ARTICLE SUMMARY:
Venture funding for US digital health companies started off strong in 2024, but this potential rising tide may not lift all boats. Excerpted from our recent feature article.
Despite this uptick, healthcare VCs remain cautious and somewhat risk averse, picking and choosing their investments carefully, which means companies seeking funding continue to face a high bar and must check all the boxes.
The improved funding outlook echoes positive trends in the broader medtech market, which saw increased venture investment across every sector in the first half of the year, according to analysts, as investing slowly recovers from the frothy pandemic years and returns to a more even footing.
That’s a testament to healthcare’s resilience and its long-term growth potential, which is also reflected in strong fundraising trends. Healthcare VCs closed on $9 billion in fundraising in the first half of 2024, with 89% of funds hitting their targets, despite “the highest federal funds rate in decades,” according to Silicon Valley Bank (SVB) in its Mid-Year Healthcare Investments and Exits Report.
That’s certainly good news, but it doesn’t mean the money is once again free flowing. Investors are using those funds carefully and are “increasingly focused on quality over quantity,” according to SVB. As a result, the start-up field in 2024 has essentially been divided into “the haves versus the have-nots.”
Nowhere is that divide more evident than in the digital health sector.
US digital health start-ups raised nearly $6 billion across 266 deals in the first half of the year, according to Rock Health’s H1 2024 Report, released in July, and much of that funding was focused on early-stage deals. Seed, Series A, and Series B deals accounted for 84% of labeled investments during the period, according to the report, and Series A investments showed particular strength. At the same time, unlabeled rounds, which spiked during 2023’s difficult funding period, began to decline—another good sign for the sector.
In the third quarter, $2.4 billion was invested across 110 deals, bringing year-to-date funding to $8.2 billion and putting 2024 on track to exceed 2019’s pre-pandemic full-year total (see Figure 1).
More than one-third of the digital health start-ups followed by Rock Health that raised A rounds in the first half of the year are working on some type of AI-enabled solution.
Many of these are not designed for direct patient care, but rather aim to reduce administrative burdens, streamline workflow, empower clinical trials, or make drug discovery and development more efficient and less costly.
There are many unresolved issues that could impact healthcare investing, for good or bad, over the next several months, including changes wrought by the incoming Trump administration, worldwide geopolitical conflicts, and the impact of falling interest rates on the US economy.
But regardless of how these all play out, demand for healthcare digitization, and for AI-enabled technologies, will remain strong. According to GlobalData, the global market for AI in the medical device industry is expected to grow at a compound rate of more than 29% over the next several years, reaching $1.2 billion in 2027, driven by healthcare’s need to “reduce time, costs, and missed detections when diagnosing a growing number of patients with complex profiles.”
Continue reading Digital Health Funding: 2024 Uptick Hints at Cautious Rebound here.