Dive Brief:
Venture capital investment in healthcare increased in 2024, spurred by enthusiasm for artificial intelligence startups, according to a report by Silicon Valley Bank.
Funding for U.S. healthcare companies reached $23 billion last year, compared with $20 billion in 2023. Nearly 30% of the 2024 investment went to startups leveraging AI, according to SVB.
This year could bring a “steady yet modest” increase in deal value and volume across healthcare, Jackie Spencer, head of relationship management for life science and healthcare banking at SVB, said in a statement. Still, the market for initial public offerings will likely remain muted until conditions improve and newly public companies demonstrate success.
Dive Insight:
Total investment in the healthcare sectors — including biopharma, healthcare technology, diagnostics and tools, and medical devices — remains down from the pandemic-era funding boom, according to SVB’s report.
But last year outpaced 2021 in the number of VC deals. Plus, healthcare investment overall has grown 44% since the beginning of 2020.
Meanwhile, AI has become a significant driver of healthcare investment, particularly for biopharma startups utilizing the technology for tasks like discovering new drugs, screening potential candidates and informing clinical trial design, according to SVB.
The sector saw $5.6 billion invested in AI-backed companies in 2024, growing nearly three times year over year. Overall, biopharma startups raised $24.2 billion across 568 deals last year, compared with $10.1 billion across 645 investments in 2023.
But on the health tech side, funding lagged. Startups raised $10.6 billion across 706 deals, falling from $15.4 billion in funding over nearly 1,200 deals.
Still, investment for early-stage health tech startups increased slightly in 2024. Meanwhile, investors focused their later-stage funding towards entrenched companies, according to SVB’s report.
“The flight to quality in healthtech is in full force, with investors disclosing that reduced risk is taking a priority in their late-stage spending,” the report’s authors wrote. “The overall view is that while AI disruption in healthtech is inevitable, there’s no clear view of what that disruption will look like, or the next phase of healthtech will look like. In the face of that uncertainty, many are taking a wait-and-see approach, holding off on big spends for now.”
Disclosed health tech deals fall in 2024
Private M&A and IPOs among private health tech companies, 2018-2024
The exit landscape for health tech companies is still subdued compared with recent years, according to the report. Only two companies went public via an IPO, while merger and acquisition activity was dominated by undisclosed deals.
However, the tides could begin to turn in 2025. Digital musculoskeletal company Hinge Health and chronic condition management firm Omada — which have both raised hundreds of millions of dollars — could complete an IPO this year, according to reporting by Business Insider.
“If they’re successful, they’ll be a major counterpoint to the lingering disappointment that’s been dragging the space down,” the report’s authors wrote. “[…] If VCs can see an exit for companies in this space again, other late-stage incumbents are likely to follow suit, and earlier-stage startups can expect to see the benefits.”
