Regarding health tech funding in 2022, there’s no question that we are in a completely different reality today than we were last year. After a huge pandemic-driven boom in digital health investing that we saw in 2021, the market seems to be facing some serious headwinds.
In the third quarter of 2022, health tech funding amounted to $2.2 billion – falling significantly behind Q2 2022’s $11 billion and becoming the smallest quarterly funding raised since 2019.
The dramatic drop in deal value corresponded with a decrease in the total number of unique investor transactions, which declined by 35% in Q2 2022 as compared to 2021, according to a recent Health Tech 50 report published by Kilo Health and Galen Growth.
Health Tech 50 is a ranking of the most prominent dealmakers in health tech that features both newcomers and pioneers of the space. The ranking has recently gone live, having listed 50 investors accelerating the transition toward digital health.
It is worth noting that the digital health sector wasn’t alone in the pullback. Global venture funding surpassed $160 billion in Q1 of 2022, down 13% from the amount raised in Q4 of 2021, according to Crunchbase.
The good news is that, though the pace of investments has dropped, VC funding for healthcare companies is still ahead of where it was back in 2020. And while it’s true that increased interest in digital health has cooled off, health tech startups remain a focus for investors – even even though the dynamics of the market have shifted.
Shifts in funding allocation by stage
The Health Tech 50 report illustrates that the investor distribution by deal stage type in the digital health sector remained marginally affected. The participation of growth-stage investors in digital health deals increased by 5% to reach 36%. Early-stage deal participation, in turn, dropped to an all-time low of 60%.
Oncology, maternal care, mental health – what’s the focus of investors?
Compared to 2021, when mental health and virtual care solutions dominated the market, in 2022, there’s been a shift in the trends affecting investment. Supply chain disruptions, the Russian invasion of Ukraine, record-high inflation, and rising interest rates influenced the areas that were getting the most funding.
According to Health Tech 50 and Galeon Growth report, Teleconsultation and Disease Management were the sectors that attracted the most investors in 2022, followed by Medical Imaging and Wellness Apps, both representing 6% of the total transaction share.
Speaking of investor participation by therapeutic area, digital health startups that focus on complex disease states such as cancer and mental illness saw the most investment activity in 2022.
With close to 76% of the transaction volume share, the disease-specific sector saw more than 3x higher participation of investors as compared to disease-agnostic solutions. Within the disease-specific transactions, Oncology saw the highest participation of investors (9%), followed by Mental Health and Women’s Health being the second and third, respectively.
Investors that are standing behind the best deals in health tech
The total funding for the sector in 2022 was dominated by a few mega-rounds, including kidney care platform Somatus’ $325 million series E. Other big rounds included Freenome (the early cancer detection company) and its $290 million series E.
Despite the health tech market being downward this year, the investment space is still looking robust and full of opportunities.
According to the Health Tech 50 ranking, some investors are making big waves in this exciting field. The rankings were based on various factors, including direct parameters (such as the number of portfolio companies and exits in the last 18 months), as well as indirect metrics (brand awareness score, public score, and more).
Here are the top most prominent funds on the list:
- Khosla Ventures (Early Stage)
- General Catalyst (Growth)
- Google Ventures (Corporate)
- MTIP (Public’s Favourite)
The world of healthcare is a hotbed of innovation, and it’s clear that the industry is in dire need of transformation. Yet there are still challenges ahead — and these investors put the money where their mouths are to address them.
See the full ranking and download the report here: healthtech50.com
About Health Tech 50
Hosted by Kilo Health in partnership with Galen Growth, Health Tech 50 is a platform that was created to acknowledge forward-looking VCs allocating capital to speed up the transition beyond traditional healthcare. A celebration of the most powerful accomplishments across the global health tech community, it is also a reference point for VCs, LPs, and entrepreneurs across the globe. Learn more at healthtech50.com.
About Kilo Health:
Kilo Health is one of the leading digital health and wellness companies, with 4+ million users worldwide. As of 2022, Kilo Health is recognized as the second fastest-growing company in Europe on the Financial Times ranking Financial Times 1000, the second-fastest growing company in Central Europe on the Deloitte Technology Fast 50 list, and the #1 Employer of 2021 on Meet Frank.
About Galen Growth:
Galen Growth is the leading HealthTech intelligence, analytics, and advisory firm, empowering Fortune 500 companies and leading investors to fast-track their growth strategies. Founded in 2016 by Digital Health experts, Galen Growth thrives on supporting its partners to solve global healthcare system pain points. Learn more at www.galengrowth.com.
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