Summary:
2021 saw 729 healthcare startup deals totaling $29.1 billion; 2024 has only 379 deals and $8.2 billion.
Forward shut down after raising $100 million, reflecting the struggles many startups face.
327 digital health startups have not raised funding since 2021.
Investors are moving away from supporting struggling startups with bridge funding.
Mergers are becoming a viable option for startups to survive in a harsh market.
A Decline in Funding
While 2021 was a landmark year with 729 healthcare startup deals totaling $29.1 billion, the first three quarters of 2024 have seen only 379 deals and $8.2 billion raised. The dramatic downturn indicates that many startups that thrived during the ZIRP period are now facing dire circumstances.
Startups Struggling to Survive
Numerous healthcare startups have not secured new funding since 2021. As a result, many are resorting to down rounds, lowering their valuations to attract new investment. Notably, Forward, a healthcare startup, recently shut down after a $100 million Series E round just a year prior, highlighting the logistical and financial challenges that plagued its operations.
The Trend of Quiet Closures
Investors report that many startups are shutting down without public announcements. As of mid-November, 327 digital health startups that had raised funds in 2021 have not raised since. The AI boom has not been enough to save all companies, and many startups are now looking to merge with competitors or sell assets to extend their lifespans.
The Shift in Investor Sentiment
Investors are now less inclined to support struggling startups with bridge funding. Some venture capitalists are shifting their focus toward new AI investments, leaving behind companies that are no longer performing as expected. This shift has led to an environment where startups are recognizing the need to accept lower valuations to secure further funding.
Mergers and Acquisitions
While some startups are quietly folding, others are exploring mergers as a means of survival. The LetsGetChecked acquisition of Truepill for $525 million exemplifies this trend, as companies seek to consolidate resources instead of facing the grim reality of a shutdown.
Looking Ahead
Despite the challenges, there remains potential in the healthcare sector. Companies like Hinge Health and Omada Health are poised for IPOs, while private equity firms are actively seeking healthtech acquisition opportunities. However, the industry is expected to face ongoing difficulties, particularly in telehealth and clinic startups, which are struggling to deliver returns.
Conclusion
The current landscape for digital health startups is marked by a need for sustainable practices and improved financial discipline. Investors are advocating for growth that balances profitability, setting the stage for a more stable future in healthcare entrepreneurship.
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