Report: Digital well being funding slows in Q1

Coming off a groundbreaking year in 2021, digital well being funding could also be lastly slowing down because the business wraps up the primary quarter of the brand new yr.

Based on Rock Health’s Q1 2022 report, U.S. digital well being startups raised $6 billion throughout 183 offers, nicely behind This fall 2021’s $7.3 billion. Although the primary quarter of the yr normally is not the brightest spot relating to funding, the report’s authors counsel there are some indicators 2022 will not be straightforward to foretell relating to funding.

“It’s value noting that Q1 isn’t normally a blockbuster interval for funding: at $6.7 billion, Q1 2021 was the smallest quarter final yr for digital well being {dollars}, and three of the previous 5 years (2017-2021) had Q1 as their lowest funding quarter, presumably signaling a seasonality to funding dips,” Rock Well being’s Adriana Krasniansky and Pavan Shah wrote.

“Nevertheless, in three of the 5 previous years, Q1’s funding beat its previous quarter (This fall of the prior yr), which isn’t the case this quarter.”

In the meantime, the general public markets are wanting much more tumultuous for digital well being firms. Rock Well being’s composite of publicly traded digital-health securities, referred to as the Rock Well being Digital Well being Index, fell 38% between the start of Q3 2021 and the tip of Q1 2022.

Extra not too long ago public firms could also be partially guilty for the poor efficiency. Digital well being firms that made their public exits in 2020 and 2021 skilled a 55% drop in inventory worth, in contrast with a 17% dip for people who went public earlier than 2020. 

People who went public by way of a merger with a particular objective acquisition firm can also be contributing to the lackluster public markets, although SPACs haven’t done well in other sectors both. Firms that go public via an SPAC deal are usually younger, and incentives between SPAC sponsors and buyers may be misaligned

“Whereas SPAC recognition boomed over the previous two years 17 of digital well being’s 31 public market exits from 2020-2021 have been SPAC mergers  digital well being’s SPAC exits’ common inventory worth fell 57% from Q3 2021 open to Q1 2022 shut, whereas IPO exits’ common inventory worth fell 29% throughout the identical time interval,” Krasniansky and Shah wrote. 

However late-stage digital well being funding is rising, presumably because of the inhospitable public markets. The report notes Collection D+ rounds introduced in a median of round $130 million over the previous 15 months, in contrast with $80 million in 2020. These firms could also be delaying their public exit till markets stabilize, or they could possibly be taking the longer IPO route.

Enterprise capital corporations additionally raised more cash following the digital well being growth final yr, in order that money could possibly be flowing into these digital well being darlings. 

Among the prime areas for funding could also be altering barely as nicely. Firms that intention to enhance scientific workflow – like AI-enabled scientific documentation startup DeepScribe or the advanced care-focused Memora Health – introduced in $888 million and rose eight spots to 3rd place in Rock Well being’s worth proposition rating. 

Nevertheless, psychological well being firms are nonetheless claiming the highest spot when it comes to scientific focus with $1 billion raised. Reproductive and maternal well being startups moved into the highest six when it comes to scientific space for the primary time since 2019, scooping up $424 million.

Nonetheless, it is early within the yr, and the funding quantities in these classes are too small to say if it will proceed for the remainder of 2022.

“The rise-and-fall of COVID variants, power shocks and inflation numbers sign uneven waters for digital well being buyers, and Q1’s considerably restrained (dare we are saying rational?) funding numbers could mirror investor warning,” the report’s authors wrote. 

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