Health technology investment is a standout in fundraising so far this year, raking in $23.8 billion across 556 completed deals through the third quarter, according to Deloitte’s Road to Next report.
“Accelerated by the COVID-19 pandemic, dealmaking at the expansion stage rose to new heights in 2020 and 2021 to date,” wrote report authors Heather Gates and Peter Micca.
“Building off key technical advances and mass adoption of smartphones as well as incremental improvements in back-end healthcare+ IT infrastructure, health tech platforms have proliferated into a wide variety of niches, raising large financing rounds to keep scaling rapidly to meet rising consumer demand.”
This year’s healthcare dealmaking boom is even larger so far than the rapid growth of the past two years. The report noted that aggregate expansion-stage deal value in healthcare more than doubled between 2019 and 2020, increasing from $8.3 billion to $17.4 billion.
The COVID-19 pandemic had a hand in the increased investment in health tech and healthcare IT. The report’s authors wrote that COVID-19 motivated providers to update their technology, arguing that tech-enabled startups with new care models are starting to pull patients away from bigger health systems.
“Large healthcare organizations are often slow to renew tech stacks – but they will have to, eventually – which could provide incredibly lucrative opportunities for health tech companies looking to tackle parts of that overall value chain,” they wrote.
Meanwhile, digital health companies are also benefiting from changing needs during the pandemic, like the expansion of virtual care and at-home testing. These companies are using the flood of capital to expand rapidly while the market continues to need these new modalities. They’re also coming into their own, thanks to improved communications tech.
“Many of these businesses’ products and services only became truly viable over the past decade, thanks in large part to the increasing reliability and ubiquity of wireless communications and high-quality video, the reduction in costs of common tests, and declines in computing costs, among others,” Gates and Micca wrote.
Making an exit
Valuations are getting high, pushing health tech companies toward the public markets. The report found the upper quartile of late-stage pre-money valuations grew from $100 million in 2019, to $200 million in 2020, and $331.3 million so far in 2021.
The companies that decide to make a public exit can also generate liquidity. There has been $57.9 billion in aggregate exit value across just 77 completed exits in 2021, compared with $38.8 billion for 99 exits in 2020.
“Although strategic acquisitions still account for a plurality of exit volume, persistent favorable market conditions likely would encourage health tech companies to keep going public, especially firms with business models similar to those of biotechs, which can facilitate readier access to large, liquid, public capital markets to ensure ample funding for the lengthy pathways to commercialization,” the report’s authors wrote.