Venture capital funding in healthcare intensified in the first half of 2020 as COVID-19 made virtual care and similar technologies indispensable.
Startups focused on telehealth, mental health, wearables and even transportation have gained new relevance during the pandemic. Companies that convinced investors of their long-term staying power even after the crisis subsides gained particular traction when it came to raising capital.
"We've seen decades of progress in 12 to 14 weeks," said Unity Stoakes, president and co-founder of the healthcare startup incubator StartUp Health.
Global venture capital funding for digital health and health innovation totaled $9.1 billion in the first half of the year, up from $7.7 billion during the same period in 2019, according to a second-quarter report from StartUp Health released Wednesday. And 2019 was itself a banner year for startup funding.
The types of companies that attracted funding are both directly and indirectly related to the pandemic. Virtual care platform Conversa Health, for instance, in June closed $12 million in a Series B funding. Conversa helps health systems monitor and manage patients across a variety of specialties, including oncology, acute discharge and wellness. During the pandemic, that has included patients who need to be monitored while quarantined at home. It counts such prominent health systems as Northwell Health and University Hospitals in Cleveland as clients.
Particle Health, a company focused on easing access to and sharing of electronic health records, announced $12 million in Series A funding in late April. Digital addiction-treatment provider Quit Genius announced in March it had raised $11 million in Series A funding.
The number of deals was close to the same in those time periods, indicating the average deal size is getting bigger, Stoakes said. The first half of 2020 recorded 23 so-called mega deals, those valued at $100 million or more, compared with just 14 such deals in the 2019 period, StartUp found.
The biggest deal StartUp listed in its report is a massive, $390 million Series D round from Grail, which is working on a blood test to detect multiple forms of cancer.
Given that the pandemic's financial crunch has forced health systems to make painful layoffs and furloughs, some expected their venture capital funding would go by the wayside. But despite hospitals' margins tightening, their venture investment has been relatively stable during the pandemic, said Megan Zweig, chief operating officer of Rock Health, a seed fund that supports digital health startups.
UPMC Enterprises, the venture capital, innovation and commercialization arm of the UPMC health system, for example, has no plans to slow down its venture investing, President Tal Heppenstall said. Western Pennsylvania has not seen nearly the level of COVID-19 cases as other parts of the country, so UPMC's volumes have already returned to their early March levels, he said.
Heppenstall said it's not just about generating a return on investment, it's about being able to treat more patients and improve care. For example, UPMC in 2019 and earlier this year invested in a patient portal that's now called MyUPMC, improving the consumer and physician interfaces. That was well before the pandemic sent UPMC's daily telemedicine visits soaring from 200 to around 10,000 in February, March and April.
"Now, we're not going to sell MyUPMC to somebody for $1 billion tomorrow, but it has allowed us to continue our mission throughout this global pandemic," Heppenstall said. "Those are the kinds of solutions that we were working on, and they have all essentially scaled unbelievably over these last three months."
UPMC Enterprises is staying the course on its commitment announced in January to investing $1 billion over the next four years on new drugs, diagnostics and devices.
There was a lull in venture capital funding in March and April as the pandemic shut down much of the economy, but the opposite happened in May and June with the abrupt shift to telehealth that was accompanied by loosened regulatory restrictions, Rock Health's Zweig said.
While the pandemic has created a market for services and products directly involved in the surveillance, diagnosis and treatment of the coronavirus, it has also called attention to breakdowns in the current healthcare system and digital solutions that can help, Zweig said. Examples of that are the gap between supply and demand for mental health providers and the need to manage elderly patients' conditions from home versus long-term care facilities.
"I think that COVID is exposing us to new ways of delivering care and new ways of operating in healthcare," Zweig said. "I don't think that the innovation that's happening because of COVID is going to go away any time soon."
In fact, this might be an unusually hot summer when it comes to venture capital funding, which typically falls off this time of year.
Typically, the venture space slows down between the Fourth of July and the first week in September as investors close deals and then go on vacation, said Dave Cappillo, a partner with law firm Goodwin Procter. This year, fewer people will be traveling, which means more time for dealmaking.
"I really don't expect to see the summer slowdown that you typically would in the venture capital cycle," he said.
Heppenstall predicts the prevailing attitude will be that people may as well work if they're not going anywhere this summer. Instead, there will be plenty of time for calls with entrepreneurs interesting in starting companies.
"This might be the most active summer for venture capital funding ever because of the pandemic," he said.
