In many ways, 2017 was a banner year for digital health funding, according to Rock Health's annual report, which puts funding for the year at a record $5.8 billion.

In other ways, however, the year fell short, with a drop in mergers and acquisitions and not a single IPO in the space all year.

"2017 saw the greatest amount of funding being poured into digital health to date, with a steady but not dramatic increase in completed deals," report authors Rachana Jain and Megan Zweig wrote. "More deals alone didn’t drive the steep funding jump. Rather, we saw investors in the space get more comfortable, confident, and willing to make larger investments in digital health companies. In fact, Outcome Health and Peloton Interactive raised the largest digital health investments on record at $500M and $325M, respectively. Boosted by these mega deals, the average deal size hit an all-time high of $16.7M."

The report notes the awkwardness of the year's largest deal being Outcome's $500 million, given that the company is now dealing with a range of accusations and legal charges, including allegedly defrauding investors. But the year's funding record stands even if Outcome is excluded, and it was just one of eight "mega deals" over $100 million that Rock Health tracked. Other top deals included Peloton's $325 million round, 23andMe's $250 million round, and Modernizing Medicine's $231 million round. Interestingly, seven of the mega deals happened in the first half of the year, with only 23andMe's falling in the back half of the year.

Rock Health also notes that both the total number of investors participating (568) and the number of returning investors (291) are at a record high.

But while funding increases are encouraging, especially after a dip in 2016, exits, both M&A and IPOs, were down.

"Despite a record year in funding, M&A transaction volume in 2017 dropped significantly to 119 deals," Jain and Zweig wrote. "The number of disclosed mergers and acquisitions declined for the second year in a row. 2017 closed with 18 percent fewer digital health M&A deals than 2016 and 36 percent fewer than 2015, when M&A activity peaked."

As for IPOs, companies are right to be nervous about the prospect with major digital health public companies Fitbit and Castlight Health both dropping around 25 percent over the course of the year. But overall, the sector performed well, with Teladoc more than doubling its value and 2016 IPO iRhythm sitting at 87 percent growth in 2017.

"It’s noteworthy that there were no IPOs in light of the fact that 2017 also saw the greatest number of mega deals to date," Jain and Zweig wrote. "With both more and larger pre-IPO rounds, investors face the pressure for exit activity in the upcoming 12 to 24 months. Among those digital health companies that have IPO’d in prior years, each company, on average, waited ten years and raised $136M before entering the public markets. A handful of private companies (e.g., 23andMe, PatientPoint, and ZocDoc) meet both of these benchmarks and have raised mega deals since 2011."

Finally, Rock Health grouped the companies into categories to get a sense of which healthcare value propositions were attracting the most investment. They found that the highest-investment value proposition was delivering health information to consumers, followed by clinical decision support and precision medicine. Fitness and wellness came in third, with disease monitoring, disease diagnosis, and non-clinical workflow taking the last three spots.