Annual digital health funding dropped in H1’22, but it’s not all bad news

The news: Digital health startup funding dropped to $10.3 billion in H1’22 from $29.1 billion in H1’21, according to a new Rock Health Report.

But it’s not all doom and gloom: VC funding is still higher than pre-pandemic levels.

Average US digital health funding during H1’19 was $8.1 billion with an average of 414 deals, per Rock Health. That’s fairly consistent with 2018 ($8.6 billion with 395 deals) and 2017 ($6 billion with 377 deals).

The fact that funding for H1 this year is still higher by more than $4 billion versus pre-pandemic levels is a good sign for startups. Inflation and a looming recession aren’t making healthcare investors as cautious as they were from 2017 to 2019.

The larger trend: Despite the annual funding drop this year, investors interest in Series A rounds hasn't unwavered.

  • Series A rounds raised $18 million in H1. That’s the same as H1’21, according to Rock Health.

We witnessed the Series A funding wave occur over the past few months. Especially as our previous prediction that fertility and women’s health startups would be a bright spot for funding this year rings true.

  • For example, in April, women’s health startup Evernow raised nearly $29 million to support women through menopause.
  • And in February, HerMD raised $10 million in Series A funding to open new clinics and expand their telehealth offerings.

What’s next? Series A funding activity is good news for entrants addressing nonclinical labor shortages—a major problem for health systems right now.

  • Most health systems and physician groups are behind on their 2022 revenue goals—thanks in part to labor shortages. Almost half of health organizations say they’re experiencing labor shortages in their billing departments, per R1 RCM.
  • As a result, many health execs (26%) are interested in adopting new billing or revenue cycle management software to eliminate redundant systems.
  • In fact, we already saw some digital health startups addressing nonclinical work gain traction during H1. Hint Health scored $45 million to help its network of 2,400 direct primary care physicians manage enrollment and billing, for instance.