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Digital health's bubble burst spooks new investors

<span style="background:#ff942f; padding:3px 5px;color:white;">New</span> and <span style="background:#ffca8c; padding:3px 5px;color:#333335;">repeat</span> digital health investors
Data: Rock Health; Chart: Nicki Camberg/Axios

With global digital health funding dipping to its lowest levels since 2020, some investors are spooked, a new Rock Health report finds.

Why it matters: The health tech bubble burst isn't just leading to fewer investments in the sector — it's also affecting the types of backers in the industry, Rock Health notes.

Catch up quick: After years of over-investment and COVID-related exuberance around telehealth that peaked in 2021, the past six months have seen a severe market correction among digital health companies.

By the numbers: New investors dominated health tech deals from 2012 until 2016, when veteran backers began to edge them out, and that gap widened into a chasm in the first half of this year.

  • In 2012, the ratio was 109 to 51, with new investors clearly leading the charge. That trend held steady through 2015.
  • In 2016, veteran backers edged out new investors for the first time.
  • From 2018 onwards, veteran backers began dominating sector deal-making.
  • And in the first half of 2022, roughly 70% of digital health investors were veteran backers — a sign that new investors aren't rushing the sector as they once did.

What they're saying is next: Rock Health report authors Ashwini Nagappan and Adriana Krasniansky think veteran backers will continue to lead dealmaking for the near-term.

  • That dynamic could have implications for the types of companies that get backed, they add.
  • "Because veteran digital health investors appear ready to stay the course ... we expect that this trend will disproportionately favor companies that already have committed veteran digital health investors on their cap table," note Nagappan and Krasniansky.
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