Q1 2023 Digital Well being Funding Reaches $3.4B Throughout 132 Offers –

What You Ought to Know:

• 2023 began off with the hallmarks of a rebound 12 months. Whereas This fall 2022 signaled the tail finish of the digital well being funding cycle, January and February funding numbers started to counsel that sector funding was slowly however certainly inching again upwards. Inflation was easing ever so barely. Buyers have been rediscovering their confidence and launching new initiatives, signaling optimism within the sector, in response to a brand new Rock Health report.
• Nevertheless, latest information—the collapse of Silicon Valley Financial institution, the seizure of Signature Financial institution, Moody’s downgrading of financial institution credit score scores, and one other Fed price hike—was a stark reminder that the uneven waters of 2022 aren’t over but.

Key Tendencies and Insights from Q1 2023 – Digital Well being Funding

There’s no denying that Q1 2023’s financial situations, financial institution scares, and regulatory modifications have digital well being startups of all sizes nervous, whether or not they’re attempting to boost their subsequent funding spherical or ready for the proper time to exit.

The next key tendencies from Rock Health’s report are a evaluate of the enterprise, banking, and coverage waves breaking inside digital well being, coupled with insights relating to the volatility of the modern-day regulatory panorama, how the monetary market appears completely different for everybody, and the way small-scale startups have it the toughest.

Q1 Funding Soars, However 2023 Might Battle to Catch As much as 2019

Q1 2023 U.S. digital well being funding closed with $3.4B throughout 132 offers, with a mean deal measurement of $25.9M. Whereas this quarter exceeded each This fall 2022’s $2.7B and Q3 2022’s $2.2B funding pots, Q1 isn’t sufficient to sign a brand new “bull run.” If funding for the following three quarters matches the common funding throughout the prior three quarters, 2023 is on tempo for the bottom degree of annual funding since 2019. The reality stays that the founder-friendly market of 2021 and early 2022 has tilted sharply towards traders.

Notably, inside its $3.4B raised, Q1 2023 noticed heavy illustration of mega offers. After solely six digital well being raises over $100M throughout Q3 and This fall 2022 mixed, Q1 2023 logged six megadeals from Monogram Well being ($375M), ShiftKey ($300M), Paradigm ($203M), ShiftMed ($200M), Gravie ($179M) and Vytalize Well being ($100M)—accounting for 40% of the quarter’s complete digital well being funding.

Silicon Valley Financial institution’s Collapse

SVB’s collapse practically precipitated a liquidity disaster within the sector, and issues circulated that startups may want to interact in distressed debt buys or increase emergency bridges—presumably with “lender-friendly” phrases or at slashed valuations—to be able to safe working capital. It’s value stating that not all digital well being startups carried the danger burden equally. Startups with well-established traders have been extra prone to have the assurances of money floats and down to earth views from advisors who’ve been across the block just a few instances, whereas these with greener syndicates have been left not sure of whether or not their very own funders might even climate the storm.

After seeing their traders function in disaster mode this March, a number of digital well being founders could really feel compelled to re-evaluate their cap tables and presumably transfer ahead with completely different traders for future raises. Startups have been left with one other conundrum after SVB’s collapse—which banking establishment to decide on subsequent. SVB was identified to supply startups loans throughout high-growth durations and took on firms that have been too early to show product-market match. Whereas late-stage startups probably have the capital and credit score necessities to financial institution with high-street establishments, nascent groups or these based mostly outdoors of the US might want to flip to extra restrictive and costly options to determine monetary operations and safe loans.

The IPO Market and Q1

Q1 2023 logged one other quarter with zero digital well being IPOs. Digital well being shares began 2023 buying and selling nearly 50% decrease than they did at first of 2021, pushing some recently-exited gamers like Pear Therapeutics to discover going personal. No later-stage digital well being gamers felt compelled to enterprise into IPO territory this quarter, fearing that the market would yield bottom-barrel situation costs.

In December 2022, healthcare knowledge startup Komodo Well being raised $200M alongside a restructuring plan that laid off 9% of its workforce. In January, hybrid care supplier Carbon Well being closed a $100M Collection D whereas additionally trimming its RPM and persistent care divisions and finishing its second spherical of layoffs.1 That very same month, nurse staffing resolution Shiftkey introduced its $300M increase, accompanied by a quartet of latest executives. Related health startup Tonal is rumored to be pursuing personal funding at a $200M-$300M valuation, an almost 90% decline from the $1.9B valuation it floated again in September 2022.

Regulatory Developments and Adapting Digital Well being Startups

If circumstances weren’t treacherous sufficient, digital well being startups are bracing for impending regulatory modifications. In Q1 2023, an acronym soup of federal businesses (FDA, CMS, DEA, FTC) introduced preliminary steps and timelines for refining insurance policies throughout digital well being. These revised tips have far-reaching impacts, affecting telehealth reimbursement, managed substance distribution, healthcare service pricing and rebates, and affected person knowledge administration. High of thoughts is the announcement to finish the COVID-19 public well being emergency (PHE), which is slated to run out on Might 11, 2023.

Within the realm of telehealth supply—maybe the most important space of healthcare enlargement through the pandemic—telemedicine will formally lose its standing as an excepted benefit2 and sure federal penalties for HIPAA non-compliance of telehealth platforms will likely be reinstated. In alignment with PHE’s conclusion, different authorities our bodies are rolling again pandemic-era measures. State businesses are starting to unwind expanded Medicaid protection along with the expiration of a 2020 federal provision requiring steady enrollment.

States resume disenrollments, anyplace from 5 to 14 million People stand to lose Medicaid protection and related advantages, with the hardest-hit populations being low-income youth and dealing people with out employer-sponsored plan entry. When it comes to knowledge privateness and safety, Congress launched the Upholding Protections for Well being and On-line Location Knowledge (UPHOLD) Privateness Act to control firms’ use of well being knowledge, the FTC settled investigations into BetterHelp and GoodRx with hefty fines, and the FDA enhanced cybersecurity necessities in regulatory purposes for medical units. Lastly, on the billing and coding entrance, CMS issued its 2024 Medicare Benefit Advance Discover to root out aggressive upcoding practices.