The end of Q3 means it’s time for another digital health funding wrap-up from our friends over at Rock Health, and many of you can probably guess how the numbers looked:
- Total Q3 funding plunged 48% to $2.2B, the lowest quarterly amount since Q4 2019.
The low total puts us on pace for less than half of last year’s $29.2B haul, but the full story isn’t as grim as it sounds. Smaller round sizes, rather than fewer rounds, dragged down the overall number.
- Q3’s 125 deals only represented a 14% drop, but a newfound preference for early-stage startups caused the $100M+ mega-rounds to dry up completely with the exception of Cleerly ($223M Series C) and Alma ($130M Series D).
- Only six Series C or higher rounds took place during the third quarter, accounting for less than 5% of total funding volume. By comparison, Q2 saw 19 late-stage rounds and Q1 had 32.
Rock Health floats three explanations for the late-stage slowdown: 1) Many rounds were pulled forward to 2021 to strike while the iron was hot. 2) Other raises are taking place behind the scenes through round extensions or venture debt. 3) We’re in the middle of the biggest bear market in a decade… so some funding just isn’t happening.
The other major shift taking place with investors can be seen with the top funded value propositions and clinical indications.
- Value Props: Non-clinical workflow companies vaulted into first place ($1.8B YTD), suggesting that staffing shortages and employee burnout remain top priorities.
- Clinical Indications: Digital mental health companies held on to the throne ($1.7B YTD), but oncology ($1B) and cardiovascular startups ($0.9B) have been gaining ground.
The Takeaway
It’s no surprise that this year’s public market correction is causing private market investors to hold out for smoother sailing, but if Rock Health’s Q3 report shows us one thing it’s that truly innovative startups will attract capital no matter how turbulent the macroeconomic waters. Rock Health also left us with an important reminder that “rational prices promote long-term market health and, if anything, diminish near-term worries.”
