Dive Brief:
- The digital health sector posted its lowest funding quarter since 2019 in the three months ended Sept. 30, leading analysts at Rock Health to observe that “the market isn’t the same as it was.”
- In the third quarter, the analysts said they tracked 125 deals that raised a total of $2.2 billion. That’s a decline of 48% from the previous three-month period and positions the sector to fall short of half of the $29 billion total raised last year.
- The drop in funding follows a collapse of late-stage transactions. The number of Series C or later deals fell from 32 in the first quarter to six in the latest figures, potentially because some companies are “making do by running leaner businesses,” according to the report.
Dive Insight:
Digital health funding increased steadily between 2012 and 2019, rising from $1.6 billion to $8.1 billion over that period before surging during the pandemic, the analysis found. Funding climbed to $14.7 billion in 2020 and jumped again to $29.2 billion in 2021. After the boom, the slowdown in the first half of 2022 was explicable, while the analysts view the third quarter as representing a bigger shift.
“While Q1 and Q2 2022 may have read as adjustment periods coming off of 2021, Q3 represented a clear departure from the COVID-driven digital health financial market, including changed market dynamics, shifts in investor focus to prioritize workflow support and complex diseases, and growing excitement for new technologies and immersive solutions,” the analysts, led by Mihir Somaiya, wrote in the funding report.
The analysts outlined three explanations for the decline in late-stage funding, noting that it may reflect the fact companies pulled forward funding rounds to take advantage of the money on offer last year or that round extension or venture debt deals are happening quietly behind closed doors. The third explanation is that deals are not happening at all, with companies choosing to cut costs instead.
Among the early-stage deals, the analysts tracked a shift in funding priorities. Digital health companies working on nonclinical workflow solutions accounted for the largest slice of the funding, having dropped in the ranking in earlier years.
The analysts attributed the shift to the need for solutions that address healthcare staff shortages and employee burnout.
