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 median deal dimension of $31.2 million. Although funding within the first quarter of the 12 months was just 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 12 months, 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 12 months.
“Although this 12 months’s funding will fall far wanting final 12 months, 2022 digital well being funding is nonetheless on observe to outpace funding in 2020. This multi-year development signifies continued funding progress, with funding in 2021 maybe standing out as an anomaly,” they wrote.
The funding dip between the primary and second quarters this 12 months could display bigger financial developments. Many offers that made information early within the 12 months have 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 have been much less prone to pull again from the sector, which could possibly be excellent news for his or her startups.
“In mild of continued market volatility, we anticipate that the larger presence of veteran versus new digital well being buyers will stay a near-term development,” Nagappan and Krasniansky wrote.
“Moreover, as a result of veteran digital well being buyers seem prepared to remain the course and help their present portfolio firms, we count on that this development will disproportionately favor firms 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 firms.”
Nevertheless, progress stage firms could battle within the 2022 funding surroundings. Collection C deal dimension on common declined by 22% within the first half of the 12 months in contrast with 2021, whereas D+ checks declined by 12%. The report notes these startups raised money on excessive valuations on the lookout for progress which may be tougher to come back by, they usually could have to rethink their plans, as evidenced by the spate of recent layoffs.
However this might go away a gap for early-stage firms, unburdened by these sky-high valuations. On common, startups elevating their Collection A introduced in $18 million through the first half of the 12 months, 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 way of M&A month-to-month.
The report notes that could possibly 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 firms in more and more saturated segments of digital well being begin to purchase smaller rivals – which may imply the largest waves of digital well being consolidation are simply getting began.”
In the meantime, digital psychological well being startups stored their high spot when it comes to highest-funded scientific space, bringing in $1.3 billion through the first half of the 12 months. 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 targeted on analysis and growth 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 fashionable worth propositions, reflecting the strained healthcare workforce within the wake of the COVID-19 pandemic.
Authorities coverage and regulation can be taking part in 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 might be drawing regulatory scrutiny. However, as a Rock Well being examine published in JMIR found last month, many firms lack scientific trials or regulatory filings.
The Supreme Courtroom’s decision to overturn Roe v. Wade marks one other coverage change that might have an effect on the digital well being sector, however the messy legal landscape makes subsequent steps unclear.
“Whereas it’s probably 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 influence funding in reproductive well being,” Nagappan and Krasniansky wrote. “Whereas some buyers could also be extra motivated than ever to spend money on girls’s healthcare and entry, others could also be hesitant to speculate till extra readability exists surrounding political, authorized and regulatory ramifications.”
