Third-quarter digital health financing: Has New York overtaken California?

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The explosion in digital health funding last year is over, but there are still opportunities for capital-hungry startups.

In the third quarter, digital health companies raised $3.2 billion. That’s down 20% quarter-over-quarter from $4 billion in Q2 2022 and 60% year-over-year from $8.1 billion in 2021.

In the first nine months of 2022, digital health companies raised $13.8 billion in venture capital funding. Although this figure is 40% lower than last year, the sector remains robust. This quarter, 179 transactions were recorded, compared to 161 last quarter. The investment is active in seed and Series A rounds, in particular.

Here is Digital health companies and technologies synopsis of the top five takeaways from its third quarter and nine-month report

Explore Digital Health Business & Technology’s Third Quarter 2022 Digital Health Financing and M&A Report for insights into the impact of technology on the industry.

Although far from last year’s records, funding remains resilient

Last year, $8.1 billion was raised in the third quarter alone. While this year’s total is significantly lower, the number of early-stage deals remains stable. Almost one in four deals went to a start-up company. Despite the broader market turmoil, it looks like 2022 will be the second-highest year on record for funding.

New York surpasses California in total funds

Could a geographical transition take place? While trailing in total deals, New York-based companies raised more money than California-based digital health companies, between $630 million and $566 million. . Last year, California totaled $11.3 billion in funding, compared to New York’s $6.7 billion.

Investment in health information management remains most important

The category continued to be the most important in attracting external funding. Experts said this is likely to continue as providers refocus on reducing administrative costs. “It’s a trend that’s going to persist,” Flare Capital co-founder and partner Bill Geary said in an interview with Digital Health Business and Technology. “In more difficult times like the ones we are living in today, the focus is on reducing administrative costs at all levels.” The category saw $1.3 billion in funding across 61 deals, up from $2.1 billion across 58 deals in the prior quarter.

Public markets have not been kind to recent digital health IPOs

Almost every digital health company opting for the public market has been beaten. Only two companies, Privia Health and Pear Therapeutics, have shown positive changes since their IPO. Privia Health far exceeds the category average. Its stock is up more than 50% since the start of the year. This lagging performance is a big reason why only two companies went public in Q3. Akili Interactive, which entered via a SPAC, while South Korea-based Lunit launched an initial public offering worth $28 million on automated quotes from Korean stockbrokers.

Practice-oriented firms dominated M&A activity in Q3

Practice-oriented companies — comprising health information management, revenue cycle management and healthcare IT service providers — accounted for more than half of third-quarter M&A deals. Experts expect mergers and acquisitions to continue to increase as broader economic factors take hold and the digital health ecosystem matures.

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