VC explains why funding may slow down in 2022

The year 2021 has been another groundbreaking one for digital health. We’ve seen more companies emerge onto the public market, investors continue to pour funding into the space and consumers expect more out of care. 

We sat down with Lee Shapiro, cofounder and managing partner at 7wireVentures, as well as a Livongo vet, to talk about the biggest trends of this year and what’s next for 2022 in digital health funding. 

The COVID-19 pandemic kicked off two years of unprecedented funding in the digital health space. 

“There was over $35 billion funded in digital health in 2021, and that’s more than the prior two years combined. So, significant investment, significant increase in the size of rounds that companies were able to raise. So, the deal sizes were getting larger,” Shapiro said. 

He noted that the companies getting venture dollars are becoming more diverse, both in terms of founders and focus areas. 

“I’d also say that there were some encouraging trends. We saw more women and minority-backed companies get funded. We saw a number of companies in the mental health space also get funded, and that’s a very strong need, especially if you’ve been reading some of the recent press around the challenges relating to mental health.

“[A] number of companies that we’re invested in are addressing some of the challenges that we face in terms of providing access to healthcare.”

While the last two years were hot for investment, we may be seeing a cool down in the future. 

“My personal view is that 2022 will slow down for a couple of reasons. The first is more of a macro issue. We are likely to see increased interest rates in 2022. Rumor is that the Fed will start raising rates — could be three or four times in 2022 — and that will have some impact on the amount of capital that’s flowing into investments, especially for early-stage investments. 

“It’s an election year, and that also will have an impact. And lastly, we think that some of the investors that came into this sector may be new […] in 2021, and will begin to realize that things in healthcare just take a little bit longer than in other industries.

“And because of that, you have to have a better understanding of the healthcare environment, and also relationships with a number of the strategic parties that are important in terms of helping companies scale. So for all those reasons, I think that it will be a bit of a down year in terms of the amount invested in digital health overall.”

Last year, we saw 79 digital health M&As, as well as an uptick in special purpose acquisition mergers by digital health companies, according to a Rock Health report. Lee said that he foresees many different exit opportunities coming down the pipeline for digital health startups, including SPACs and M&As, and also adds IPOs to the list.

“I think this year was terrific, and a watershed year in terms of the number of IPOs that really started with some of the work that we had done with Livongo back in 2019. And then you saw more in 2020, but even more in 2021. I think that companies are getting to scale. And with that, you’ll see a desire for them to access public markets for additional capital.”

As for what’s next with tech trends, Shapiro said he is looking forward to tech that meets the patient where they are. 

“We’re really excited about this convergence of what we call ‘shift last,’ being able to deliver care closer and closer to the consumer. So, rather than building new facilities and having new tools that are going to be able to provide treatments at higher and higher costs, we think that there has to be a way to make healthcare more accessible.

“And companies we invested in this year: MedArrive, that’s working with emergency medical technicians to deliver care in the home. Companies like Brightline, that’s delivering services that are really helping to address challenges of parents with children who have special needs. …

“We saw Amazon just announced an interesting solution that will allow seniors to have the security of being able to ask for help with their smart speaker. Those are things that are going to make more services available in the home. And we think that’s a good thing for delivery of care overall.” 

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