Is the digital health startup boom over?
Funding for digital health startups has cooled off during the first quarter of 2022.
The popularity of digital health surged during the pandemic, attracting significant funding as well as patients. However, investors tapped the brakes during the first quarter of 2022. Although digital health startups attracted $6 billion in the quarter, investment fell well below the $7.3 billion raised in the fourth quarter of 2021 and the trailing 12-month quarterly average of $7.1 billion, according to Rock Health, a digital health venture fund.
“While Q1 isn’t usually a standout quarter for funding overall, in three of the five past years, Q1’s funding beat its preceding quarter,” according to a company report. “But that isn’t the case this time around.”
Related: Consumer demand booming for digital health products
Digital health had a breakout year in 2021, with startups raising $29.1 billion in 729 deals. At the height of the funding boom, startups raised $6.7 billion in the first quarter of 2021. That grew to $8.3 billion in the second quarter, followed by $6.8 billion in the third quarter. Digital health startups signed 183 deals in the first quarter of 2022, with an average deal size of $32.8 million.
“This could be related to seasonality,” the report said. “February is a shorter month, and late-stage deals can skew monthly patterns, but this quarter’s monthly funding numbers may be early indicators of a digital health venture funding correction.”
The more-restrained funding numbers in the first quarter may reflect investor caution, according to the report, with the rise and fall of COVID variants, energy shocks, market volatility, the dismal performance of public digital health companies and inflation numbers signaling choppy waters for digital health investors.
First-quarter funding shifted to different digital health sectors than in previous quarters. Funding for startups catalyzing R&D in biopharma and medical tech dropped slightly to second place, while funding for startups augmenting clinical workflow rose eight spots to third place, Mental health care continues to be a hotspot, with startups in this sector raising $1 billion in the first quarter. Investment in startups supporting reproductive and maternal health, which totaled $424 million during the quarter, reentered the top six for the first time since 2019.
Such factors as supply chain and energy disruptions, market corrections and the Russian invasion of Ukraine make it difficult to predict the next three quarters, the report said.
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