Rock Health has released their digital health funding report for 2022. The report looked at mega-deals, average deal size, and how different healthcare sectors fared in terms of funding. Rock Health’s report showed that 2021’s total funding was $14.7 billion, just slightly more than 2020’s $14.7 billion. The average deal size was $26.7 million, which was lower than the previous two years’ figures.
In 2022, there were significantly fewer mega-deals (rounds of $100 million or more) than in the two previous years, with only 35 rounds being tracked compared to 88 in 2021 and 43 in 2020. This was a contributing factor to the general economic slowdown. Additionally, some companies opted to avoid raising money in a tougher market environment, in order to avoid a down round, where shares are offered at a lower price than in their previous financing rounds. 2022 saw investors taking a more measured approach to startups, favoring slower growth with more established outcomes. Although the median deal size for Series A rounds of funding reached a high of $15 million, check sizes declined for B, C and D raises. In response, many startups shifted strategies. Whereas 43% of companies had sold directly to consumers in 2021, this figure dropped to 37%. This was likely due to inflationary concerns and the cost of app privacy updates, which made it more expensive to acquire users.
According to the researchers, on-demand healthcare came in first, raising $2.4 billion, while startups offering mental health tools remained in the top spot by raising $2.1 billion. Clinical workflow software saw a jump in funding, moving up to 8th place from 11th in 2021. Nonclinical workflow tools also experienced a rise in funding, raising $2.2 billion and coming in 3rd place, up from 7th the year before. As health systems faced negative margins and staffing woes, the funding for these tools proved to be a valuable proposition.
Tech giants continued to expand into the healthcare industry, but the report highlighted a more restrained focus on areas where they have already found success. For example, Google focused on developing search tools for patients and clinicians, while Amazon created a virtual clinic for commonplace maladies. According to the authors, the lack of investment in digital health does not spell the end for this sector. “2022 was an important reminder that investment fluctuates, and that solid companies can withstand financial climate shifts,” they wrote. “We believe that 2023 will be characterized by slow, steady, and maybe even uneventful strategies for both healthcare startups and established companies alike: conserving capital, reorganizing to accommodate financial volatility, and investing in technology infrastructure.”
