Big deals led to a banner year for U.S. digital health investments, which shot up 21 percent to $8.6 billion in 2018, according to a report from PwC and CB Insights. Total venture capital investment was the highest it’s been since the dot-com era at $99.5 billion. That means digital health, which includes everything from biotech to fitness companies, claimed an 8.6 percent slice of the funding pie.
The number of VC-led investments remains below its peak three years ago, but the average deal size has doubled in that time to $18 million. Around half of all investment went to companies in the seed stage or series A rounds, according to a separate report from Rock Health.
These were the top three digital health deals last year:
- Peloton, $450 million. The top spot went to a New York-based company which makes high-tech stationary bikes with on-demand and live workout classes. Peloton is now valued at over $4 billion.
- Zymergen, $400 million. The only biotech firm on the podium, Zymergen engineers microbes for use in an array of industries. The massive round, led by SoftBank’s Vision Fund, brought Zymergen’s total funding to $574 million. The company has not disclosed its valuation.
- SmileDirectClub, $380 million. The teeth-straightening service had plenty of reason to smile after a deal that valued the company at $3.2 billion.
California boasted the largest number of digital health deals with 179. New York landed 67 deals, followed by Massachusetts with 41.
Washington state had six deals, of which DNA sequencing company Stratos Genomics’ $20 million round in January 2018 was far and away the largest. Individualized vitamin subscription service Persona’s $7 million round came in second for the state.
Is digital health in a bubble?
Analysts at Rock Health don’t think so. They argue that digital health companies are shifting toward proving their fundamental value up front rather than raising hype.
Firms have been raising more money more frequently, which indicates they’re burning through cash. But the analysts said that may be necessary to overcome slow sales cycles and achieve the scale necessary to compete with incumbents.
Moreover, prior investors came back for more in recent rounds, and evidence of alleged fraud seems contained to notable outliers, such as Theranos and Outcome Health.