As the pandemic wanes, VCs are investing less in health-focused startups

This year’s global deceleration of the venture capital market is broad, impacting most startup ecosystems, sectors and stages. If you are building a company in 2022, you should not expect to see the same frenetic interest in your project that you might have enjoyed last year. Things have changed.

One element of market evolution in the startup world this year has been a notable inversion. Companies that had a strong bump in demand due to COVID-19 and its related economic impacts are often seeing growth flag, while companies that fell out of favor in the earlier pandemic periods are seeing the opposite. Given this general trend, The Exchange wanted to more deeply explore Q1 data from the perspective of several sectors that were hot last year and earlier in the COVID era to see how they are holding up today.

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Riffing through a few hundred charts of data from CB Insights regarding global venture capital investment into health tech, the word we came away with was retreat. Not collapse — deals are still getting done in the health tech market — but the tenor of the market appears to have shifted.

We’ll explore edtech soon to see if that sector has experienced a similar boom and bust in investment demand.

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Looking back through the TechCrunch news archive and comparing it to the CB Insights dataset, how much have deals like the recent $5 million round raised by Singapore-based telehealth startup Ordinary Folk fallen out of favor? Let’s find out.


To understand the declines in the health tech market, we’ll start from a high-level perspective, burrow down to two key subsectors that TechCrunch covered the most during the pandemic, and then look at the geographic makeup of the 2022 health technology startup scene.

The Big Numbers

In the first quarter of 2022, CB Insights’ dataset indicates that some $10.4 billion was invested into global health tech startups. That figure is off 36% from Q4 2021, when some $16.2 billion was invested around the world.

Inside that top-line figure is a massive 52% drop in mega-rounds — deals worth $100 million or more — from $9.2 billion in Q4 2021 to just $4.4 billion in Q1. Put in simpler English, huge health tech deals saw their value halved quarter on quarter. Even more, the Q1 2022 mega-round fundraising tally for health tech was smaller than any single quarter going back to Q2 2020.

Overall monetary flows into health tech startups are down, as are big checks and the biggest exits. Those three factors sum to a sector in retreat, albeit from what was certainly a rather forward position.

What about mental health and telehealth?

Parsing the dataset initially, The Exchange was most curious about two subsectors: mental health and telehealth.

Why those two sectors? Because many people’s mental health took a whacking during COVID, leading to a surge in demand for apps like Calm and Headspace, which offer meditation services. And because of the general no-in-person-meetings vibe the world had for several years, seeing doctors and other health professionals remotely became the norm.

We assumed the two sectors — which saw a big bump in 2020 and 2021 — likely endured a sharp drop in venture volume in the first quarter of the year amid overall declines in venture activity in the health tech space. Were we right? Yep.

In the first quarter of 2022, startups focused on mental health raised $792 million in 76 deals, CB Insights reports, against 342 deals last year in the space worth $5.5 billion. In both deal and dollar volume pace terms, 2022 is behind the 2021 ball when it comes to seeing investment in mental health startups.

Even more, when we compare Q1 2022 with Q4 2021, we see a drop from 87 deals worth nearly $1.97 billion to 76 deals worth less than $800 million.

Things are similar in the telehealth startup world. The first quarter saw 154 deals in that space, CB Insights data indicate, worth around $3.2 billion. Those numbers are under the pace needed to match 2021’s 647 deals and $17.6 billion in aggregate capital invested.

So, yes, the sectors that saw a material bump in their market demand and prominence among investors are seeing declines, just as we expected.

Where is the funding decline hitting hardest?

It’s in Asia that the funding decline has been the sharpest — in the U.S., it’s been pretty much in line with the global figure (down 36%), while it’s been milder in Europe. Let’s take a closer look at CB Insights’ geographic data on health tech funding’s evolution in the last two quarters:

  • U.S. dollar volume: $11.5 billion in Q4 2021, $7.2 billion in Q1 2022, down 37.4%.
  • U.S. deal volume: 331 rounds in Q4 2021, 329 in Q1 2022, roughly flat.
  • Asia dollar volume: $2.9 billion in Q4 2021, $1.3 billion in Q1 2022, down 55.2%.
  • Asia deal volume: 191 deals in Q4 2021, 154 deals in Q1 2022, down 19.4%.
  • Europe dollar volume: $1.2 billion in Q4 2021, $946 million in Q1 2022, down 18.5%.
  • Europe deal volume: 145 deals in Q4 2021, 120 deals in Q1 2022, down 17.2%.

