Mental Health Leads Digital Health Investment at $1B in Q1 2022

Mental health remained the top area of startup investment in the U.S. digital health space in the first quarter of 2022.

In the first three months of the year, mental health startups garnered about $1 billion, a total that was buoyed by the $235 million Series F funding round of Lyra Health, according to a new report by venture capital and advisory firm Rock Health.

The report, which is a review of investment in digital health companies, shows that investment in the digital health segment slacked somewhat in the first quarter of the year, especially in comparison to the record level of investment in 2021.


Investment in digital health companies totaled about $6 billion in the U.S. which came via 183 deals: The average deal size was $32.8 million.

Specific to mental health, the first quarter ties with the first quarter of 2021 in terms of lower investment over the last five years. In 2018, the space saw $1.4 billion of investment, $2.6 billion in 2020, and $4.8 billion in 2021.

The report qualifies that the first quarter of a year is not typically a prime time for closing deals but also says that digital health investment the first quarter of 2022 “fell significantly” behind the fourth quarter of 2021 ($7.3 billion) and the trailing 12-month quarterly average ($7.1 billion).


The first quarter of 2021 saw $6.7 billion in deals and was the smallest quarter of the year. For three of the past five years, the first quarter saw the smallest amount of funding.

January was the largest share of monthly investment at $3 billion while February and March saw $1.4 billion and 1.6 billion, respectively.

The full-year 2021 saw $29.1 billion of digital health investment from 736 deals.

The report also takes a snapshot of the rough time that public securities for digital health companies have faced in the last three months. Granted, stock markets have not behaved well with the geopolitical and economic turmoil foisted on the world by the Russian invasion of Ukraine.

The S&P 500 is down 5% while the Nasdaq Biotech Index (NBI) is down about 20% and the S&P 500 Health Care is up about 10% from July 1, 2021, to March 31, 2022.

The Rock Health Digital Health Index (RHDHI), a composite of publicly traded digital health securities, tumbled 38%, the report states.

“Why have digital health companies had such a tough go in public markets? We observed that, at least in part, recent exits sunk RHDHI performance overall,” the report states. “Digital health companies that exited onto the public markets before 2020 saw, on average, a 17% drop in stock price from Q3 2021 open to Q1 2022 close (similar to NBI performance), while digital health’s 2020 and 2021 exit cohort saw a 55% drop in share value over the same timeframe.”

The report points to the tumbling equities of digital health companies that went public via special purpose acquisition company (SPAC) exits. Also known as blank check companies, these SPACs were very popular in 2020 and 2021 in the digital health space: about half of the IPO exits among digital health companies were facilitated via SPAC mergers, the report states.

The Rock Health report highlights the fact that SPAC targets are three years younger on average than other companies that go public — suggesting that the digital health companies weren’t ready to go public — and that the incentives of SPAC sponsors and other investors may be misaligned.

In the private markets, several digital health unicorns landed major investment rounds including Lyra Health. Other digital health unicorns bringing in major money include TigerConnect ($300 million), Alto Pharmacy ($200 million), Rock Health portfolio company Omada Health ($192 million), and Ro ($150 million).

Omada Health announced at the beginning of March that it will embed behavioral health support into its suite of care support programs that are meant to drive down health care spending costs.

These funding announcements align with a trend of late-stage investment getting larger. In 2020, the average investment at Series D and on was about $80 million on average. That average jumped to $130 million in the past 15 months, the report states.

Looking ahead, the report projects that choppy waters remain in 2022 with the rise of inflation, potential COVID-19 variants, and the shock of the Ukraine-Russian conflict on international energy markets.

“Coming off of 2021’s breakthrough year in digital health funding, it’s already clear 2022 has its own story to tell,” the report states.

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