As health systems tightened belts, VC funding fell

Venture capital funding for healthcare IT fell off a cliff in Q4 last year, with investment more than 75% off the average quarterly pace in 2021, a new PitchBook report finds.

Driving the news: Health systems are tightening their belts to ensure they have sufficient operating cash, which means less interest in paying for the earlier-stage (and oft-clinically unproven) tech solutions that draw venture dollars.

• "Health system purchasing is particularly sensitive to weakness in the VC funding market," the report notes, adding that health system sell cycles are around a year long and require extensive approval.

By the numbers: VC investment fell to $451.3 million across 43 deals in Q4, per the report.

• Meanwhile, private equity deal activity in HCIT was more resilient, with 134 deals — a 30% drop from 2021.
• VC and PE investors exited 48 companies in 2022, less than 50% of 2021’s figure and 34.2% behind 2020’s.

Of note: The bottleneck in exits impacts private capital availability, the report says.

• "Without substantial distributions from previous fund commitments, LPs lack new capital to deploy," the report says.

Zoom in: VC funding in electronic health record and clinical information technology dropped sharply in Q4, the report notes.

• With a dearth of late and growth-stage rounds, startups raised only $84.0 million in the quarter — the lowest reading since 2020 and less than 25% of Q3’s figure.
• PE deal activity in the segment also slowed, with just 28 deals in 2022.
• PE deal activity in healthcare IT has proved more resilient, with 134 deals in 2022, a 30% decline from 2021.

Yes, but: Despite the funding cliff, the report projects the EHR and clinical information market will reach $47.1 billion by 2026, at a CAGR of 11.3%.