Dive Brief:
Funding for digital health startups fell again last year as investors focused on younger companies and cut check sizes for later-stage firms, according to a report published by venture capital firm and consultancy Rock Health this week.
Venture capital funding for U.S. digital health companies totaled $10.1 billion across 497 deals in 2024. In comparison, the sector raised $10.8 billion in just over 500 deals in 2023.
Still, artificial intelligence continued to draw significant investor interest last year, according to Rock Health. Investment in AI-enabled startups made up 37% of the year’s overall funding.
Dive Insight:
Adjusted for inflation, digital health funding in 2024 nearly matches the amount raised in 2019 — the last year before investors began pouring more money into the sector during the COVID-19 pandemic.
However, even though the number of deals held relatively steady from 2023 to 2024, last year’s investment total continued its years-long decline following the pandemic-era boom.
One factor behind the decreased funding was heightened investor focus on younger companies that don’t carry inflated valuations notched during the pandemic-era funding boom, according to Rock Health. In 2024, 86% of labeled funding rounds went to startups raising seed, Series A or Series B rounds.
Meanwhile, more established digital health startups brought in smaller fundraises. Last year, median deal sizes for Series C and D rounds were $50 million and $55 million, respectively, compared with $62 million and $58 million in 2023.
“Later-stage startups struggling with downward valuation pressures or stalled fundraising rounds could fold or seek acquisition in the coming year—potentially restarting digital health M&A activity, which hit a decade low in 2024 at 118 deals,” the report’s authors wrote.
Still, large healthcare players and investors are making their mark on healthcare technology. Venture capital funding is increasingly concentrated among large funds, like Andreessen Horowitz and General Catalyst, which were the digital health sector’s top investors last year, according to Rock Health.
AI makes up a growing share of digital health funding
Percent of total funding invested in AI-enabled startups, 2014-2024
The healthcare AI space may be condensing around big companies too. For example, larger tech firms typically develop foundation models, those trained on large data sets that could be used to support other AI tools, because they’re pricey to build and maintain, according to the report.
“Though Goliaths command AI foundation models and enterprise-scale builds, there’s still room for smaller startups to grow—but they’ll need to think carefully about their positioning,” the authors wrote. “There will still be demand for AI solutions addressing specialized use cases or those that work with smaller customer segments like independent practices.”