Quarter-on-quarter comparisons can be misleading, though. In the U.S. for instance, Q4 2021 was record-breaking, so the decline in Q1 2022 needs to be contextualized. For instance, the quarterly amount of funding raised by health tech startups in the first three months of 2022 was still superior to any pre-2021 quarter in CB Insights’ report scope — which includes some quarters of the pandemic.

In Asia and Europe, however, there were pre-pandemic quarters in which health tech startups raised more funding than they did in Q1 2022.

There’s one thing that all three regions have in common, though: If you extrapolate their Q1 results to a full year, deal and dollar volumes would consistently be down compared to 2021’s actual results.

  • U.S. dollar volume: $39.4 billion in 2021, $28.8 billion projected for 2022.
  • U.S. deal volume: 1,428 rounds in 2021, 1,316 projected for 2022.
  • Asia dollar volume: $10.8 billion in 2021, $5.2 billion projected for 2022.
  • Asia deal volume: 806 deals in 2021, 616 projected for 2022.
  • Europe dollar volume: $6.7 billion in 2021, $3.8 billion projected for 2022.
  • Europe deal volume: 589 deals in 2021, 480 projected for 2022.

Projections aside, there’s a figure that we always find quite telling for predictions: the share of early-stage deals. That proportion has varied differently around the world, it turns out: It increased in Europe (up four percentage points), remained level in Asia (up one percentage point) and declined in the U.S. (down four percentage points).

For CB Insights, the variation in early-stage deal-making suggests that investors may move to markets that are less saturated than the U.S. when it comes to health tech. Seeing that early-stage startups now account for 76% of the sector’s deals in Europe, we tend to agree.

Back to here and now, however, U.S. startups still dominate health tech investment by far this year, both in deals and in funding. Here’s the regional breakdown for Q1 2022:

  • U.S.: $7.194 billion / 329 deals.
  • Asia: $1.339 billion / 154 deals.
  • Europe: $946 million / 120 deals.
  • Australia: $363 million / 11 deals.
  • Canada: $242 million / 15 deals.
  • LatAm & Caribbean: $187 million / 14 deals.
  • Africa: $82 million / 10 deals.

The share of U.S. startups in global health tech deal-making actually slightly increased in Q1 2022 compared to Q4 2021, while the deal share of both Asia and Europe shrank. Taking into account that the U.S. was responsible for the majority of late-stage deal share in the first quarter of the year makes us think that the country will also keep seeing the most exits in the near term.

What’s next

Health tech exits have been a mixed bag this year so far: M&As have remained fairly steady, while the window for IPOs and SPACs virtually closed.

The numbers are quite telling: There was only one health tech IPO in Q1 2022, the lowest figure in years, and a huge quarter-on-quarter drop — there were 23 in Q4 2021. And there were no health tech SPACs at all in the first three months of 2022.

We have been banging on about this lack of public exits and the reason behind that for a while now, so let’s focus on the other half of the equation: M&As. That they are not declining is a very important data point, in our view.

It’s not just the fact that M&A deals remained level that’s worth noting — it’s that they did so at a rather high level. “M&A activity in the digital health sector has held above 100 deals for seven consecutive quarters,” CB Insights noted.

This makes us anticipate high levels of consolidation in health tech in the near future, especially because the IPO window doesn’t seem to be cracking open just yet. SPACs might be slightly different — as perhaps illustrated by the recent BenevolentAI merger onto Euronext Amsterdam. But we still expect M&As to be the main exit route in health tech as smaller players get acquired.

CB Insights shares our expectations: “As dominant players emerge in this fragmented market, we expect to see this consolidation trend continue,” the research firm wrote. Q1 2022 already brought us an example of such deals when Calm acquired Ripple Health Group under undisclosed terms last February, and we expect TechCrunch to track more of these in upcoming weeks.