Next-Generation IT

What’s driving the surge in digital health funding?

Gabriel Perna | May 26, 2021

When it comes to investment and venture funding, digital health has arrived.  

In fact, it’s arrived so much that the first financial quarter of 2021 featured more $100 million-plus “mega deals” for digital health companies than all of 2018 and 2019 combined, according to recent data from Rock Health.  In total, the $6.7 billion invested in digital health companies in the Q1 2021 represented the biggest quarter ever beating out Q3 and Q4 of 2020 ($4.1B and $4.0B raised, respectively).  

Similar tallies from other sources validate an overwhelming truth: investors, venture capitalists, entrepreneurs, and many others are seeing the potential in digital health. Week after week, there are hefty venture capital financing deals for digital health companies. In 2011, according to Rock Health, digital health funding represented 2 percent of all deals. In 2020, it was 9 percent. Chances are it will be even higher in 2021. Whether it’s through SPACs (Special Purpose Acquisition Companies) or traditional avenues, more digital health companies are primed to go public they year than ever before.  

What should health care leaders make of this financing free for all? Health Evolution interviewed five people representing five different areas of the health care system impacted by the digital health funding boom 

PART 2: Will digital health funding boom or bust? 5 experts weigh in

Payer executive: Sukanya Soderland, Chief Strategy Officer and Senior Vice President for Blue Cross Blue Shield of Massachusetts 

Provider executive: Aaron Martin, Executive Vice President, Chief Digital Officer, Providence and Managing General Partner, Providence Ventures 

Investor: Bill Evans, CEO, Rock Health 

Digital health executive: Sean Duffy, CEO, Omada Health 

Industry analyst: Raj Prabhu, CEO and Co-Founder of Mercom Capital Group 


What kind of trends have you seen in the digital health funding space in the last few years? 

Sukanya Soderland, Chief Strategy Officer and Senior Vice President for Blue Cross Blue Shield of Massachusetts 

Sukanya Soderland: There has been a mounting tidal wave of funding over the last several years that has intensified over the last couple of years in particular. We’ve seen certain areas that have been getting more funding and attention in the last few years. For example, mental health is one where there’s been an explosion of activity and a mass recognition of the need for de-stigmatization of mental health, the interdependence between mental health and physical health outcomes and costs, and the power and efficacy of digital models to help address rapidly growing and underserved mental health needs.  Other areas where there has been growing momentum include the ongoing movement towards lifestyle medicine applications that help people meaningfully improve chronic conditions such as diabetes through behavior modification support. Factors such as what you eat, how much you exercise, how well you sleep, how you manage stress, how connected you feel to others, as well as social determinants of health can materially influence outcomes. We’re seeing digital health models aim to address those factors through coaching, social support communities, sophisticated analytics, and precision medicine advances and remote sensor devices.  There is also an increasing recognition of the fatigue around too many niche solutions that don’t offer a seamless experience and still have suboptimal adoption rates. As a result, there is a rising focus on positioning companies as the “integrated platform” with an air traffic controller-like capability, integration into the health insurance benefit stack and hybrid models that integrate with physical physician/clinician locations. 

Raj Prabhu: I mean the funding is exploding. It has been since we started tracking it, but there’s significant ramp up in the last few years. Last year was a huge year. 2019 was good but 2020 it went to the next level and this year again we’re on track to do really well. 

Bill Evans: We are having these really remarkable moments in digital health funding right now where the space is maturing. There are two things underlying this trend. One is the companies that we see, and everyone in the ecosystem as investors sees, have changed dramatically from when I was picking companies to invest in in 2011-2012. The level of understanding among entrepreneurs and investors and as well as the buy side and most of the big companies that are customers of innovation, it’s just really changed. We’re able to do so much more, more effectively than ten years ago. And there’s a cohort of companies that have been around 5-10 years that are very mature. So there is more fundamental innovation working at a much higher level of performance for the meatiest segment of our economy. 

On the other hand, there’s also more money flowing in the private equity and venture than ever before. And digital health as a subset of the broader investment is experiencing large capital inflows and is subject to the broader trends around investment. I think those two things have created this really unique moment.  

Aaron Martin, Executive Vice President, Chief Digital Officer, Providence and Managing General Partner, Providence Ventures 

Aaron Martin: In the last six months, we have had very rapid increases in valuations, especially the later stage companies that have established businesses. We’re also seeing a better quality of company. We always work hard to improve deal flow at Providence Ventures. That being said, when I first started seven years ago, there were a lot of first-time entrepreneurs, coming out of tech. There was a much smaller cadre of experienced entrepreneurs doing health tech for years and years. Now you’re seeing that turnover, people who exited or their first companies didn’t work out, now it’s round two or three for them. There’s just a lot more sophistication. I’m very encouraged.  

Sean Duffy: Stating the obvious here but there’s broadened interest. In any private capital lifecycle, there are going to be folks who are willing to make the investment without precedent. Pray with investment but have the conviction there is something here. Then you have periods where it’s like, ‘There have been no exits. Can we return the capital we put in?’ The last phase is proof point of scale businesses that have returned capital to funds. You get a whole second wave. We as a space are firmly in that phase where it’s interesting and people are seeing real business opportunities. Naturally, in the lifecycle, which is unique to the space we’re in, the question becomes, ‘Is it too much capital?’ ‘Did they swing the pendulum too far?’ As the expression goes, what’s old is new again.  

What’s happening at large is a magical moment for innovation across the country. Amongst the cacophony, what keeps me centered is that this is just cool. In moments where people are skeptics, you want it to ignore itIn moments where people are a hype factory, stay steadyIt’s easy to get caught up in all the buzz. 

How has COVID pushed along funding? 

