In 2020 and 2021, investors took risks amid low interest rates and there was a huge influx of investment dollars into startups. They were willing to pay more amid high valuations to get a piece of the innovative healthcare business. Now all that has changed. In fact, the healthcare industry experienced a sharp slowdown in the investment space last year.
The investment slowdown was so severe that the fourth quarter of 2022 marked the lowest quarterly digital health funding total at $3.4 billion — in the last five years. This is according to a report published on Tuesday by a research and data company CB Insights. Q4 was also the first quarter with no new unicorn births since 2018.
Total digital health funding in 2022 was $25.9 billion, down 57% from 2021’s record of $59.7 billion. Total funding declined each quarter, with $3.4 billion in the fourth quarter being the lowest. Last year’s nearly $26 billion in digital health financing dollars was distributed across 2,122 deals, down 33% from 3,160 deals the year before.
Still, there were a few bright spots. Three companies were able to close funding rounds totaling more than $100 million in Q4. DispatchHealth, Komodo Health and Don’t get tired raised 259 million dollars, 200 million dollars and 112 million dollarsrespectively.
Of the 2,122 digital health deals completed last year, nearly 300 fell into the mental health technology category, an area of the digital health sector that has seen a mega boom in funding during the pandemic. However, funding for mental health tech fell 53% in 2022. Additionally, the average size of a mental health deal fell 44% last year to $10.4 million, down from $18.6 million in 2021
There are still a few companies that have stood out in the mental health tech space from a funding perspective. For example, Maven Clinic raised 90 million dollars in Series E funding in Q4. The next two largest fundraisers of the quarter came from Hello Valera and Brave Healthwhich raised 45 million dollars and 40 million dollarsrespectively.
Another metric that significantly declined in 2022 was the number of global initial public offerings in the digital health space. IPOs fell from 81 in 2021 to just 14 last year. Special purpose vehicle exits also fell from the previous year, from 18 to four.
Digital health IPOs were so scarce last year that the U.S. saw just one — a medical device maker Heart Research Laboratories announced his 6.4 million dollars IPO in June. The US was also home to only one SPAC exit, which came from Akili interactive laboratories last January. The digital therapy technology company has signed a $1 billion reverse merger deal with a SPAC called Social Capital Suvretta Holdings.
US-based digital health investments are still largely happening in the same geographies, according to the report. Nearly two-thirds of the country’s $17.7 billion in digital health investments in 2022 were pumped into startups based in Silicon Valley, New York and Boston. As much as $5.6 billion went to Silicon Valley, while companies in New York and Boston received $2.8 billion and $2.7 billion, respectively.
Last year’s decline in funding is not so unexpected – experts expected this will happen as a natural result of the investment frenzy that occurred in 2020 and 2021. Macroeconomic trends and the change in the phase of the pandemic are also contributing to lower investment. Interest in telehealth has waned and the economy is down. This new fundraising environment will make it difficult for some startups to secure capital and raise their grades. bbut smart startups could have predicted that, according to the report.
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