Sputtered out: Digital health funding in 2022 by the numbers

Digital health venture capital in 2022 was the tale of two funding markets. 

The first three months started out nearly as hot as 2021. From January to March, there was $6.8 billion invested into digital health companies, according to Digital Health Business & Technology’s funding and M&A database. There were 18 large funding deals valued at more than $100 million. On a near-weekly basis, companies were announcing they had achieved ‘unicorn status,’ achieving valuations estimated at more than $1 billion. 

But starting in the second quarter, the market gradually fell off a cliff.  

There was $4 billion invested in the second quarter and $2.9 billion in the third. The last three months of the year only saw $2.5 billion invested across 146 deals, including a large chunk of it coming from a single deal,a $330 million round for DispatchHealth. While the total for 2022 was the second-best year since Digital Health Business & Technology started tracking this data in 2010, the fourth quarter was the lowest quarterly funding total since 2019.

In total, there was approximately $16.4 billion invested in digital health in 2022, a sharp decrease from $30.2 billion the prior year but up from $14.8 billion in 2020. 

Experts say 2023 could be even worse. 

“What I'm seeing right now are [venture firms] marshaling their resources to make sure they have enough to fund their existing portfolios when those [portfolios] are more capital intensive, series B and beyond,” said Asher Rubin, a partner at Sidley Austin who works with digital health companies on mergers and acquisitions, funding rounds and other transactions. “I am still seeing funds willing to fund [companies] on the early-stage side.” 

The trend began in 2022 as there was a significant lack of large funding rounds as the year went on. In fact, there were only two in the entire fourth quarter of 2022. Even DispatchHealth’s deal wasn’t traditional in the sense that it took months to come together. While deals happened quickly in 2021, DispatchHealth CEO Mark Prather said the market has changed. 

“It is a different capital environment. We've been working on this for a while, call it six months,” Prather said. “We are at a stage of the company where this is, not definitively, but likely the last private raise. It was just a matter of when we did it.” 

There were only 23 Series D and E rounds in 2022, compared with 48 in 2021. Of the biggest deals, seven came in the first quarter and four of them were in January. 

Alice Zheng, a principal at early-stage venture fund RH Capital, said it's harder for companies and venture firms to come together and produce late-stage deals in this environment.  

“Growth-stage investing came to a halt pretty much,” Zheng said.  

According to Zheng, public markets and macroeconomic conditions make it harder for investors in later-stage companies to achieve profitability, so venture firms are thinking more carefully before writing checks. She said founders should adjust their expectations to the amount of time to secure a deal. 

“If you were expecting a round in two or three months a year and a half ago, you should expect double that [now],” she said. 

Here are some other key data points from the past year in digital health venture capital funding.  

Top categories for investment: 

1. Health Information Management: 228 deals (234 in 2021) 

2. Telehealth: 185 deals (224 in 2021) 

3. Mobile Health: 132 deals (160 in 2021) 

4. Service Providers: 45 deals (31 in 2021) 

5. Personal Health: 41 deals (55 in 2021)  

Top sub-categories: 

1. Telemedicine: 167 deals (198 in 2021) 

2. Clinical Decision Support: 77 deals (51 in 2021) 

3. Apps: 67 deals (96 in 2021) 

4. Practice Management Solutions: 57 deals (50 in 2021) 

5. Sensors: 43 deals (33 in 202) 

Top rounds by stage: 

• Seed Funding: 193 deals (169 in 2021) 
• Series A: 157 deals (167 in 2021) 
• Series B: 103 deals (131 in 2021) 
• Series C: 49 deals (75 in 2021)  
• Series D: 13 deals (33 in 2021) 
• Series E: 8 deals (15 in 2021)   

Top states: 

1. California: 159 deals (193 in 2021) 

2. New York: 81 deals (112 in 2021) 

3. Massachusetts: 45 deals (52 in 2021) 

4. Texas: 18 deals (28 in 2021) 

5. Washington: 18 deals (10 in 2021)