Report: Digital Health Funding to Drop to $15.3B in 2022

Funding for digital health has plummeted in 2022, with US startups raising $15.3 billion through 572 deals.

Rock Health Report found that total funding for the year was just over half of $29.3 billion in 2021 and just over $14.7 billion in 2020. The average deal size was $26.7 million, which is no larger than any of the previous two years.

“With recession fears looming, the $2.4 billion second-half 2022 quarterly average could be a benchmark for the next few quarters. – This means 2023 could be the first year of $10 billion or less in digital health venture funding since 2019,” write authors Kyle Bryant, Madeleine Knowles, and Adriana Krasniansky. dry powder stockpiles and a difficult exit climate are likely to bring late-stage digital health companies back to the fundraising table.”

One factor in the slowdown was the relatively small number of mega deals or rounds of $100 million or more raised in the past year. The report only tracks 35 mega deals in 2022, down from 88 in 2021. Even in 2020, there were more mega rounds – 43.

Some companies have avoided raising money in a more difficult market to prevent a dip as startups offer shares at a lower price than their previous funding rounds. Investors also may have been less willing to risk highly valuated startups, preferring slower growth with more established results.

“For growth-stage startups that didn’t receive funding in 2022, limited cash reserves could push the once-crowned digital health unicorns back to the fundraising table (perhaps at a lower valuation) or into M&A territory. In 2023, there will likely be some “fallen” unicorns. accept purchase requests if cash is scarce. For those who prefer to invest instead of mergers and acquisitions, sound approaches will be the most successful, ”the authors of the report write.

However, 2022 has seen steady interest in emerging digital healthcare companies. The report indicated that the average deal size for series A rounds peaked at $15 million last year, while check sizes declined for raises B, C, and D.

But many startups have changed strategies in 2022. Only 37% of companies that raised funds this year sold direct to consumers, up from 43% in 2021, as inflationary fears hit wallets and pockets. app privacy updates make user subscriptions more expensive.

So where did all this money go? When health systems collided negative margins and personnel problemscompanies advertising tools for non-clinical workflows raised $2.2 billion in 2022. In the report, this segment ranked third in terms of funding, up from seventh place in 2021. Clinical workflow software has climbed to eighth place from eleventh in 2021. was the first to raise $2.4 billion.

In terms of clinical indications, startups offering mental health tools continued to hold the top spot, raising $2.1 billion.

Big tech has continued its advance into healthcare, but the report notes a more conservative approach to areas where these companies are already making headway. For example, Google has improved search tools for both the patients and cliniciansamazon launched its own virtual clinic for general conditions.

The report argues that as companies look ahead to 2023, funding cuts do not mean the death of digital healthcare.

“2022 has been a necessary reminder that investment is cyclical and that strong players build weather resilience by funding climate change,” the authors write. “We expect 2023 to be built on slow, steady, and perhaps even boring strategies for both medical startups and enterprises: cash management, restructuring to accommodate revenue volatility, and investing in technology infrastructure.”