As we look back at the data from Q2, digital health is a mixed bag. CB Insights has released its State of Digital Health Report for the second quarter of this year, and while it's not all good news, there are a few bright spots.
CB Insights' data from Q1 showed funding skyrocketing for the digital health market, with a surge in mega-rounds and a jump in deal size. But that did not necessarily continue into Q2. Funding fell below $3 billion last quarter, the second-lowest quarterly level since 2016. Below, we dig into some of the insights from their analysis and the factors impacting funding for this sector.
First, their data shows a 26% drop in digital health funding QoQ. Funding fell to $2.9 billion, and deal count fell to 235 in the quarter. The drop in funding and deal count was seen across the U.S., Europe, and Asia. But the annual average deal size on a global level was up to $16.7 million for 2024, a 40% gain from 2023. That means that investors are writing fewer but larger checks.
While digital health funding in the U.S. was down 18% QoQ, the actual deal share for the U.S. is up. Deal share for the U.S. was 61% in Q2, a rise from 54% in Q1. This seven percent bump was marked by an increase in mid- to late-stage deal share. Their reporting shows that mid-stage deals accounted for 26% of YTD deals vs. 16% in 2023. This is in contrast to previous years when early-stage deals accounted for more than 60% of deal share. This year, early-stage deals only account for 51% of global transactions as mid and late-stage deals have drawn in more investors. In the U.S., early-stage deal share has dropped even lower to 45% in 2024.
Regarding mega-rounds, we saw five deals in Q2 valued at more than $100 million, compared to the eight we saw in the first quarter. The largest deal totaled $200 million, a Series D transaction for a telenutrition company. Biotech companies took the bulk of mega-round funding in Q1, but last quarter's mega-rounds were spread out over areas such as navigation, ultrasound technology, and value-based care tools.
Lastly, there were 32 exit events in the digital health sector in Q2, up 23% QoQ, with A.I.-driven platforms leading the way for IPOs. In Europe, there was an uptick in M&A exit activity, with deals moving from five to 10 QoQ. Key categories for M&A on a global scale were virtual care, provider workflow tools, and drug R&D platforms.
While funding did fall for the digital health sector last quarter, we are seeing some areas of encouragement. There will always be ebbs and flows between quarters as investors shift their strategies and founders time the execution of their exit strategies.
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