Dive Brief:
Venture capital investment in healthcare technology might be on the upswing following a long hangover from the pandemic-era funding boom, according to a report by Silicon Valley Bank.
Investment so far this year is hovering between $4 billion and $4.5 billion per quarter. Funding in the first eight months of 2024 has already exceeded investment totals from full-year 2019.
Though company valuations will likely fall, the number of deals and the funding amounts suggest investors are interested in rebuilding and reevaluating their health tech portfolios, according to SVB.
Dive Insight:
Investment flooded the healthcare technology sector in the wake of the COVID-19 pandemic. Some startups raised large funding rounds at high valuations, and many struggled to justify those prices after the market cooled in mid-2022.
This year, more money from early-stage rounds has fueled investment. So far in 2024, 42% of health tech rounds have been seed rounds, up from 21% in 2021.
Down rounds, when the value of a startup is lower compared with a previous raise, are contributing to higher deal counts this year too. At least 12% of U.S. health tech fundraisers worth $5 million or more were down rounds so far in 2024, compared with 9% last year and 1% in 2021.
But some health tech companies haven’t raised another round since 2021, according to the latest SVB report. Almost half of wellness and education startups haven’t obtained more funding since they raised in 2021, and neither have 44% of clinical trial enablement, provider operations or alternative care startups.
“This could indicate one of two things for companies that have not raised — either they are potentially shifting toward self-sustainability or they are dealing with the effects of market saturation and lower investor confidence,” the report’s authors wrote.
The sector is also seeing far fewer mega-deals, or funding rounds worth $100 million or more, according to SVB. This year has included only 22 mega-deals through Aug. 31, compared with 24 last year and a whopping 98 in 2021.
Exits are hard to find for health tech companies. The IPO market is frozen, with only one company going public this year. Many of the companies that hit the public markets during the 2021 funding boom haven’t performed well, suggesting they made the move too quickly, according to the report.
Most health tech companies have chosen to exit through mergers and acquisitions, though M&A declined in the first half of 2024 compared with last year. More than 80% of acquisitions in 2024 were led by healthcare companies, while acquisitions by technology firms and strategic buyers, including retail health players, have slowed.
Few of those deals have been publicly announced, and there haven’t been any disclosed private M&A over $50 million this year, compared with four last year and 36 in 2021.
“With that volume of undisclosed activity, it seems safe to assume that prices are significantly discounted,” the report’s authors wrote.
