Q1 of 2024 showed some signs of life, and now, according to a Rock Health report released on Monday, we could finally be seeing a year-over-year increase in money going into these companies.
There was $5.7 billion invested in the first half of this year, across 266 deals, putting the year on pace for $11.4 million and 532 deals; if that were the case it would be a 6.5% increase in funding from 2023 and a 6.8% increase in deals.
There was $3 billion invested in Q2, an 11% increase from the $2.7 billion invested in Q1, though deal flow remained completely flat, with 133 deals in both quarters.
Once again, AI was a big driver of healthcare dollars, with 34% of dollars invested in H1 going to digital health startups leveraging artificial intelligence. That was especially true for Series A rounds, where 38% of companies that raised funding used AI.
In terms of clinical indications, mental health was the top focus area, as it has been since at least 2020, raising $700 million, more than double any other area. That was followed by $300 million for three different areas: cardiology, oncology, and weight management and obesity.
Another sign of renewal in the digital health space are increased exits, specifically IPOs: after going nearly two years without a public exit, and with companies that did go public, including Science 37, Better Therapeutics, and Veradigm, delisting from the public market, H1 of this year finally saw some companies making their debuts.
That included remote fetal monitoring platform Nuvo, which went public via SPAC in May 2024; revenue cycle management company Waystar, which had its IPO in June; and precision diagnostics player Tempus AI, which also IPOed in June.
At the same time, acquisition activity has fallen: with 66 M&A deals in the first half of 2024, that puts the number on pace to be the lowest since 2019.
“If H1’s investment pace continues, 2024 funding dollars and deal counts could exceed 2019 and 2023 historicals, two years that serve as helpful comparators outside of the pandemic-fueled funding cycle from 2020 to 2022. Early-stage checks are growing, the proportion of unlabeled deals is tapering, and the digital health IPO market is showing early signs of life,” Rock Health wrote in it report.
“Meanwhile, digital innovation in healthcare continues to march forward, with AI attracting even more attention and contributing to funding patterns across product categories and therapeutic areas.”
(Image source: opic.texas.gov)