Digital health funding has fallen from blockbuster investment seen in 2021, but a Rock Health first half report Note that it is not all doom and gloom for the field.
The report shows that US startups raised $10.3 billion through 329 deals in the first half of 2022, with an average deal size of $31.2 million. While funding in the first quarter of the year was similar to Q1 2021, only $4.1 billion was raised in Q2, making it the lowest funding quarter since Q2 2020.
Meanwhile, no startups hit the mass market in the first half of the year, compared with 23 exits in 2021. But report authors Ashwini Nagappan and Adriana Krasiansky attribute a market decline to can tell a lot about the tense funding environment last year.
They wrote.
The drop in funding between the first and second quarters of this year could indicate a larger economic trend. Many of the top deals of the year have come together amid a funding boom in late 2021, while the war in Ukraine and inflation concerns have dampened investor confidence for the future. to date in 2022.
But investors specialized in digital health are less likely to retreat from the field, which could be good news for their startups.
“Amid continued market volatility, we anticipate that a greater presence of veteran investors compared to new digital health will remain a near-term trend,” wrote Nagappan and Krasniansky. ,” Nagappan and Krasniansky wrote.
“In addition, because longtime investors in digital health seem willing to continue their journey and support their existing portfolio companies, we expect that this trend will in favor of companies that have committed to veteran digital health investors across their cap.It’s a potential silver lining for both investors and investment firms. surname. “
However, companies in the growth phase may struggle in the 2022 funding environment. The average Series C transaction size is down 22% in the first half of the year compared to 2021, while the D+ check is down. twelfth%. The report notes that it’s harder for these startups to raise cash when they’re overvalued to find growth, and they may need to rethink their plans, as evidenced by this: scattered of the recent layoffs.
But this could leave an opportunity for early-stage companies, unburdened by those sky-high valuations. On average, startups raising their Series A brought in $18 million in the first half of the year, on par with 2021.
Digital Wellbeing is also seeing a slowdown on the mergers and acquisitions front. The first half of 2022 averaged just 16 deals per month, while 2021 saw almost 23 exits from digital status through monthly M&A.
The report notes that it could be another sign of economic anxiety, but high M&A prices also play an important role. These valuations from 2021 may not be consistent with the company’s financial performance.
“Like the funding numbers, we don’t predict the pace at which 2021 M&A will return, although we do expect 2022 M&A activity to grow steadily from a 2020 baseline,” the analysts said. the author of the report writes. “We’ll be watching to see if well-positioned digital health companies in increasingly saturated segments of digital health begin to acquire smaller competitors. – that could mean the biggest wave of digital health consolidation is just getting started. “
Meanwhile, digital mental health startups remained at the top of the list for the most funded clinical sector, bringing in $1.3 billion in the first half of the year. Next was the cancer industry with $0.8 billion, while cardiovascular health, diabetes, reproductive and maternal health reached $0.6 billion.
Among the highest-funded value propositions, biotech and biomedical-focused research and development startups raised $1.6 billion, with the On-demand health care and disease tracking brought in $1.4 billion. However, the report notes that startups that innovate administrative tasks and clinical workflows are also common value propositions, reflecting stressful healthcare workforce after the COVID-19 pandemic.
Government policy and regulation is also playing a larger role in the digital health sector, which the report highlights the post-COVID-19 tech focus in healthcare and the large number of players. is attracting legal scrutiny. However, as a study of Rock Health published year JMIR found last monthMany companies lack clinical trials or regulatory records.
Supreme Court decided to overturn Roe v. Wade marks another policy shift that could affect the digital health sector, but messy legal landscape make the next steps unclear.
While it is likely that digital health startups that support abortion care will receive national interest and attention, we still don’t know the post-Roe world yet, write Nagappan and Krasniansky. impact on reproductive health financing,” write Nagappan and Krasiansky. “While some investors may be more motivated than ever to invest in health care and women’s access, others may be hesitant to invest until there is more clarity. on political ramifications, laws and regulations.”
