A new report analyzes where and how funding flowed in the sector through the first eight months of the year.
Investments in healthcare technology are stabilizing once again after hitting a lull during the pandemic.
While lofty company valuations from 2021 are being recalibrated and continue to dampen the market, investors are showing an eagerness to revamp their portfolios, according to a report by Silicon Valley Bank.
Health tech investment through August in 2024 is sitting between $4 billion and $4.5 billion per quarter, which has already exceeded the total for all of 2019. Deal volume hit a record high in the second quarter, contributing to 728 health tech deals for the first half of the year.
"We are witnessing a transition from the inflated valuations of 2021 and 1H-2022 to more sustainable investment practices," Julie Betts Ebert, managing director of Life Sciences and Healthcare Banking at Silicon Valley Bank, said in a statement. "AI is playing a crucial role in streamlining administrative workflows, and companies that can demonstrate a clear return on investment are driving the sector forward."
Here are four investment trends from the report:
AI on the rise
Transactions involving AI have significantly increased, signifying the technology’s growing presence in the industry.
This year has already seen more investments in health tech companies leveraging AI than in any other year, with AI valuations up 50% from the pre-pandemic levels of 2019.
A little less than half of all health tech investment dollars (44%) have been funneled to AI companies so far, compared to 36% for the entirety of 2023.
Mega-deals lagging
On the opposite end of the spectrum, mega-deals, or transactions of $100 million or more, are drying up.
Only 2% of deal volume in 2024 has involved mega-deals, with the 22 transactions trailing the 24 from 2023, 51 from 2022, and 98 from 2021.
Of the companies that produced mega-deals in 2021, more have gone out of business than have gone public, the report noted.
Seed rounds fueling activity
So far this year, 42% of health tech investment rounds were seed rounds, doubling the 21% from 2021.
Seed funding is contributing to the median deal size of $3.8 million.
Exits getting scarce
One of the ramifications of so many health tech companies underperforming after hitting the public market in 2021 is the difficulty companies are having exiting now.
After a whopping 186 venture capital-backed health tech exits occurred in 2021, that figure has dropped to 79 this year.
Of that total, 76 involved M&A exits, but the report warned that with M&A activity slowing down, investors need to be more willing to invest more long term, around 10 to 15 years.
Jay Asser is the CEO editor for HealthLeaders.
KEY TAKEAWAYS
There’s reason for optimism in the healthcare technology market, with investments in the space this year already surpassing pre-pandemic totals, a report by Silicon Valley Bank revealed.
Though mega-deals and market exits are on the decline, AI investment and early-stage rounds funding are on the up.