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Digital Healthcare Market Stabilizes After Year of Low Investment

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CB Insights has released their State of Digital Health Report for Q1 2023, and there is finally some good news to report. After four quarters of declines in funding in the digital health space, global digital health funding held steady in the first quarter of this year at US$3.4 billion. This is positive news to see stabilization after a year of continuous decline, and the first time funding did not drop quarter to quarter since Q4 of 2021.

They do point out that this is not a trend in overall venture capital funding, but rather something unique to the digital health sector. The broader venture capital environment saw a QoQ drop of 13%. Even with funding levels holding steady in digital health, they are still at the lowest level we have seen in years. However, the report does show a slight uptick in the number of deals in this space between Q4 2022 (383) to Q1 2023 (387). This might be small, but it is again different from the decline in the broader VC space.

So, what specific sub-sectors are seeing the greatest number of deals? Leading the way is care and delivery of navigation tech companies. These are companies designed to help patients navigate the health care system, help them connect with the right services, and improve overall outcomes. These companies pulled in 44% of digital health funding and 37% of the deals.

Digital health M&A activity also seems to be heating up with the first QoQ increase in a year. M&A exits were up an impressive 160% from Q4 2022, compared to M&A exits in the broader VC environment that only ticked up by <1%.

One area that continued to decline within digital health was mega-round funding, with an 85% decline since Q1 2022. These deals made up only 17% of funding in Q1 of 2023, which CB Insights points out is the lowest since Q2 2019.

The stabilization in funding in the digital health space and the uptick in deals and M&A exits highlights not only the continued interest in innovation in this area but also its importance to the future of health care. There are many exciting developments coming out of this sector that will no doubt continue to fuel deal activity for many years to come.

© 2023 Foley & Lardner LLPNational Law Review, Volume XIII, Number 174