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Digital well being funding has declined from the blockbuster investment seen in 2021, however a Rock Well being report on the first half of the year notes it is not all doom and gloom for the sector.
The report discovered U.S. startups raised $10.3 billion throughout 329 offers within the first half of 2022, with a mean deal dimension of $31.2 million. Although funding within the first quarter of the yr was much like Q1 2021, solely $4.1 billion was raised in Q2, making it the bottom funding quarter since Q2 2020.
In the meantime, zero startups hit the general public markets within the first half of the yr, in contrast with 23 exits in 2021. However report authors Ashwini Nagappan and Adriana Krasniansky argue the market slowdown could say extra in regards to the intense funding surroundings final yr.
“Although this yr’s funding will fall far in need of final yr, 2022 digital well being funding is nonetheless on observe to outpace funding in 2020. This multi-year pattern signifies continued funding development, with funding in 2021 maybe standing out as an anomaly,” they wrote.
The funding dip between the primary and second quarters this yr could display bigger financial tendencies. Many offers that made information early within the yr had been put collectively within the booming funding surroundings on the finish of 2021, whereas the warfare in Ukraine and inflation considerations have put a damper on investor confidence to date in 2022.
However specialised digital well being buyers had been much less more likely to pull again from the sector, which may very well be excellent news for his or her startups.
“In mild of continued market volatility, we anticipate that the higher presence of veteran versus new digital well being buyers will stay a near-term pattern,” Nagappan and Krasniansky wrote.
“Moreover, as a result of veteran digital well being buyers seem prepared to remain the course and help their current portfolio corporations, we count on that this pattern will disproportionately favor corporations that have already got dedicated veteran digital well being buyers on their cap desk. That’s a possible silver lining for each the buyers and their portfolio corporations.”
Nevertheless, development stage corporations could battle within the 2022 funding surroundings. Sequence C deal dimension on common declined by 22% within the first half of the yr in contrast with 2021, whereas D+ checks declined by 12%. The report notes these startups raised money on excessive valuations on the lookout for development that could be tougher to return by, and so they could must rethink their plans, as evidenced by the spate of recent layoffs.
However this might go away a gap for early-stage corporations, unburdened by these sky-high valuations. On common, startups elevating their Sequence A introduced in $18 million throughout the first half of the yr, on par with 2021.
Digital well being can be seeing a slowdown on the merger and acquisition entrance. The primary half of 2022 averaged solely 16 offers per thirty days, whereas 2021 noticed almost 23 digital well being exits by means of M&A month-to-month.
The report notes that may very well be one other signal of financial nervousness, however excessive costs for M&As play an element too. These valuations from 2021 could not match up with the corporate’s monetary efficiency.
“Like funding numbers, we don’t foresee a return to 2021 M&A tempo, although we count on 2022’s M&A exercise to develop steadily from 2020 baselines,” the report’s authors wrote. “We’ll be watching to see if well-positioned digital well being corporations in more and more saturated segments of digital well being begin to purchase smaller opponents – which may imply the largest waves of digital well being consolidation are simply getting began.”
In the meantime, digital psychological well being startups saved their prime spot when it comes to highest-funded scientific space, bringing in $1.3 billion throughout the first half of the yr. Oncology got here in subsequent with $0.8 billion, whereas cardiovascular well being, diabetes, and reproductive and maternal well being scooped up $0.6 billion.
In highest-funded worth propositions, startups centered on analysis and improvement in biopharma and medtech raised $1.6 billion, with on-demand healthcare and illness monitoring bringing in $1.4 billion. Nevertheless, the report notes that startups innovating administrative duties and scientific workflow are additionally standard worth propositions, reflecting the strained healthcare workforce within the wake of the COVID-19 pandemic.
Authorities coverage and regulation can be enjoying a bigger position within the digital well being sector, which the report chalks as much as a post-COVID-19 tech focus in healthcare and the variety of bigger gamers which can be drawing regulatory scrutiny. However, as a Rock Well being examine published in JMIR found last month, many corporations lack scientific trials or regulatory filings.
The Supreme Courtroom’s decision to overturn Roe v. Wade marks one other coverage change that would have an effect on the digital well being sector, however the messy legal landscape makes subsequent steps unclear.
“Whereas it’s possible that digital well being startups supporting abortion care will obtain nationwide consideration and curiosity, we now have but to see how the post-Roe world will impression funding in reproductive well being,” Nagappan and Krasniansky wrote. “Whereas some buyers could also be extra motivated than ever to spend money on ladies’s healthcare and entry, others could also be hesitant to take a position till extra readability exists surrounding political, authorized and regulatory ramifications.”
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