Prabhu: To give you perspective, there was about $9 billion in venture funding for digital health companies in 2019. It was almost $15 billion in 2020That is the COVID effect. A lot of the funding went to telemedicine and mobile health and things that were directly related to COVID and what happened. There’s been a significant boost in funding into the technologies that were helping with the COVID situation. That has benefitted digital health companies a lot, but let’s see how that turns out this year, especially as the vaccines take hold. By the end of the year, we’ll know what the trend will look like going forward.  

I’m excited because what we see bearing out is that those with the most to gain and with the closest proximity to patient outcomes and transformation of health care are more invested in many cases than those who are outside of health care.

Bill Evans, , CEO, Rock Health 

Evans: The need and urgency for innovation has never been greater. For better or worse, that’s really galvanized investors and other health care stakeholders to do something. We’re in this moment where digital health is sufficiently mature to be helpful and sufficiently young to be exciting. What COVID has changed is for those consuming and delivering health care, the dynamic around digital went from something that’s discretionary and helpful to something’s necessary.  

Sean Duffy, CEO, Omada Health 

Duffy: It was going to happen no question, but COVID has strapped a rocket to it. And the way upon which it strapped a rocket was really the forcing function of hundreds of millions of Americans trying to get care without showing up to the waiting room at once. And then correspondingly, health systems, companies and plans all needing to react to their constituents. It was almost a domino effect where all these people are saying, ‘I don’t want to show up for XYZ.’ Then they ask their employers what kinds of virtual care services do you offer? And then the employers tell the health plans, ‘I need something now.’ And it created a world where even the most skeptical of audiences in times past relevant to digital, were converted. People recognize digital is not just the icing on top and a complement to in-person offerings, digital is part of the foundational structure. I always tell plans, ‘You are going to have a network team that’s responsible for setting up digital provider networks. Just like you have someone setting up in-person networks.’ That’s the end state and we’re seeing the world lean into that in a big way.  

Soderland: Many have viewed COVID as a turning point where what was considered fringe in terms of digital activity is now emerging at the forefront and taking on a bigger role on center stage. The best and most cited example of this is the use of telehealth. At its peak last Spring, we saw upwards of 70% of our patient visits taking place as telehealth visits. While that figure has lowered considerably now, we still have a critical mass of visits taking place remotely. As a result, what we see now is that there’s a wholly different level of familiarity and comfort with remote models both from a patient and a clinician and hospital administration perspective. From a funding standpoint, that has prompted both entrepreneurs and VCs to accelerate their plans and expectations for going public and scaling their commercial success in the marketplace.  The sense of urgency and the pace of activity has shot up in the last year given the blockbuster IPOs, surge in SPAC activity, numerous mergers in digital health, and of course the moves from Big Tech companies such as Amazon.

How has the rise of incubator groups and investment funds within payer and provider organizations had an impact on overall digital health funding? 

Martin:  It’s taken the risk out of the market for financial VCs. It’s a good thing for financial VCs. When I say independent VCs, I am talking about people that may have providers and payers as limited partners, but they are not affiliated. I think they really want a strategic [partner] in rounds [of funding], so they have some kind of alignment around helping the company grow and develop. It takes risk out of the deal.  

The other thing that it does, it’s rare that these non-profit systems are going to purchase these tech companies as companies. We’ll obviously purchase their services and be customers, but we are not typically buyers. That’s another good thing that VCs don’t see in [other] markets. You don’t have to see these systems as a potential buyer down the road, which can cause misaligned interested. Non-profit health systems are not the best location for tech assets long term. We don’t have a company stock. We don’t have a way of expressing value. We’re bond financed companies.  

To sum up, there are two things. They see us as a way of lowering risk. DexCare was Series A, but it had Series B risk because we took the risk by creating purpose-built technology that we’re pretty sure is going to be needed. We know it for a fact because it’s been sold to five other health systems. We de-risked that platform. But even for companies we don’t incubate, if we’re a customer, we’re helping de-risk itAnd the second thing, on the provider side, we don’t have conflicts of interest. If Intel or Microsoft is a strategic investor of a tech company, they may have a conflict of interest if they want to own the company that they are a minority investor inIt creates downstream problems and lowers the value to a financial VC.  

Soderland:  The capital is plentiful in the market, so the value add of the “strategic” investors in payer and provider organizations is typically in providing an inside view and greater access to prospective anchor customers. Part of the value comes from the insight gained on the strategic considerations, the operational know-how, and the decision-making processes and challenges that incumbent organizations face in terms of adopting and implementing any of these novel solutions. So for example, digital health companies get a window into the dynamics and challenges of operationalizing even a free pilot for a major customer. This includes things like finding ways to secure executive sponsorship and a spot in  bulging IT project portfolios,  navigating involved legacy systems and processes, and gaining insight and time from subject matter experts who are in high demand and are responsible for integrating and implementing solutions. In turn, the biggest value add to the payer and provider organizations is typically in the strategic learnings gained from working with digital health innovators.

Evans: I’m excited because what we see bearing out is that those with the most to gain and with the closest proximity to patient outcomes and transformation of health care are more invested in many cases than those who are outside of health care. And what’s also exciting is that almost two thirds of investors in the recent quarters are repeat investors, regardless of whether they’re corporate or noncorporate traditional ventures. That’s incredibly important to the ecosystem.  

About the Author

Gabriel Perna, Senior Manager, Digital Content

Gabriel Perna is the Senior Manager of Digital Content at Health Evolution. He brings 10+ years of experience in covering the intersection of health care and business. Previously, he was at Chief Executive, Physicians Practice and Healthcare Informatics. You can reach him via email at or on Twitter at @GabrielSPerna