The numbers are in. After a record shattering year for digital health funding in 2021, the latest Rock Health venture recap shows that the sector’s frothiness has officially turned to a fade, which might actually be good news for opportunistic startups.
First things first, digital health funding totaled $10.3B across 329 rounds in H1 2022, placing it on a trajectory to end the year significantly lower than 2021’s $29.1B. As the broader market plummeted in response to recession worries and global conflict, digital health companies weren’t immune, resulting in a full year funding projection of $21B.
- Rock Health is quick to point out that “there are two sides to every (market) story.” While this year’s funding will likely fall far short of last year, it’s still on track to outpace 2020’s $14.7B, representing an important return to long-term growth and supporting the view that digital health is a sustainable investment sector.
The slowdown impacted nearly every corner of the digital health market. Series B round sizes declined by an average of 25% in the first half of the year, while Series C and D+ rounds fell by 22% and 12%, respectively. The one bright spot was early-stage startups unburdened by an outdated sky-high valuation, with the average Series A size of $18M staying on par with 2021.
- We’ve covered this often but it’s worth restating here: companies prioritizing growth-at-all-costs over a sustainably profitable business model are struggling in the current funding environment. As investors re-evaluate future revenue with a less favorable outlook, not a single digital health company decided the timing was right to go public in H1 2022, down from 23 in 2021.
The most-funded clinical area defended its title once again, with mental health startups bringing in $1.3B during H1 2022 on the back of a huge round from Lyra Health ($235M). This chart gives a full breakdown of the top clinical indications.
- The value propositions that attracted the most investment were research and development at $1.6B, followed-by on-demand healthcare and disease monitoring each bringing in $1.4B. Administrative / clinical workflow automation also saw large totals as health systems continue to build back up their worn down workforces.
Although the first half of the year brought a pullback in digital health funding, the return to a multi-year growth trend is a healthy sign for a sector that was overheating throughout 2021. This particular market moment gives companies a chance to tighten their belts and reorient towards a more fundamentals-driven direction, and we should start to see more differentiation and clinical rigor from the businesses that successfully navigate the transition.