During the first quarter of 2023, global funding for digital health remained stable, as the sector successfully secured $3.4 billion for the second consecutive quarter. This milestone represents the first instance of sustained funding without a decline on a quarter-over-quarter basis since the fourth quarter of 2021.

Why it’s notable:

• 2023 may serve as a turning point, as funding for digital health forges ahead in spite of the current climate. According to a report from CB Insights, the digital health sector witnessed 387 deals in Q1 of 2023, showing a marginal uptick from the 383 deals recorded in Q4 of 2022. Despite an overall decline of 13% in venture capital funding across various sectors, digital health companies managed to hold their ground; defying the decreasing funding trend. Overall, however, funding is still at its lowest level in years. 

• 44% of funding went to care delivery and navigation companies, a total of $1.5BN. Monitoring, imaging, and diagnostics tech startups raised $700M, while drug research and development companies came in third with $400M. Digital therapeutics and wellness technology raised $200M, however they also experienced the lowest average disclosed deal size. Additionally, the report noted six mega-deal, which made up 40% of the quarters digital health funding. 

• According to the report, there were no IPOs observed, and digital health stocks traded nearly 50% lower at the beginning of 2023 compared to the start of 2021. Consequently, late-stage digital health startups are compelled to re-engage with investors. In Q1 of 2023, there was an increase in the proportion of investments at Series D and beyond, relative to other deal stages compared to 2022. 

Industry implications:

• The market dynamics that favoured early-stage companies in 2020 and 2021 have now shifted towards more established players and investors. The presence of numerous mega deals in Q1 indicates that these established players and investors are carefully manoeuvring through the market, strategically utilising their accumulated reserves to support specific teams and projects that they are already familiar with. In response, innovators are redirecting their focus away from rapid growth and instead prioritising the establishment of sustainable funding cycles over the long term.

• The regulatory environment for digital health is also shifting. As the COVID-19 public emergency fund comes to an end, government agencies are refining digital health policies. In response to this, certain digital health startups that relied on COVID-19 funding may have to change tact, while new regulations will pave the way for new innovative opportunities.  

• The digital landscape has changed dramatically since 2021 – unchecked demand, relaxed regulations, and easy access to funding have ended. Focus is now shifting to longevity and responsible growth across the sector.  Yet, opportunity remains for leaders in the field to drive prolonged value from digital health if they foster innovation rather than suffocate it, and focus on strategic initiatives. 

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