Returning to 2020 and prior trends? The recession and expensive money have hit quite comprehensively in digital health, with Rock Health’s quarterly/YTD tracking that Q3’s digital health funding of $2.2 billion declined to a little over half of Q2’s $4.1 billion. It is the lowest quarter in funding since Q4 2019’s $2.1 billion. Q3’s performance is also reflected in the number of deals completed, tracking at a scant 125 deals.
Are we returning to a prior norm? In looking at YTD 2022 funding ($12.6 billion, 458 deals), it is trending very close to the full year of 2020 at $14.7 billion and 481 deals which in turn was a decent increase from 2019. Allowing that it was kickstarted by carryover from 2021 (Q1 of $6.1 billion), it puts 2021 in sharp relief as a Covid-driven and (in this Editor’s estimation) ‘silly money’ outlier since Rock Health’s tracking started in 2012.
Reviewing Rock Health’s numbers:
- They project that 2022 will not even attain half of 2021’s funding levels
- Average deal size YTD is $27 million, $3 million less than 2020 and $12 million less than 2021
- Raises of Series C and above nearly vanished: only 6, accounting for less than 5% of total funding. Q2, by contrast, had 19 Series C+ raises. And there were only two digital health mega raises of $100M or more compared to 2021’s average of 22 per quarter. Rock Health speculates on the reasons why, including that some were diverted into other funding types such as round extensions and venture debt.
- Mental health continues to lead the composition of funding by clinical indications, with oncology and cardiovascular moving into the #2 and #3 spots YTD versus 2021, with diabetes moving back to #4. In value propositions, non-clinical workflow jumped to #1 with on-demand healthcare holding on to the #2 spot. R&D fell back to #3 from last year’s #1 spot.
Certainly for those seeking funding, this confirms that the open wallet days for anything labeled digital health are over and not returning.