Digital Health Funding Declines in 2024: What Investors Need to Know
Venture capital funding for digital health startups saw a decline in 2024, with investors shifting their focus to younger companies and reducing check sizes for later-stage firms. A report published by Rock Health revealed that funding for U.S. digital health companies totaled $10.1 billion across 497 deals last year, compared to $10.8 billion in just over 500 deals in 2023.
Despite the overall decrease in funding, artificial intelligence remained a key area of interest for investors in 2024. In fact, investment in AI-enabled startups accounted for 37% of the total funding for the year.
When adjusted for inflation, the digital health funding in 2024 nearly matched the amount raised in 2019, before the surge in funding during the COVID-19 pandemic. The number of deals remained relatively stable between 2023 and 2024, but the total investment continued to decline following the post-pandemic boom.
One of the contributing factors to the decreased funding was the heightened focus on younger companies with more realistic valuations. In 2024, 86% of labeled funding rounds went to startups raising seed, Series A, or Series B rounds. On the other hand, more established digital health startups saw smaller fundraises, with median deal sizes for Series C and D rounds decreasing from 2023.
The report also highlighted the potential challenges faced by later-stage startups, including downward valuation pressures and stalled fundraising rounds, which could lead to closures or acquisitions in the upcoming year. This could potentially reignite digital health M&A activity, which hit a decade low in 2024 with 118 deals.
Despite the challenges, large healthcare players and investors are actively shaping the healthcare technology landscape. Venture capital funding is increasingly concentrated among major funds like Andreessen Horowitz and General Catalyst, which were the top investors in the digital health sector in 2024.
Additionally, the report pointed out the growing share of funding invested in AI-enabled startups over the years. The healthcare AI space is witnessing a consolidation around larger companies that develop foundation models, which are crucial for supporting other AI tools due to their high cost of development and maintenance.
While larger tech firms dominate the AI space, there is still room for smaller startups to thrive by focusing on specialized use cases or catering to smaller customer segments like independent practices. As the healthcare AI landscape continues to evolve, startups will need to carefully position themselves to meet the evolving demands of the market.
Overall, the decline in digital health funding in 2024 signifies a shift in investor priorities towards younger companies with realistic valuations and a continued interest in AI technologies. As the industry adapts to these changes, both startups and investors will need to navigate the evolving landscape to drive innovation and growth in the digital health sector.
