Unlabeled digital health rounds surge in tough market
Close to half of digital health funding deals in the first half of 2023 were unlabeled, the highest percentage since 2011, per a Rock Health report.
Why it matters: The rise of the undesignated raise highlights the difficulty health tech companies are having transitioning from the funding boom of 2021 to today's stark capital environment — and marks an attempt at delaying the inevitable valuation slash many of them will incur.
Between the lines: The new report comes amid the beginning of a new health tech funding cycle, characterized by reduced total funding and fewer deals executed by focused digital health investors rather than generalist backers.
Zoom in: The majority of startups that gathered undesignated rounds this year were early-stage companies that snagged seed through Series B raises during digital health's funding frenzy (2021 to early 2022).
- 12 unlabeled deals were raised by companies that last closed seed rounds.
- 14 were from startups that last closed a Series A.
- 11 were from companies that last closed a Series B.
Flashback: Regardless of the funding stage, most of these companies (41%) last raised in 2021.
- 26% of companies with undesignated rounds last raised in 2022.
- 41% last raised in 2021.
- 8% last raised in 2020.
- 26% last raised before 2020.
What they're saying: "Unlabeled raises are one way for startups to protect their prior valuations while they continue to make progress, but they’re a battlefield tactic, not a long-term strategy," the authors of the report write.
State of play: A number of health tech companies raised unlabeled rounds this year following larger early-to-mid-stage funding rounds. For example...
- Clinical automation company Memora Health in April collected $30 million in undesignated funds after raising a $40 million Series B in 2022.
- Senior benefits navigation startup Duos in June raised an undesignated $10 million after raking in $15 million in Series A capital last year.
- In-home care enabler MedArrive filled its tank with $8 million in unlabeled funding following a $25 million Series A in 2021.
The bottom line: "The new funding climate has a low tolerance for 2021-inflated valuations, and startup operators that reset valuations to match sustainable profitability and growth targets now may ultimately be better positioned for success with investors — and possible acquirers — in the long run," they add.
