Background: In the years leading up to the COVID-19 pandemic, venture capital investment in digital health increased rapidly. Beginning in March of 2020, the COVID-19 pandemic led to a seismic shift toward asynchronous, remote care delivery to replace in-person care buttressed by passage of the Public Health Emergency Act which established payment parity between in-person and virtual visits. The rise of telehealth and telemedicine during the pandemic allowed patients and providers to develop a sense of comfort with telehealth, which may have increased the demand for virtual-first care solutions with spillover effects into venture capital funding. Despite the large role venture capital firms play in allocating capital across the digital health industry, little is known about whether these investments were materially different pre- and post-pandemic. Our objective was to understand the size and type of digital health investments pre- and post-pandemic.
Methods: We analyzed Crunchbase data, a publicly available database that catalogues information about venture capital investments for companies founded from March 15, 2019 to March 14, 2020 and compared them to startups that were founded from March 15, 2020 to March 14, 2021. We used descriptive statistics to compare the characteristics of companies pre- and post-pandemic. We used a chi-square test to compare categorical variables and t-test for continuous variables. We conducted a Wilcoxon rank sum test to compare median funding amounts. We compared these groups of companies on the type of funding round raised, geography, healthcare subcategory, total amount of funding raised, amount of last funding round, total funding per year, profit structure, number of founders, and the percent of companies with a founding team that includes a female founder.
Results: There were 574 companies founded “pre-pandemic” from March 15, 2019 to March 14, 2020 and 364 companies founded “post-pandemic” between March 15, 2020 and March 14, 2021. The companies were similarly distributed across healthcare subcategory: healthcare, wellness, medical, software, IT, and mobile apps (p=0.388). The companies were also similarly distributed across U.S. geographies: Northeast, Midwest, South, West, and International (p=0.851). The median last funding amount (USD) for pre-pandemic companies was $1,000,000 (IQR $300,000 – $4,319,979) while the median last founding amount for post-pandemic companies was $961,095 (IQR $169,177 – $2,797,170) with no significant difference between the two groups (p=0.076). There were no significant differences between the proportion of companies with at least one female founder pre- and post- pandemic (p = 0.256).
Conclusions: Despite the rapid shift toward telehealth during the pandemic and the sense that the pandemic unleashed innovation in healthcare, the total number of new companies was lower post-pandemic and there was no significant increase in total funding among pre- and post-pandemic companies. Macroeconomic headwinds such as higher cost of capital and labor shortages may have hampered the number of new startups founded and impacted the amount of funding raised. In the future, reporting standards for venture capital funds and a centralized data repository for investments including information about amount of funding raised and founding teams would allow health systems researchers to better understand where venture capital funding is flowing in real-time and its impact on the healthcare system.