Every quarter, Rock Health gives us the gift of tallying, analyzing, and adding a bit of spin to the biggest trends in digital health funding – and their 2022 recap might be their best gift yet.
As Rock Health describes it, 2022 was a “downhill ride,” with $15.3B in total US digital health funding signaling the tail end of a three year cycle centered around a pandemic investment frenzy that peaked in 2021 ($29.1B total raise).
That $15.3B figure breaks down to 572 investments at an average of $27M, and we weren’t exactly picking up steam toward the end of the year. (Chart: 10-year trend)
- Q4’s $2.7B total was less than half of Q4 2021’s $7.4B raise, and it now looks like the market is winding down from its mania to find a more sustainable long term growth rate. (Chart: quarterly totals)
- Investors’ reluctance to go after late-stage companies and founders’ fears of raising a down round led to only 35 startups raising $100M or more throughout the year. By all means a lot of capital, but well shy of the mega-rounds seen in 2021 (88) and 2020 (43). (Chart: mega-rounds)
- As investors battled over early-stage prospects, median Series A rounds climbed to an all-time high of $15M in 2022, while check sizes shrunk across all later stages. (Chart: round sizes)
- Although “on-demand” care companies led the pack with $2.4B in funding (props to DispatchHealth and Homeward), providers’ front-and-center focus on efficiency kept nonclinical workflow startups close behind with $2.2B raised. (Chart: top value props)
- One of the best charts of the report was tucked away toward the end, highlighting how D2C startups took the biggest hit of any cohort due to rising customer acquisition costs, capital lifelines drying up, and a weakening consumer. (Chart: customer segment focus)
The Takeaway
It’s hard to tell whether we’ve reached the end of this cycle, or if we’re now entering the recession that’ll bring the real pain. Rock Health points to a couple of signals that suggest we might have already seen the worst of it: investors have dry powder stockpiled, and a difficult exit climate could bring late-stage companies back to the fundraising table.
Regardless of when investment starts ramping back up, Rock Health predicts that it’ll be “built up on slow, steady, and maybe even boring strategies.” Sounds like a reasonable prediction, and if 2023 is anywhere near as hectic as many analysts think it will be, “boring” might not be such a bad thing.
