Why Q3’s low digital health fundraising total shouldn’t raise any red flags – MedCity News
Investment in digital wellness companies is definitely slowing down, but experts contend that this trend shouldn’t be a cause for major concern.
Digital health’s Q3 saw the lowest quarterly funding total inside the past 11 quarters, according to a Rock Health report released on Monday. Digital health companies raised $2. 2 billion across 125 deals in Q3, down from $6. 1 billion throughout 188 offers in Q1 and $4. 1 billion across 141 deals in Q2.
At this pace, it is doubtful that will this year’s digital wellness fundraising amount will reach even half of last year’s $29. two billion total. However, that doesn’t mean we should panic, according to Ian Wijaya, managing director at investment bank Lazard .
“It’s vital to zoom out and remind ourselves that it was the 2020 plus 2021 financing environments that were unusual, and that what we have been seeing so far within 2022 will be a transition back toward a more sustainable asset pricing environment relative to interest rates, catalyzed by the particular Federal Reserve but also an increasing degree of discernment by market participants about what comprises the high quality, investable ‘must-own’ business, ” he said in an email.
Deena Shakir, partner in Lux Capital , agrees. She pointed out that will across sectors, most venture-backed companies that didn’t have to increase money chose not to, and many investors also decided to wait out the summer for ostensible volatility to become more stable by fall.
Shakir predicts that Q4 will be busier than Q3 in terms of investment activity and volume, but she does not expect the digital health sector to return in order to the “frenzied exuberance associated with 2021. ” To her, there is still too much macroeconomic uncertainty and market headwinds.
In Q4, we’ll likely see a continuation of consolidation across the electronic health sphere, based on Alyssa Jaffee, partner at 7wireVentures . She pointed to CVS Wellness ‘s acquisition of Signify Health , as well as Signify Health’s own acquisition of Caravan Health while examples of such consolidation.
The girl added that will more acquisitions are expected in order to come because well-funded players look to expand their products plus services in order to existing customers. For example, Headspace ‘s lateral acquisition associated with Shine — an app designed to be inclusive within providing mental health support to all — illustrates consumer demand with regard to digital health companies to deliver culturally competent services that meet the needs of all patients, the girl pointed out.
Jaffee also cited Ro ‘s purchase of male fertility startup Dadi as another deal that demonstrates horizontal consolidation trends “to match companies with tangential specialty conditions and close product fit. ” Ro started out focusing on erectile dysfunction, and it jumped on the opportunity to incorporate male fertility, a related specialty.
On another side of the combination trend, Amazon ’s $3. 9 billion purchase of One Medical is usually an example of a large player seeking to disrupt traditional providers and fee-for-service arrangements. We might see more of these types of deals as well, according to Jaffee.
However , it’s unwise regarding startups in order to continue to rely solely on “unsustainable consumer buy tactics, ” Shakir said. In the next year or two, successful digital health companies will win out because of strong business fundamentals plus paths in order to profitability, the lady contended.
Regardless of the market atmosphere, Jaffee believes digital wellness companies that will always become successful are ones that will focus on empowering an informed, connected health customer. She stated this is more crucial compared to ever like healthcare shifts to greater levels of consumer self-management.
“Companies focused on developing a sustainable, category-defining businesses along with solid fundamentals and unit economics will be poised to weather economic downturns, ” Jaffee mentioned. “This, coupled with empathic leaders with a hunger intended for building and moving markets, will enable companies in order to thrive in uncertainty. ”
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