After two years of record-breaking investment in digital health, capital flow into the sector took a dive in the first quarter of 2022.
The global digital health market saw funding decrease 36% from the fourth quarter of 2021, totaling $10.4 billion, as investors reacted to supply chain woes, the Russian invasion of Ukraine and a volatile stock market, according to a new CB Insights report.
While all tech sectors received smaller funding totals than the previous quarter, digital health plunged much further than others did. Fintech and retail tech saw 18% and 11% declines in global investment, respectively.
Investors shelled out smaller amounts on average, too—megarounds, or funding rounds of $100 million or more, fell by 52%. Megarounds totaled $4.4 billion in the first quarter, making up just 42% of all digital health dollars invested compared with 57% in the previous quarter.
Of the $10.4 billion in total investments, U.S.-based startups raked in $7.2 billion, according to CB Insights. The U.S. represented half of the quarter’s total number of deals globally after contributing 47% of the previous quarter’s deals. The country also captured 56% of late-stage deals.
After digital health exits yielded poor returns last year, initial public offerings stalled in the first quarter of 2022, with just one IPO versus 23 IPOs in the previous quarter and no deals involving blank-check companies, or what's often called special purpose acquisition companies (SPACs), compared with six SPAC deals in the fourth quarter of 2021.
However, many analysts predicted plenty of digital health consolidation in 2022, and this year’s M&A activity appears to be on track with those expectations. The sector notched 138 M&A deals in the first quarter, in line with the 137 deals landed the previous quarter.
Investors also demonstrated continued market excitement about digital chronic disease management solutions. Of the six unicorns born in the first quarter of 2022, four of those target chronic diseases: Somatus raised $325 million to target kidney and renal diseases; Athelas banked $132 million for its remote monitoring tech for chronic conditions like hypertension; Omada Health grabbed $192 million for its personalized plans for diabetes, musculoskeletal conditions and other issues; and ConcertAI nabbed $150 million for its real-world data solutions for cancer research.
The two remaining newly minted unicorns were Transcarent, Livongo founder Glen Tullman’s latest venture that takes a premium-free approach to employer-sponsored healthcare, and Betterfly, a Chilean insurtech startup that helps employers boost healthy habits. The companies banked $200 million and $125 million, respectively.
Conversely, investor interest in mental health tech wavered as the market and public companies like Talkspace and Cerebral come under scrutiny. Mental health tech funding fell 60% from the previous quarter, hitting $792 million, the lowest funding level for the subsector since the fourth quarter of 2020.
Telehealth funding also slumped during the quarter, declining 32% quarter over quarter to $3.2 billion. The raw number of telehealth deals did increase 12%, though, indicating investors are simply forking up smaller sums.
The quarter could indicate a slower year for digital health startups overall as the pandemic-induced funding frenzy takes a backseat. Analysts expect M&A activity to hold steady, but external factors may continue to rock the global public and private markets.