When it comes to digital health funding, last year was exceptional and it is only natural that 2022 won’t be as successful.
According to Rock Health, the first quarter of this year signaled the beginnings of a market cooldown and spurred inquiries regarding frothiness in digital health funding. Still, during the first half of the year, US digital health startups managed to raise $10.3B and 2022’s overall funding is on track to land around $21B — significantly less than 2021’s total ($29.1B). And after 23 public market exits in 2021, digital health public exits came to a halt in H1 2022, and a few publicly-listed digital health companies returned to private holdings.
Nevertheless, 2022 digital health funding is on track to outpace funding in 2020 — with funding in 2021 perhaps standing out as an anomaly. Venture investors raised record funds last year, meaning they will have capital to deploy for years to come. Meanwhile, startups are using this market moment to reconsider valuations, trim costs, and refine go-to-market strategies. In that sense, Rock Health foresees these startup adjustments activating M&A deal-makers in H2 2022, with pairings between complementary digital health companies likely leading H2 2022 M&A activity.
Highlights
- That $ 10.3 B were raised across 329 deals, with an average deal size of $31.2M.
- Non-specialist investors, rather than veteran digital health investors, were most likely to pull back from the sector. In H1 2022, approximately 70% of digital health investors were repeat investors in the space, whereas previous years saw more balanced distributions of new and repeat investors.
- H1 2022’s average check sizes for Series C and D+ deals declined by 22% and 12% respectively compared to 2021.
- H1 2022 data also suggests a drop in B-stage digital health funding, with H1 2022’s average Series B checks 25% smaller compared to 2021.
- Meanwhile, digital health companies pursuing their Series A rounds raised $18M on average in H1 2022, consistent with 2021.
- There were only 16 M&A digital health deals monthly: Q1 2022 averaged almost 20 monthly M&A exits, while Q2 2022 averaged thirteen.
Categories
- After a slow Q1 2022, funding for digital health startups catalyzing R&D in biopharma and medtech picked up in Q2 and finished the half at $1.6B, with rounds raised by biopharma analytics player Sema4 ($200M), clinical trial accelerant Verana Health ($150M), and real-world data solution ConcertAI ($150M).
- Mental healthcare startups raised a combined $1.3B in H1 2022 to again reach the top-funded clinical spot, led by Lyra’s $235M raise in January. However, of that $1.3B, just $300M closed in Q2 2022-possibly signaling a slowdown in funder excitement.
- Funding for digital health solutions monitoring disease rose from eighth to the third most-funded slot, bringing in $1.4B so far in 2022. The category jump was largely driven by raises from Biofourmis ($300M), a solution that helps cardiologists monitor heart failure patients at home, and Omada Health ($192M), which offers remote monitoring companions for its diabetes and hypertension programs. Investor interest was also bolstered by CMS’s addition of five new CPT codes, which providers can use to bill for remote monitoring services.
- Funding for startups augmenting nonclinical workflow reached the fourth funding spot in H1 2022, led by cloud analytics and payments platform Clarify Health ($150M). Just off the edge of our chart, funding for startups supporting clinical workflow also totaled $1.2B, closing out the half in seventh place.
Bottom line
Rock Health concludes that it doesn’t find it surprising that H1 2022’s digital health funding numbers align more closely with 2020 rather than 2021’s mega year, and it might be time for us to consider 2021 as the anomaly rather than the norm. For Rock, historical digital health funding data presents a steady, optimistic view: from 2020 to 2022, the sector has demonstrated sustained gains, even amidst a tougher overall economy. With that in mind, they expect to see funding flow into digital health in H2 2022 at a pace similar to that of H1, leveling out on a fundamentals-driven track.