The public markets have been a bit of a reality check for many digital health companies. Of the 18 digital health companies that went public on an American stock exchange in 2021, only two companies (Signify Health and Owlet) have gained value from their initial price . The other 16 have seen a decrease from their initial stock price.

Jacob Effron, principal at Redpoint Ventures, doesn’t expect there to be too many changes in the digital health funding landscape, although he says the challenges in the public market may give some investors pause.

“There’s a lot of investor appetite to work with these companies, particularly the ones that are growing quite fast. Where there might be challenges is in the later rounds,” Effron says. “Everyone wants to invest in the earlier rounds when companies are growing well. Given the uncertainty in the public markets, it’s not clear that investing right before the IPO is the best bang for your buck or return on your money. If there were any retrenchment in the market, I’d expect to see it right before the IPO rounds.”

Bullish attitudes

Other investors in the field are bullish about the market trends in 2022—and beyond. Alyssa Jaffee is a partner at 7wireVentures, an investment firm that has struck gold with digital health companies such as Livongo, Transcarent and Higi, among others. She doesn’ t see the wave of funding slowing down any time soon because several funds are still well capitalized and there is a lot of potential out there.

“We have only broken the ceiling on how big these companies can get and they’re only getting bigger,” says Jaffee. “I don’t think the bubble talk is productive. I look at markets and ask, ‘What is the value we can get and what is the value we can drive?’…When you’re building businesses in multi-billion-dollar markets, there is a lot of value to be had if you can execute correctly.”

She says, in particular, women’s health, behavioral health and companies that focus on populations with chronic conditions will be areas to watch.

Sebastian Seiguer, CEO of Johns Hopkins-backed digital therapeutics platform, emocha Health, says that funding availability has been tremendous since COVID-19. Seiguer says the pandemic sparked an awakening from investors who finally saw the potential to make healthcare more efficient and convenient. He expects it to continue in 2022 because of the VC companies involved with these deals.

“The VCs of the last 10 years did well, and the larger players want to get in on those more reasonable valuations that happen earlier in a funding cycle,” Seiguer says. “There have been larger VC players entering earlier rounds of funding with larger check sizes. That’s what’s been happening.”

Increasing consolidation is one trend that could impact digital health funding, Jaffee suggests. According to Digital Health Business & Technology’s data, there have already been 65 M&A deals in the digital health sphere in Q1 2022, compared to 63 in Q1 2021. However, the M&A deal sizes have been much lower this year.

Effron does expect to see consolidation as health systems, payers and other end-users start to prefer companies who offer a broader set of solutions. “If you talk to an employer, there are so many different vendors doing so many different things. They don ‘t want to work with one hundred different vendors. Health insurers want to work with people who can treat a lot of their patients,” he says. “The same goes for health systems.” Norden has already seen the consolidation trend start to happen and says it will accelerate as the better companies stand out.

“We’re starting to see a lot of companies buying up others. There will be a shift over the coming years towards value and quality. There are a lot of options right now as employers, health systems (and other buyers) are overwhelmed, but I think we’re going to see the digital health companies that rise above the rest and are delivering better clinical care start to stand out. There will be continued consolidation and a focus on that,” Norden says.