According to Pitchbook’s Q1 Digital Health report, the digital health sector recorded significant activity with venture capital funding reaching $1.1 billion. This quarter highlighted substantial investments in late-stage companies such as Transcarent and Rightway, underscoring a strategic emphasis on advancing healthcare accessibility and quality through technology and proactive solutions. Despite challenges, including those in digital therapeutics and telehealth, the sector shows promise for innovation and sustainable growth models.

Key Takeaways:

Investment Focus: Shift towards proactive healthcare solutions, technology, medtech advancements, and alignment with healthcare providers to enhance care quality and accessibility.

Sector Outlook: Despite challenges, there is potential for digital therapeutics and telehealth to positively impact healthcare costs and outcomes through innovative and sustainable models.

Q1 2024 Digital Health VC Activity Summary

Stabilization in VC Activity: Digital health VC funding reached $1.1 billion in Q1 2024, led by late-stage deals for Transcarent ($126.0 million) and Rightway ($108.8 million). General & primary care and health benefits navigation were the top investment categories, securing $213.4 million and $140.7 million, respectively.

Valuation and Funding Trends: Valuations in digital health are considered outdated, with less than 20% of startups reporting a priced round in the past 18 months. There has been a rise in silent rounds, delaying crucial market pricing feedback.

Digital Therapeutics Challenges: Digital therapeutics companies face reimbursement issues and unprofitable models, deterring investors. Better Therapeutics is winding down operations, and Akili is being taken private for $34.0 million, leaving no publicly traded digital therapeutics companies. Platforms combining treatments with condition management (e.g., diabetes, mental health) hold the most potential.

Telehealth Sector Developments: Optum virtual care and Walmart’s telehealth services are shutting down, highlighting the mixed impact of the COVID-19 pandemic on the sector. The pandemic spurred significant VC investment in telehealth ($15 billion since 2020), but many companies lacked sustainable business models. Strategic missteps included Teladoc’s $6 billion impairment charge from acquiring Livongo and Amwell’s pending Nasdaq delisting. The sector is shifting from direct-to-consumer to enterprise customer bases, with a positive outlook for specialty telemedicine, B2B platforms, and hybrid-care models.