With three quarters of 2022 behind us, the once red-hot digital mental health and telehealth sector is showing signs of cooling. New data from Rock Health and Flare Capital Partners highlights changing Telehealth Investment Trends, indicating that overall investment in digital health has slowed considerably compared to the record-breaking levels of 2021.
According to the report, Q3 2022 saw $2.2 billion raised across 125 deals, making it the smallest funding quarter in the sector for the year and the lowest quarterly total since Q4 2019 ($2.1 billion). With Q3 included, 2022 has seen $12.6 billion in funding across 458 deals, raising doubts that the year will match even half of last year’s $29.2 billion total. The trend highlights a broader recalibration of investor expectations, signaling that the rapid growth of digital health startups in recent years may be slowing as market realities set in.
Mental Health Remains the Top-Funded Clinical Indication
Despite the broader slowdown, mental health continues to attract significant attention from investors. In Q3, digital mental health companies raised approximately $400 million, bringing the total funding for the first nine months of 2022 to $1.7 billion. While still substantial, this represents a sharp decline from the $3.1 billion raised in the first three quarters of 2021—an 82% decrease.
Other top-funded clinical indications through Q3 2022 include:
- Oncology: $1.08B
- Cardiovascular: $900M
- Diabetes: $900M
- Reproductive/Maternal Health: $700M
- Primary Care: $600M
The report highlights that investment in complex disease states, such as oncology, continues to grow, signaling investor interest in startups tackling serious medical conditions. Digital health companies focused on oncology, in particular, raised $946 million through the first three quarters of 2022, reflecting confidence in long-term clinical impact and the potential for innovation in high-value healthcare sectors.
Telemedicine Investment Faces Headwinds
Telemedicine remains the second-largest tech-driven area of investment, with $1.7 billion raised year-to-date. However, several factors are dampening enthusiasm. Oversupply in the market, declining returns on direct-to-consumer advertising, increased scrutiny on virtual prescribing, and the challenging performance of public telemedicine companies like Teladoc have contributed to investor caution.
The Rock Health report provides a detailed look at Telehealth Investment Trends, showing that while telemedicine continues to attract funding, it is no longer the runaway favorite it once was. Investor skepticism has grown due to concerns over regulatory compliance, scalability, and sustainable revenue models.
Notably, the report cites investigations by the Drug Enforcement Administration into digital mental health companies Cerebral Inc. and Done Global Inc., related to the prescribing of controlled substances for ADHD. This scrutiny underscores the regulatory risks investors now weigh when evaluating digital mental health startups. Telehealth Investment Trends are now shaped not just by growth potential but by compliance and operational resilience.
The report predicts that telemedicine investment will close 2022 near $2.7 billion, just over one-third of the funding raised in 2021. Interest appears to be shifting toward “immersive and decentralized health-tech enablers,” signaling a pivot to next-generation digital health solutions such as AI-driven diagnostics, virtual care integrations, and innovative patient engagement tools.
Shifting Investment Patterns
The slowdown is also reflected in later-stage funding. Q3 only saw six Series C or later rounds, including digital behavioral health startup Alma’s $130 million Series D. Mega deals have become increasingly rare: only two digital health deals surpassed $100 million this quarter, compared to an average of 22 such deals per quarter in 2021.
Top-funded value propositions for 2022 through Q3 include:
- Nonclinical workflows: $1.8B
- On-demand healthcare: $1.7B
- Research and development: $1.7B
- Treatment of disease: $1.6B
- Healthcare marketplace: $1.4B
- Monitoring of disease: $1.4B
Nonclinical workflows—technology that optimizes operations, billing, and other administrative processes—remains the top-funded category, highlighting investors’ recognition that operational efficiency is a critical lever in healthcare profitability and scalability. Meanwhile, on-demand healthcare solutions, including telehealth, continue to attract substantial funding, though at a slower pace, reflecting the sector’s maturation.
The changing landscape of Telehealth Investment Trends highlights that investors are now placing a premium on startups that can demonstrate measurable clinical outcomes alongside strong operational management.
Public Market Challenges
Publicly traded digital therapeutics have faced turbulent stock performance this year. Akili Interactive, which went public via SPAC in August, saw its stock fall from an initial high of $37.58 to $2.45. Better Therapeutics and Pear Therapeutics also experienced steep declines, averaging a 74% drop from their 2022 opening prices. The report attributes these declines to a “revenue penalty,” reflecting investor concerns over these companies’ ability to generate sustainable, recurring revenue.
The public market challenges also influence Telehealth Investment Trends, as investor caution in the private market mirrors concerns in the public sector. Companies entering the space now need to demonstrate robust revenue models, regulatory compliance, and long-term patient engagement to attract serious investment.
The Macro Environment for Digital Mental Health
The slowdown in investment comes at a time when the digital mental health ecosystem is under increasing pressure to demonstrate measurable outcomes. The sector has grown rapidly, fueled by pandemic-related demand for virtual care, but the market is now experiencing a more discerning phase. Investors are scrutinizing not just growth metrics but also clinical efficacy, regulatory compliance, and revenue sustainability.
Telehealth Investment Trends show a clear shift toward quality over quantity. Investors are prioritizing platforms that deliver strong patient outcomes, integrate seamlessly into healthcare systems, and offer innovative solutions that go beyond simple virtual visits.
Looking Ahead
While digital mental health and telehealth remain critical components of the healthcare landscape, the sector is entering a more cautious phase. Investor focus is shifting toward solutions that combine clinical effectiveness with operational efficiency and regulatory resilience. Companies that can demonstrate these strengths, while navigating legal and market challenges, are likely to attract the next wave of investment.
For startups in digital mental health and telehealth, the key takeaway is clear: the era of rapid, unchecked funding growth is giving way to an environment where sustainability, compliance, and demonstrable outcomes determine success. The market may be tightening, but opportunities remain for those able to deliver both clinical impact and business resilience. These dynamics will continue to shape Telehealth Investment Trends into 2023 and beyond.
