharmaceutical software company Gifthealth and Agilon Health's acquisition of healthcare data platform MphRx were among the notable M&A exits.
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