A new report release by CB Insights found that investors are perhaps finally putting the brakes on the runaway sector that is digital health with funding declining precipitously in the first quarter of the year. In Q1, global digital health funding was $10.4 billion, a 36% decrease from the previous quarter where $16.2 billion was invested. The first-quarter funding total also marked a 6-quarter low, according to the report.
The quarter-on-quarter decline in digital health funding was especially stark considering that other sectors also experienced investment reductions but no where as large as that in digital health — for instance, fintech and retail tech dropped by only 18% and 11 % respectively from the previous quarter.
The 36% reduction in global digital health funding was mirrored in the U.S. as well. After achieving an all-time high in Q4 last year, U.S.-based digital health startups raised only $7.2 billion in Q1 of 2022, a of 37% decline. Companies with headquarters in the U.S. account for 69% of total digital health funding and half of all deals.
Companies raising mega rounds — where more than 100 million is invested — encountered a challenging climate. In the first quarter, mega round funding was more than halved to $4.4 billion, down from $9.2 billion in Q2, 2021.
Within digital health, the sub-sector that took a real hit is mental health. Funding tumbled 60% to $792 million, from a whopping $1.97 billion in Q1, 2021. The first-quarter amount also reflected the least funding that mental health startups have jointly received since Q4 of 2020. Of the funding that did go into the sector, 84% went to startups based in the United States.
Perhaps it is not a surprise that behavioral and mental health investment took such a big hit. In the recently-concluded INVEST conference in Chicago, Michael Yang, managing partner of OMERS Ventures, said on a panel discussion that behavioral health is largely overfunded and founders are under tremendous pressure to hit metrics.
Digital therapeutics also took a big hit this past quarter, bringing in just $495 million in the first quarter of the year compared to $1.04 billion in Q4 of 2021, a drop of 53%.
The decline in telehealth was not as large as in digital therapeutics or mental health. It experience a 32% reduction with companies raising a total of $3.2 billion in Q1 2022 from 4.7 billion in the last quarter of 2021. However, there were more deals in this quarter — 12% higher than in Q4, 2021. Most of the $3.2 billion funding in telehealth —$2.5 billion of it — went to United States companies. Europe clocked in with $311 million in telehealth funding, followed by Asia with $304 million. Of those telehealth deals in Q1 of 2022, 52% went to early-stage companies and 21% to mid-stage.
However, not all areas within digital health suffered a decline this past quarter. In particular, funding for both clinical trials tech as well as health IT grew slightly from Q4 of last year to Q1 of 2022. Clinical trials tech garnered $585 million in the first quarter, compared with $584 million in Q4 of 2021. Health IT brought in $2.3 billion in Q1, 2022, up from $2.1 billion in Q4 of last year.
The first quarter saw six new unicorn companies emerge, compared with 13 newly-minted unicorns in the fourth of quarter of 2021. Of those six, three were in telehealth.
If the funding faucets are flowing less well in the private markets, in the public markets it almost ran dry. The first quarter of 2022 had just 1 IPO, a 96% drop off from Q4 of 2021, which had 23 IPOs. Paralleling this steep drop off was the situation in SPAC deals: Q1 of 2022 had none while Q4 of 2021 had 6. The report speculated the sharp decrease in public exits could be due to lackluster IPO returns last year.
M&A for digital health did not experience the same drop off, according to the report. It has held steady at more than 100 for the past six quarter, peaking at 170 deals in the second quarter of 2021. In the first quarter, it stood at 138.
Photo: champc, Getty Images; Charts: CB Insights