The year 2022 witnessed a decline in digital health funding, signaling the end of a funding cycle influenced by the COVID-19 pandemic. The investment market is expected to recalibrate to a more sustainable run rate as the focus shifts to strong horses rather than unicorns. Successful players will prioritize near-term needs while also investing in long-term growth opportunities. Disrupting healthcare is less effective than targeting transformation opportunities in operational fields. D2C startups faced challenges due to macroeconomic forces and had to focus on operational efficiency and customer lifetime value. Overall, 2022 serves as a reminder that investment in digital health is cyclical, and strategic decisions today will pave the way for future growth.
| Signal | Change | 10y horizon | Driving force |
|---|---|---|---|
| 2022 year-end digital health funding | Shift from macro funding cycle to a more sustainable run rate | Digital health funding will be more stable and sustainable | Economic changes and the end of the COVID-19-era investment boom |
| Reluctance to invest heavily in late-stage deals | Decreased focus on unicorns and more emphasis on strong performers | Late-stage digital health startups will face challenges in raising funds | Investors’ reluctance to take risks and the fear of down rounds |
| Focus on targeting transformation opportunities in operational fields | Shift from “disrupting” healthcare to focusing on operational improvements | More emphasis on operational improvements rather than disruptive innovations | Lessons learned from Big Tech’s experiences in healthcare |
| Decreased funding for D2C startups | D2C startups face challenges due to macroeconomic forces | D2C startups will struggle to raise funds and may need to diversify revenue streams | Inflation, rising customer acquisition costs, and conservative VC activity |
| Shift in focus to early-stage opportunities | Investors shift attention to early-stage digital health companies | Early-stage companies will receive more attention and larger funding rounds | Investors’ desire for less inflated valuations and lower risk investments |
| Focus on efficiency gains and clinical workflow improvements | Increased focus on nonclinical and clinical workflow solutions | Health systems will invest in software and technologies to improve efficiency | Rising costs, staffing challenges, and the need to streamline operations |
| Reorientation of Big Tech’s healthcare initiatives | Big Tech players focus on operational fields and core expertise | Big Tech will focus on areas where they have expertise and experience | Volatile stock prices, declining profitability, and the need for new revenue opportunities |