2021 Year-End Insights Report: $44B Raised Globally in Health Innovation, Doubling Year Over Year
Thanks to a wave of mega deals in the United States, England, India, and China, health innovation funding has reached heights that would have seemed impossible just a year or two ago. Plus, acquisitions are up 50%, and more than 20 companies went public.
For more than a decade StartUp Health has been monitoring the digital health landscape and tracking market data globally. Back in 2011, when there was around $2B being invested in health tech, we wrote about the nascent potential of the market. Digital health was barely a topic of conversation and telemedicine was struggling to gain traction. But we knew that with global collaboration, entrepreneurship and, yes, much more capital, we could achieve historic gains in health. We could, in fact, achieve health moonshots that previous generations thought were impossible.
Now, as we end 2021, the conversation has shifted completely. We just closed the books on a year that hit $44B in health innovation funding globally. That’s more than a 20x increase in 10 years. To call that number record-breaking would be an understatement — we’ve seen record-breaking funding numbers nearly every year since we started tracking. What we’re seeing now is a doubling of funding. 2021 saw twice as much funding as 2020 ($22B), which itself was a 50% increase over 2019 ($14B). This new, accelerating growth rate shifts our expectations for the future.
It’s obvious to most observers what happened in 2020 to take digital health investing from steady growth to doubling year over year. The tipping point aligns almost perfectly with the WHO’s announcement in early 2020 that COVID-19 had reached pandemic status. But it’s worth remembering that this wasn’t a foregone conclusion. First, investors went very quiet and markets went on ice. In March and April of 2020, major news outlets projected that the digital health market would cool off.
But that’s not what happened. By all observations, fear gave way to optimism and investors shifted their focus from self protection to bold action on health. From that point on we witnessed a truly historic shift in investment priorities towards virtual healthcare, telemedicine, remote patient monitoring, and other next-gen health solutions.
Mega Deals Continue to Dominate
One funding trend we’ve been tracking for a few years is the rise of the health innovation mega deal. It’s not a new phenomenon; we’ve been noting the increase in deals over $100M for at least four years. But the trend just keeps accelerating and the deal totals keep ballooning. A couple of years ago it was notable to have a health innovation deal top $100M. This year there were multiple deals over $400M and one from the StartUp Health portfolio, Devoted Health worth $1.2B.
As this chart shows, a decade ago average deal size was around $2M. Now the average deal size is $16M, an 8x increase. Thankfully, deals aren’t just getting bigger — we’re also seeing more of them. This year we tracked 990 total deals, compared to 797 in 2020. But most growth is coming from the top, resulting in a market that is inordinately impacted by a small number of mega deals occurring in the most-funded cities in the world. This is a well-documented trend across venture capital, and it has the potential to skew our perception of market growth overall. In health innovation, total funding numbers are important metrics, but they need to be balanced against total deal counts, regional totals, and measurable global impact.
Total deal count is an important measure of entrepreneurial activity, and one we’ll continue to watch closely. We believe that to achieve health moonshots it’s not enough to back a few unicorns. As an industry we need to invest in entrepreneurs at scale, at every stage, so that the best ideas and products have a chance to emerge.
Follow the Money: Analyzing the Top Deals
Every quarter we publish our list of the top 10 largest health innovation deals in the US and outside the US. While these lists are only a slice of the pie, they give us a window into the priorities of the world’s largest investors. It can shed light on where there is growing confidence and market optimism. Here are a few observations from 2021’s top deals list.
With their $1.2B raise, Devoted Health (which StartUp Health backed in 2019) has broken through the ceiling, redefining what’s possible in health tech funding. No health innovation company has ever raised this much before, especially not a company focused on improving healthcare for the elderly. As long time supporters of Todd and Ed Park, co-founders of Devoted Health, we think this investment bodes well for the shifting priorities of the industry towards vulnerable populations and preventative population health.
The largest raise of the fourth quarter was a $500M deal for Mindbody, which some have described as the OpenTable for fitness. Wrapped into this raise was the acquisition of ClassPass, which further solidified that this is a year for market consolidation. To better understand the significance of the Mindbody raise, we talked to David Stapleton, CEO and founder of BUA FIT, a UK-based social marketplace for outdoor and online fitness that StartUp Health backed in 2021.
“We’re seeing a strong tailwind in the global wellness market, which is forecasted to top $7 trillion by 2025,” says Stapleton. “I think this is the start of a lot more M&A activity in the fit-tech and wellness industry.”
The second largest raise of the fourth quarter went to Hinge, which raised $400M to grow its digital platform for back and joint pain. At a $6.2B valuation, this raise makes Hinge one of the most valuable digital health companies in the world. Not unlike the Devoted Health raise, investors’ interest in Hinge suggests a shift towards elder care and taking preventative health much more seriously.
“Between Hinge and Sword, two of the biggest raises in digital health this year were attributed to musculoskeletal conditions (MSK), which is a strong testament to how big the problem and market are,” says Jakob Dahlberg, CEO and co-founder of Joint Academy, which has digitized joint pain therapy based on best practices from Sweden. “There are upwards of 100M people in the US with chronic or acute musculoskeletal problems, and we have only treated a few hundred thousand patients. We are still early and there is so much important work left to do.”
