Digital-health investing is in free fall — but early-stage deals are still a bright spot in the industry

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  • Digital-health investing fell to $7.1 billion in the second quarter, according to CB Insights.
  • That represented a 32% quarter-over-quarter decrease and an eight-quarter low.
  • Early-stage deals continue to be a bright spot in the health-tech industry.

Following years of growth and billions of dollars in investments, the health-tech cooldown is here.

Digital-health funding fell by 32% quarter over quarter in the second quarter of 2022, to $7.1 billion, an eight-quarter low, according to CB Insights’ latest “State of Venture” report.

The second-quarter numbers paint a bleak picture for the once gangbusters health-tech industry. But the decline mirrors the startup industry, which has cooled in 2022 as venture capitalists have pulled back on funding after a record-setting run over the past few years.

So far this year, health-tech funding has reached $17.6 billion through 1,255 deals. The numbers aren’t wildly out of step with prior years: 2018, 2019, and 2020 saw $25.6 billion, $21.4 billion, and $32.6 billion in deals for the full year. But the first half of 2022 was far below 2021’s $59.3 billion investment across 3,107 deals.

The average deal size so far in 2022 is $17 million, in line with 2020’s results but below a record $25 million in 2021.

And while mergers and acquisitions remain the exit of choice compared with initial public offerings and exits through special-purpose acquisition companies, digital-health dealmaking dropped sharply in the second quarter: 32 deals were completed, down from 144 at the beginning of the year and a peak of 171 in the second quarter of 2021.

Meanwhile, two SPACs and one IPO were completed in the second quarter, down from 18 and four in the second quarter of last year.

Industry insiders have long expected a drop-off in health-tech funding. In a survey conducted in March by the VC firm Venrock, 90% of respondents indicated they expected digital-health funding to decrease in 2022, with 30% saying they expected a dramatic decline.

But there are still opportunities for health-tech companies to succeed, especially compared with the overall VC downturn. Two of the top 10 global equity deals in the second quarter were digital-health startups: Resilience, which raised a $625 million Series D, and Ultima Genomics, which raised a $600 million Series A.

Insight Partners and General Catalyst were the top VC firms in the second quarter by company count, investing in nine and seven startups.

Additionally, four of the top 10 global M&A exits in the second quarter were healthcare companies : GSK’s $3.3 billion acquisition of Affinivax; Germany’s Astorg Partners’ $2.6 billion acquisition of CordenPharma International; Goldman Sachs’ $1.9 billion acquisition of Norgine; and France’s BC Partners’ $1.2 billion acquisition of Havea.

Within health tech, young digital-health companies continue to dominate the investing landscape, according to the CB Insights report: 59% of deals in the first half of the year were early-stage startups, compared with 17% that were midstage and 10% that were late-stage startups.

And eight health-tech unicorns were born in the second quarter: CareBridge, Biofourmis, NexHealth, Tessera Therapeutics, IntelyCare, BostonGene, Oura, and Clarify Health. That number was down from 10, 11, and 13 minted in the second through the fourth quarter of 2021 but as many as were born in the first quarter of this year.