Digital health funding falls 48% to return to pre-pandemic levels

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Funding unlikely to reach half of 2021’s record-breaking total

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The key funding days for the digital health space are over; If it wasn’t already clear from the decline in funding in the first two quarters of the year, it’s incontrovertible now: Things are going to be much, much more for the foreseeable future.

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While funding for digital health companies fell to a two-year low in the second quarter of this year, compared to the third quarter that came out of Rock Health on Monday, the dollar declined by just $2.2 quarter-over-quarter, There is a blood bath. Arab. This is the smallest quarterly amount raised since $2.1 billion in the fourth quarter of 2019, meaning digital health dollars are now officially back where they were pre-pandemic.

Funding totaled $12.6 billion in 458 deals in 2022 in the first three quarters of the year, making it unlikely it will reach even half of 2021’s record $29.2 billion unless markets return quickly. Interestingly, though, the number of deals fell to 125 during the quarter, a decline of only 14%; This was due to the increasing number of early stage deals. In fact, according to Rock Health data, there were only six increases in Series C or greater funding during the third quarter, accounting for less than 5% of the quarter’s total transaction volume; For comparison, there were 32 such deals in Q1 and 19 in Q2.

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The report estimated that companies that needed late stage funding extended their rounds to the end of 2021, when the market was still hot, with the knowledge that a reset was coming.

“With high market interest (i.e., investors eager to get on the digital health startup’s cap table) and a sense that this “free lunch” will not last forever, many companies have sought to accelerate the round in 2021. chose what might otherwise have been introduced in 2022,” Rock Health wrote.

“Our data supports this hypothesis: 64 companies raised twice that in 2021—36% more than in 2020, and 113% more than in 2018.”

Deal size shrank to the point in Q3 that there were just two deals, aka Megadeals, of $100 million or more for the full quarter: AI-based heart health platform Clearly, which raised $223 million; and Alma, a company that helps mental health providers build their practices, raised $130 million. That is, compared to 18 megadeals in Q1 and 11 in Q2 for a total of 31 so far this year; 2021; There were 88 deals worth at least $100 million in 2021.

Where money is going, mental health raised the most funds in the first three quarters of the year, with a total of $1.7 billion, followed by oncology startups $946 million, cardiovascular and diabetes startups $900 million, and $700 million for reproductive and maternal For companies in health.

Rock Health also sees a change in the potential area being funded: While digital health startups catalysing R&D for biopharma and medtech fell from first place to third, with $1.7 billion raised so far in 2022, non-profits. Digital health players specializing in clinical workflow solutions jumped to first place with $1.8 billion in funding.

“For us, strong funding flows to workflow tools mean that addressing healthcare staffing shortages and employee burnout is a top priority. This trend is also reflected in the funding for the healthcare marketplace, which is supported by nurse staffing platform Incredible Health’s $$ Led by 80 is the fifth most funded value proposition. M picked up in August,” Rock Health wrote.

So what does this all mean? Basically, things are starting to return to normal like they were before 2020 and the COVID digital health boom. The company wrote, this can be a good thing for the sector.

“While Q1 and Q2 2022 can be read as an adjustment period coming from 2021, Q3 represented a clear departure from the COVID-driven digital health financial market, with altered market dynamics, workflow support and prioritization of complex diseases. A shift in investor focus to deliver, and a growing enthusiasm for new technologies and immersive solutions,” the report says.

“Rational prices promote long-term market health and, if anything, ease near-term concerns. Still, we will be watching Q4 closely to see which of these trends will shape the market in 2023.” Small waves can lead to big waves—and we look forward to seeing where these directional turns lead.”

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