Digital health executives predict funding in 2024 will increase for companies with platforms proven helpful for healthcare providers and patients, while those not showing value will be forced to dissolve.
Leaders also relayed to MobiHealthNews that mergers and acquisitions will be prominent in the digital health industry, and genAI companies may take center stage when garnering funding.
Russell Glass, CEO of Headspace
“In the coming years, we will see significantly increased rates of mergers and acquisitions in digital health. With so much competition, more limited capital availability and countless single-solution vendors, companies will be required to combine efforts or be forced to dissolve.”
Amit Khanna, senior vice president and general manager of health at Salesforce
“Digital health funding will be split into two parts. The traditional digital health funding we saw during and post-pandemic will be reduced drastically. This is in line with the macro conditions we are seeing in the market–inflation, margin pressures and the higher interest rate environment. But now, genAI has the power to transform the industry, especially within clinical and drug discovery, where genAI can help work towards lowering the documentation burden, reducing the time for a trial and/or improving the efficiency of the trial. We believe GenAI is where we will see measured funding increase.
From a startup perspective, digital health funding will be dramatically impacted and most likely reduced. This will be a consistent theme for digital health funding if the Federal Reserve keeps raising interest rates. And even if large enterprises continue to make investments in genAI, venture capital funding for these types of investments will be tight.
Finally, I predict that new AI-based startups funded by large tech companies will rise up to the challenge of solving non-clinical use cases with non-clinical/automation workflows (e.g,. co-pilot emails) and assist with life sciences research and development.”
Kourosh Davarpanah, CEO and cofounder of Inato
“Venture capital and private equity will maintain a high bar for new investments in 2024, prioritizing companies with a proven product-market fit, robust margins and a clear path to profitability. We will likely see a pivot in health tech funding towards the biopharma sub-sector. Immature business models, slower sales cycles and tight end-market budgets have recently impacted digital health companies. Meanwhile, life science companies are doubling down on investments to modernize drug development, making biopharma tech a comparatively more attractive investment opportunity.”
Ann Bilyew, SVP, health and group general manager, WebMD Ignite
“We still have a ways to go in washing out what was arguably overinvestment in questionable models in 2020 to 2022–whether through venture, PE or even SPACs. Investment was down considerably this year which meant that many companies couldn’t continue to fund operations with investor capital. There were some major flameouts like Babylon, Pear Therapeutics, Health IQ and many other less visible failures.
The primary question in healthcare tech is always, ‘who is going to pay you for it and why?’ You really have to understand what can be a byzantine set of incentives and have to have a business model that makes sense and scales. We have seen these cycles before–a few years of overinvestment with too many companies getting funding, followed by a significant pullback as many struggle to reach scale and profitability in markets with entrenched plays and long sales cycles. This is followed by a longer period of reduced capital outlay. A few companies will rise to the top and create sustainable businesses, but most will sell early or shut down for lack of funding.”
Neil Patel, head of new ventures at Redesign Health
“Continued flight to quality with digital health companies that have stayed afloat or even grown during this time will be acquisitive, either raising capital to acquire struggling companies or ideally purchasing with stock. Secondly, I’d expect a continuation of insider rounds for Series A+ companies, either flat or down, through the first half of the year, with the second half of the year picking back up across the board. We’ll also likely see a strong early seed funding environment as investors will be able to get investor-friendly terms and provide a sufficient runway to get through this down market.”
Matthew Stoudt, cofounder and CEO of AppliedVR
“It’s definitely an interesting and challenging time for funding, but I think 2024 will produce a light at the end of the tunnel. It’s important to remember that those early years of the pandemic, where funding and valuations skyrocketed (what I called the “orgy of capital”), were an anomaly. We are now seeing a return to some fundamentals and a flight to quality.
Several factors will drive investors back into the market. One, investors have a lot of dry powder that they need to deploy and will continue the flight to quality.
Two, a lot of companies took the hard medicine on valuation, making it easier for new investors to come in.
Third, the market will continue to rationalize itself. Those companies with clear pathways to profitability (and clear reimbursement pathways within digital health) will thrive, while weaker companies will either get acquired or fail, making it easier for investors to come in. Personally, I would love to be a savvy investor in this market.”
Ankit Gupta, CEO and founder of Bicycle Health
“I read the same newspapers and articles that everyone else does, and I do think 2024 will be a difficult year to get funding for companies that have yet to find product-market fit. However, smart investors buy in down markets. Digital health startups that have demonstrated the ability to grow sustainably and have a path to profitability should still be at a premium.”