Another trend in the top deals list is that mega deals are now happening around the globe. For many years, the top deals we tracked outside the US were a fraction of the size of those coming out of San Francisco and New York. Not anymore. This year all ten top deals outside the US were over $200M, including $600M for CMR Surgical, $823M for PharmEasy (combined across two back-to-back raises), and $697M for Miaoshou Doctor out of China.
Historically, we’ve separated top deals between the US and outside the US, because a single global list would have skewed too heavily towards cities like San Francisco, ignoring important growth happening in other markets. This year we’re beginning to see a shift. For the first year ever, two of the year’s top deals outside of the United States (CMR Surgical in England and PharmEasy in India) rank in the top 10 deals overall. We can’t emphasize enough how important this move is. Investing in health moonshots means addressing health challenges on every continent, not just the ones with the largest, most lucrative healthcare markets. Every human on the planet is in need of the health innovations being developed today, so investors who expand their footprint have the potential to find financial opportunity while building greater health equity.
Diversity at the Top
We analyzed the top 50 health innovation deals (deals over $200M) for the year to see what we could learn about investor priorities. One takeaway is that while many investors have made public statements about their intention to invest in Black and female founders — populations historically left out of the VC money pool — we’re not seeing that representation at the highest echelons just yet. In our list of top 50 deals of 2021, only 2% of funding went to companies with Black founders.
Things are improving on that front: according to Crunchbase, funding for Black startup founders quadrupled in 2021. Yet these entrepreneurs still received only 1.2% of the record $147B in venture capital invested in all US startups through the first half of 2021.
We also note that only 10% of the top 50 health deals went to companies with female founders, and that number trims down dramatically to 2% when we filter for solo female founders. To make meaningful change in healthcare, where women are not only major recipients of care, but also primary purchasers, we’ll need to see a lot more money invested into female-led businesses.
At StartUp Health, we take these issues of representation into account with every investment we make. In 2021, 7% of the founders we backed were Black, and 21% were women. While these numbers are ahead of industry standards, we’ll be the first to say that we have a lot more work to do.
Hubs of Innovation
While San Francisco, New York City, and Boston continued to dominate our list of health innovation hubs, second tier markets like Seattle, Columbus, Baltimore, and San Diego made a solid showing in 2021. It should be noted that health investing skews so heavily towards the top three cities that in 2021, San Francisco, New York, and Boston accounted for a combined $23.8B, more than half (55%) of the total amount raised globally for the year and 45% of the total deals for the year.
Outside the US, London and Tel Aviv dominated in deal activity, with London metro seeing a massive $1.7B increase in funding (369%) between 2020 and 2021. Toronto and Paris continue to be active hubs for health innovation, with 20 and 13 deals respectively, while Mumbai and Beijing each hit the billion dollar mark for funding.
Acquisition Activity
2021 saw 110 total acquisitions in health innovation, up from 71 in 2020. That’s more than a 50% increase in acquisition activity, bolstered by a few massive deals in the final quarter of the year. Notably from the StartUp Health portfolio were Conversa Health’s acquisition by Amwell (NYSE: AMWL), the telemedicine leader, and wayForward’s acquisition by DarioHealth (NYSE: DRIO). Historic levels of fundraising set off a strong year for acquisitions and we predict this will continue at a steady clip in 2022.
IPOs and SPACs
In 2021, a record 24 companies sought to grow by taking the plunge into the public markets, either through a traditional IPO or a SPAC. Notably for the StartUp Health portfolio, next gen blood testing startup Nightingale went public on the Finnish stock exchange in March (HEX: Health.He). By comparison, In 2020 we counted only seven digital health IPOs and two SPACs. Overall, in this list we’re observing a healthy diversity in the types of companies that are going public, everything from decentralized clinical trial platforms to online therapy companies to maternal/neonatal health platforms.
Most Active Investors
Topping our list of most active investors in health innovation are familiar names like General Catalyst, Tiger Global, and GV. But perhaps more interesting is to take the chart back five years and see how rapidly deal activity has grown for these firms. Notably, Tiger Global and Oak had zero investments in the space as recently as 2017. Every firm has doubled, tripled (or 8x’d) their investment volume in just a few short years. In 2021, the most active investor in the market, General Catalyst, took part in four times as many deals as the most active investor in 2017, Khosla Ventures.
Conclusion
As exciting as the last two years of growth have been in health innovation investing, at StartUp Health we still believe we’re at the beginning of the wave. We believe that to achieve the health moonshots of our time, like curing cancer and bringing the cost of healthcare to zero, we’re going to need to fundamentally change how we prioritize health. That means allocating capital where it’s needed most. The cures and conveniences in health being funded today are still available to too few people. Improving health and wellbeing is a global challenge, and the geography of our funding needs to match that reality. Funding health innovation in the United States, Israel, and the United Kingdom isn’t enough. We need to see a renewed focus on health access and quality across every continent. And that’s going to require a whole new wave of investment — and a health moonshot mindset — beyond even this year’s historic funding numbers.
This report was written and designed by Logan Plaster based on data collected and managed by Tara Salamone and Nicole Kinsey. Additional analysis by Anne Dordai, Priya Reddy, and Jennifer Hankin.
Data is from StartUp Health Insights, the most comprehensive funding database for health innovation. Get all our free quarterly reports and sign up for StartUp Health Insider™ to get funding insights, news, and special updates delivered to your inbox.
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