As 2022 began with a mix of hope and economic uncertainty, one trend held strong across the digital health space: mental health remained the leading area of investment in the United States. According to a new report released by venture capital and advisory firm Rock Health, digital mental health investments accounted for approximately $1 billion in the first quarter of the year, outpacing all other segments in the digital health ecosystem.
This performance was largely driven by a $235 million Series F funding round raised by Lyra Health, a leader in employer-focused mental health solutions. The deal underscored ongoing investor confidence in behavioral health startups and signaled that the sector remains a top priority despite broader cooling across the venture landscape.
Mental Health Startups Continue to Drive Value
Mental health has consistently led the digital health sector over the past several years. While Q1 2022’s $1 billion in funding may appear modest compared to the highs of 2021, it remains one of the strongest first-quarter performances for mental health startups on record.
By comparison, digital mental health investments totaled $1.4 billion in 2018, rose to $2.6 billion in 2020, and exploded to $4.8 billion in 2021. That growth was fueled by pandemic-driven demand, rising consumer awareness, and a flood of capital into telehealth and digital care solutions. In this context, the Q1 2022 total shows that interest in mental health innovation remains resilient and sustained.
Rock Health notes that Q1 2022 tied with Q1 2021 in terms of mental health investment volume, making it one of the lower-performing first quarters over the past five years. However, it still reflects strong momentum in a category that is increasingly seen as essential to long-term health care transformation.
Overall Digital Health Funding Sees a Decline
While mental health remained a leader, overall U.S. digital health funding declined in Q1 2022. The sector saw about $6 billion raised across 183 deals, with an average deal size of $32.8 million. This marks a significant drop from the $7.3 billion raised in Q4 2021 and is below the trailing 12-month quarterly average of $7.1 billion.
January saw the most deal activity with $3 billion invested, while February and March saw $1.4 billion and $1.6 billion respectively. This drop aligns with seasonal trends—Q1 is typically a slower time for funding—but the magnitude of the decline indicates growing investor caution amid economic and geopolitical instability.
Despite these shifts, digital mental health investments remained a bright spot, reflecting a broader rebalancing within the sector in favor of categories with proven demand and scalable delivery models.
Digital Health Public Market Struggles
While private investment remained steady, digital health companies struggled in the public markets. The Rock Health Digital Health Index (RHDHI)—which tracks the performance of publicly traded digital health companies—fell by 38% from July 2021 to March 2022.
For comparison:
- The S&P 500 dropped about 5 percent
- The Nasdaq Biotech Index declined approximately 20 percent
- The S&P 500 Health Care sector rose about 10 percent during the same period
Companies that exited through special purpose acquisition companies (SPACs) were hit the hardest. These firms, which went public more quickly and often earlier in their life cycle, experienced an average 55 percent drop in share value. By contrast, digital health companies that went public before 2020 saw an average decline of 17 percent, in line with broader biotech trends.
The report also points out that SPAC-exited companies are, on average, three years younger than traditional IPO companies, raising concerns about their readiness for public scrutiny and sustained investor pressure.
Private Market Unicorns Continue to Attract Capital
Even as public valuations faltered, digital health unicorns continued to close substantial private rounds. In addition to Lyra Health’s headline-making raise, several other companies secured significant funding in Q1 2022:
- TigerConnect: $300 million
- Alto Pharmacy: $200 million
- Omada Health: $192 million
- Ro: $150 million
Omada Health, a Rock Health portfolio company, also announced plans to integrate behavioral health services into its existing chronic care management programs. This move reflects a growing emphasis on comprehensive care strategies, where mental health is treated as a critical component of overall well-being and cost control.
These large, late-stage rounds demonstrate that investors are increasingly willing to support companies that have scaled and are showing results. Digital mental health investments are benefiting from this trend, as more established platforms work to expand their offerings and deepen integration with primary care and chronic disease services.
The Rise of Larger Late-Stage Rounds
One of the most notable developments highlighted in the report is the increase in the size of late-stage rounds. In 2020, the average Series D or later funding round was about $80 million. Over the past 15 months, that average has climbed to $130 million.
This shift toward larger late-stage deals signals investor preference for de-risked opportunities. As early-stage companies face more rigorous scrutiny, those with proven models, traction, and strong leadership teams are capturing the lion’s share of available capital.
Digital mental health investments are a clear beneficiary of this shift. Companies in this space often have strong user engagement metrics, growing customer bases, and clear pathways to revenue—making them particularly attractive in an increasingly risk-averse investment climate.
Headwinds on the Horizon
Despite continued interest in mental health and mature digital health companies, Rock Health projects that 2022 will bring challenges for the sector. The war in Ukraine, rising inflation, volatile energy prices, and persistent concerns about new COVID-19 variants are all expected to contribute to an unpredictable investment landscape.
Investor behavior is already reflecting these uncertainties. The drop in average deal size and fewer early-stage rounds suggest a shift toward stability and near-term returns. However, digital mental health investments are likely to remain strong, supported by long-term demand and growing adoption across health systems, employers, and insurers.
A Turning Point for the Industry
Rock Health concludes that 2022 is poised to tell a different story than the breakout year of 2021. While the overall digital health market may be correcting, the structural need for digital mental health solutions ensures that investment in this space will remain essential.
Digital mental health investments are no longer driven solely by pandemic urgency. They are now seen as integral to delivering cost-effective, patient-centered care. As platforms evolve, adopt hybrid models, and integrate with traditional health systems, the category is maturing in both value and scope.
Conclusion
Even in a slower funding environment, digital mental health investments stood out in the first quarter of 2022 as a symbol of resilience and relevance. With $1 billion raised—led by major players like Lyra Health—the sector continues to attract strong interest from private investors, particularly in the late stages of company growth.
As uncertainty looms over markets, mental health remains a top concern for individuals, employers, and providers. The demand for accessible, affordable, and integrated care solutions is not going away. That’s why digital mental health investments will continue to play a central role in shaping the future of health care.
