Investment in Digital Health Is Experiencing a Dramatic Slowdown. Is This the Beginning of the End, or the Start of Something Special?

A recent report on the state of global digital health investment reported a dramatic reduction in activity, with funding falling by 57 percent year-over-year and overall deals coming in at a five-year low. Specifically, the report cited a steep decline in funding for telehealth, and also solutions focused on mental health needs. 

Separately, Rock Health recently reported that for the U.S. specifically, funding among digital health startups came in at just 50 percent of 2021 totals and barely beat 2020’s total performance. 

Is digital health falling out of favor? As disappointing and concerning as these numbers might appear on the surface, there are some fairly obvious forces at work here that ultimately will result in a stronger, healthier digital health space. The thoughts that follow are not necessarily a hot take or earth shattering, but I do think it’s important to echo and elaborate on what others across the industry are saying about the decline we’re experiencing. 

First, there is no logical way we could expect the funding patterns of the past few years to continue. For a while, the digital health space was posting record-setting numbers every single quarter. Sooner or later that pace had to slow. It seems likely we are experiencing an inevitable period of course correction with investments being granted in a more prudent and thoughtful way.

Second, the current state of the economy is doing the space no favors. Many hospitals are losing money, and health plans are shoring up for a downturn. For the short term, spending across the industry is going to be more conservative and measured. This extends to the investment community as well. 

Lastly, it’s time for digital health solutions to prove they are worthy. Earlier expectations for this space were outsized. We somehow expected digital health to be a panacea that instantly cured all that was ailing our healthcare system. Obviously, that was not a fair burden to place on digital health. On the other hand, we have not seen substantial transformation of the system spurred by digital health innovations. The COVID-19 pandemic kicked things into overdrive, but overall we have not seen enough meaningful and measurable results from digital health solutions.

So, we are seeing steep declines in funding. We haven’t seen the impact we hoped to see. And the economy is pulling against progress. Is this the beginning of the end? The short answer is no. Just because we might have seen the peak of digital health funding doesn’t mean it is headed for a cliff. Just because digital health has yet to live up to the hype doesn’t mean it doesn’t still hold the potential to revolutionize the way care is delivered. It simply means we are entering an era of winners and losers, a more sober era where new solutions and innovations will be held to a higher standard and judged with more scrutiny before money falls from the sky. 
 

In some ways, this moment in time feels similar to the dot-com bubble. In the early days of the Internet, any startup that had claimed a corner of the world wide web could grab all the cash it wanted from the investment community. Eventually, the bubble burst and a lot of those high-flying dot-com businesses were gone overnight. But this didn’t signal the end of the Internet. It was just the beginning of a smarter, more rational approach to investing in companies who were leveraging the Internet. Some of the biggest forces in business today grew up from the dot com era. The Internet is alive and well. And eventually, it did change everything. The same will be true for digital health. 

Moving forward, the companies who are able to truly integrate with the healthcare system, deliver real value and operate with a sustainable revenue model that is based on producing savings, not creating additional cost for the system, will reign supreme. They will be leaders who will change everything about the way care is delivered and the funding models that underpin it. Those who can’t deliver the goods will go the way of so many dot com businesses before them.

Instead of being depressed by reduced funding in digital health, I am energized and excited. Once we are able to turn down the noise, create clarity around what actually works and clear out inferior solutions that don’t deliver results, the community of companies that is left standing will carry us forward to a tech-enabled future we’ve been dreaming about for the last decade. 
 

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