As a physician-turned investor, Dr. Sunny Kumar looks at the booming digital health market with the discernible eye of a clinician.
“The reality is private markets got a little bit exuberant in the last year for a variety of different reasons and we will likely see some degree of market correction,” Kumar says to Digital Health Business & Technology. “We are optimistic for the sector, as a whole, but are mindful of the fact that there may be some degree of correction, given the fact that not every single company can perform at the very, very top of expectations.”
Kumar and his fellow doctor-turned investor, Dr. Justin Norden, are partners at GSR Ventures, where they’ve led the investments for several digital health companies, including Medable, Alpha Medical and AppliedVR. Medable received a $304 million series D funding round in October, putting its total valuation at approximately $2.1 billion.
Neither Kumar nor Norden see a market “bubble burst” on the horizon, akin to what happened to dot-com companies in the early 2000s. However, they say it’s unlikely that private digital health markets will continue their current pace of rapid growth.
Norden has seen an expectation from some digital health companies in the past 12 months that they can raise money forever and spend as much as they can, and it won’t matter if the economics aren’t there. That attitude will have to change quickly, he predicts.
“I think we’ll see some correction on those companies that weren’t thinking about their economics and maybe spending too much on growth and strategies that weren’t sustainable in the long run,” Norden says. “Not all of the unicorns will make it in digital health but there will be many companies who do figure it out.”
According to Digital Health Business & Technology’s Q4 2021 report, there was a record $30.7 billion in venture capital funding for digital health companies in 2021. This was a 107% increase over the total funding—$14.8 billion—in 2020. A total of 2,286 investors participated in digital health funding in 2021, compared to 1,600 investors in 2020.
Thus far in 2022, there has been $5.2 billion in venture capital funding for digital health companies. With two weeks left in Q1, 2022 is underperforming 2021’s Q1, which ended up at $8.3 billion in investments. One of the biggest differences is the deal size. In 2021, the average deal in Q1 was $43.2 million. This year, it’s only $32.6 million. In addition, in 2021, there were 91 large funding deals of $100 million or more. These deals accounted for approximately 60% of all 2021 venture capital (VC) funding.