Digital health funding grew by 6 deals in Q1

The first quarter of 2023 holds the new reality for digital health funding, despite a modest increase in mega deals.

A report by Rock Health, a research and digital health venture firm, showed that 132 deals totaled $3.4 billion in funding for the first three months of 2023. Six mega deals with funding of more than $100 million account for 40% of this total. were from six deals Monogram Fitness ($375 million), shift key ($300 million), Ideal ($203 million), shift maid ($200 million), Gravy ($179 million) and Vitalize Health ($100 million).

RELATED: Digital health funding takes a dive in 2022

There have been as many big deals in the last three months as in the entire second half of 2022. But despite this early momentum for larger deals, funding has slowed across the sector. During the first three months of 2023, digital health companies received $3.4 billion in funding. In each of the past two years, first quarter totals were above $6 billion.

Experts say founders seeking venture capital backing do not have as much leverage as in previous years.

“Investors are becoming more choosy in terms of the solutions they see in the market,” said Peter Mikka, national health technology leader in Deloitte’s audit practice. “They want to see a track record. They want to see the size of [total market demand],

Investors echoed similar sentiments. Their expectations for digital health companies have changed radically over the past 18 months.

“If anyone doesn’t believe that we are in a different market position, [Silicon Valley Bank’s failure] Put a stamp on it,” said Dr. Justin Norden said. “The world is different.”

Those six big deals lifted the entire sector, The Rock Health reports. Adriana Krasniansky, research manager at Rock Health, said these deals came from venture firms that had leftover financial reserves and are choosing to fund select companies.

Not a Modern Healthcare subscriber? Sign up today.

Without these reserves other venture firms are stalling. Even with six deals over $100 million, the number of later-stage deals fell off sharply. In 2021, there are 149 Series C and subsequent deals. In 2022, there were 70 in total. Through the first quarter in 2023, only 10 later-stage deals were in place. There were 183 deals in the first quarter of 2022 compared to 132 in 2023.

“There used to be an exemption for health tech compared to other parts of technology because people knew that healthcare is hard,” Norden said. “When capital is more expensive all those models are soured to some degree from an investor’s perspective.”

Uncertainty at the root of transfer expectations

While investors and experts are still encouraged by healthcare’s need for new digital solutions, they say the overall environment for founders won’t be as favorable.

“I think it’s going to be a tough year for founders,” Krasniansky said. “The funding path is really tough right now.”

The shift is prompting some founders to consider exit opportunities. Digital therapeutics company Peer Therapeutics said last month it was without financial help Liquidation or reorganization may be required. Mindstrong, a digital mental health company, sold its technical assets to a former competitor After discontinuing its patient service offerings last month.

Experts say macroeconomic factors are at play, but the nascent nature of digital health and uncertainty over how companies will value it over the long term may be partly to blame.

“What kind of multiples do you assign on early growth stories that have yet to achieve profitability?” asked Scott Schoenhaus, managing director of healthcare IT equity research at KeyBanc Capital Markets. “I think that’s probably why you’ve seen the pullback from venture capitalists and private equity funding.”

This story was first published in Digital Health Business & Technology.

Source link

Leave a Comment