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Digital health's burst bubble

Erin Brodwin
Oct 5, 2022
Data: RockHealth; Chart: Axios Visuals

Digital health's venture funding bubble has officially burst, with companies in the sector raising the lowest amount since Q4 2019, per Q3 2022 data from venture firm Rock Health.

Why it matters: Industry observers have witnessed popping sounds since the first quarter of this year, amid global instability and a bear market. The data show investors are increasingly cautious, writing smaller checks at earlier stages in companies' lifecycles.

What they're saying: "Smaller deal size — rather than fewer deals — pushed down the overall quarterly total," the Rock Health analysts write. Two other trends are impacting the funding slump, including:

  • Investors are reprioritizing their investments in tech-focused and tech-forward companies.
  • The exit market is "beginning to thaw," they note.

By the numbers: Digital health companies raised $2.2 billion in Q3 2022 across 125 deals, according to Rock Health.

  • Year-to-date funding to the sector — including Q3 '22 — totaled just $12.6 billion across 458 deals.
  • Q3 also had only six Series C+ raises, representing less than 5% of the quarter’s total deal volume.

Flashback: That's a dramatic fall from last year's high when investors poured a record-breaking $29.2 billion into the sector and inked 736 deals.

Yes, but: Despite a slump in general activity, there's still been some standout action this quarter, such as...

  • Amazon's $4 billion One Medical buy, which had entrepreneurs and observers talking of a nascent hybrid care war.
  • CVS forking over roughly $8 billion for value-based care enabler Signify Health in a move that appeared to beat out Amazon.
  • Akili wrapping up its Palihapitiya-led SPAC deal and raising more than $163 million from the transaction.

Between the lines: Rock Health analysts believe there are two explanations for the drawdown in late-stage health tech investment, besides a simple lack of deals:

  1. Some of the deals that would have taken place this year were accelerated to 2021 to take advantage of last year's more bullish market. "Many late-stage deals were raised early to strike while the iron was hot in 2021," writes Rock Health researcher Mohair Somaiya.
  2. Other deals are happening quietly, via round extensions and venture debt. "We hypothesize that some of the 'missing' late-stage digital health deals have taken place this year, but without the usual fanfare typical of a boom cycle," he adds.
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