Taking a look at funding trends in 2024 gives a strong sense of where investors are placing their bets in health tech.
According to 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, SVB reported.
And it's perhaps no surprise that healthcare AI startups are driving the momentum this year. It was reported in October that generative AI startup Abridge is raising $250 million in new funding with a pre-money valuation of an eye-popping $2.5 billion.
Zooming out further, venture capital funding trends in the past decade paint a broader picture of how the health tech market has evolved.
Fierce Healthcare collaborated with SignalFire, an early-stage venture capital firm, to use its proprietary data platform to compile a data-backed list of the fastest-growing health tech startups, based on 2024 funding, as well as the companies that have pocketed the most total funding in the past decade.
Of course, there are different ways to objectively measure growth, using metrics such as headcount or other factors, and there's more to come on that in January, so stay tuned.
But an analysis of funding trends in the past nine months as well as over the last 10 years surfaces interesting insights from a longitudinal lens, according to Yuanling Yuan, partner at SignalFire, who focuses on AI and health tech.
"I think it's fascinating to look at both datasets together, because you get a great snapshot of the health tech evolution in the past decade," Yuan said in an exclusive interview. "When you look at total funding, the companies that are top of that list typically have been around now for at least six years, many for eight, nine and 10 years. When you look at the companies that received the most amount of funding in the last nine months, that's where we get a sense of what are the most interesting areas for investors to focus on this year. I like to see that story as it unfolds over time."
SignalFire, with $2.1 billion in assets under management, leads rounds from seed to Series B with a focus on sectors including health and pharmatech, vertical AI and enterprise SaaS.
This analysis was prepared by SignalFire's Research & Data Science Team, powered by SignalFire’s in-house Beacon AI data platform, which analyzes dozens of data sets to track over 650 million people and 80 million companies in the tech ecosystem. SignalFire has been developing its AI platform Beacon for a decade to help portfolio companies with recruiting and go-to-market, according to the company.
The analysis primarily focuses on venture-backed healthcare and pharmaceutical technology startups, excluding pure service and consulting businesses, biotech and diagnostic companies. Other criteria for companies included in SignalFire's research: private (pre-IPO) U.S. companies, founded in 2009 or later with a minimum of 10 employees.
Following the money going into health tech provides insights into sustainable trends and areas of growth, while recent funding rounds indicate how those trends are evolving in this post-COVID market.
But, as these lists will show, raising the most venture capital funding doesn't necessarily spell long-term success.
With that in mind, let's dive into the investment trends.
Health tech funding over the past decade
Looking at the health tech startups and companies that have collected the most funding in the past 10 years and some clear trends emerge.
Tech-enabled Medicare Advantage startup Devoted Health stands out from the pack, having raised $2.256 billion. The company this year completed a $287 million series E round, raising $175 million in 2023 and adding $112 million in August. The company, which was founded in 2017 by brothers Todd and Ed Park, says it provides "all-in-one" care for older Americans by combining Medicare Advantage coverage with its virtual and in-home care provider, Devoted Medical, as well as partnerships with leading providers.
Devoted serves more than 227,000 members in 299 counties across 13 states. The company is now working to expand into seven new states and hundreds of additional counties.
Second on this list is Radiology Partners, having raised a total of $2.066 billion. Radiology Partners is a leading radiology practice in the U.S., providing high-quality, physician-led care across hospitals and clinics. The group leverages innovative technology to enhance radiology’s impact on healthcare delivery. Earlier this year, it closed a $720 million growth equity investment.
Although not listed on the chart, the top 20 list of the most-funded health tech companies wraps up with Komodo Health with $515 million at No. 16, Medable with $514.7 million at No. 17, Color with $496 million at No. 18, Reify Health with $478 million at No. 19 and Helix with $469 million at the No. 20 spot.
Companies with the largest amount of total venture funding in the past decade are dominated by telehealth businesses as those tech-enabled service business models have lower margins, are human-intensive and, thus, require significantly more capital to scale versus healthcare software businesses, Yuan noted.
"When you look at the total funding list, we immediately notice that more than half the companies on that list are these tech-enabled service businesses. These are these telehealth businesses that typically have lower gross margins because they hire a lot of people on the team to go deliver the care, and so they're more capital intensive," Yuan said.
Companies like Lyra Health, Hinge Health, Everly Health and Forward all raised north of $600 million. "These models just need that much more capital to scale," she said.
Many of the companies on the top 20 list were founded a decade ago and mark the first early innovators of tech-enabled service businesses as founders and entrepreneurs saw opportunities to change the status quo of how care is delivered.
"These were the business models that we knew how to build in healthcare in this venture landscape." Yuan said. "This evolution from healthcare IT, as people called it back in the day, to healthcare technology, it's really that first wave of tech-enabled service businesses, where we looked at all the specialties out there, whether it be mental health, primary care, chronic kidney disease or MSK and said, 'OK, there has to be a better way of delivering care than our traditional hospitals and systems. So, let's now figure out a more consumer-first, consumer-friendly model that leverages technology in the back end with the aim of making a better patient experience and also better outcomes'."
There has also been a rise of value-based care models in the past decade in an effort to align incentives between payers, providers and patients. VC firms have invested heavily in companies in each of the major specialties or those who serve large, targeted populations (Devoted Health with the Medicare population, or Cityblock with the Medicaid population). These value-based care models are the most capital-intensive type of tech-enabled service businesses to operate because these VBC companies often have large working capital requirements in spending money upfront to care for patients while getting paid by payers much later, Yuan noted.
Chronic kidney disease was one of the first specialties to see large-scale venture interest, as Monogram and Somatus both rise to the top of the total funding list. Somatus has raised $465 million in total funding, making it just shy of the top 20 list.
But many other specialties have quickly followed in recent years after seeing the proven success and outcomes of the pioneers with these value-based business models (see more on that below).
Mental health is a specialty that has seen tremendous interest from investors in the past 10 years driven by de-stigmatization spurring demand plus a supply shortage of therapists. Lyra Health comes in at fourth on the list, having raised $906 million.
Healthcare technology company Commure, No. 8 on the list, merged with Athelas, a provider of healthcare workflow automation software last year in a $6 billion deal, to grab a bigger piece of the health system market. The merger combined Athelas’ large language model expertise and Commure’s scaled software and hardware solutions. Building on that, the company bought healthcare AI company Augmedix this year to get a foothold in the fast-growing AI medical scribe market.
Commure, which merged with Athelas last year in a $6 billion deal, is getting a foothold in the AI medical scribe market as the sector gets increasingly competitive.
The list of top-funded health tech companies also shows that the myth of “too big to fail” is universal, Yuan noted. Two out of the top 20 most-funded companies have completely shut down. Healthcare startup Olive closed operations in 2023 after raising nearly a $1 billion.
The company saw a meteoric rise in 2020 and 2021, spurred by the digital health funding boom and the need for automation during the COVID-19 pandemic. In July 2022, amid an economic downturn, Olive laid off 450 employees as the CEO cited tough economic conditions as well as "missteps" in the company's strategy. Olive experienced many of the same headwinds as other organizations—including shifts in the industry landscape, evolving customer expectations and challenging market conditions.
Primary care player Forward Health shut down this year after raising $650 million. The company launched in 2016 as a tech-enabled direct primary care business based on a cash-pay model that doesn't take insurance.
"It's fascinating to see that on the total funding list already two companies have flamed out," Yuan said. "I believe that more of this is going to happen. This is only the beginning, and this is a product of too much funding in the past five to 10 years in companies that were capital-intensive with low margins. On the cost side, there's not a lot of room for error. And then on top of that, we've just injected a ton of money into these companies."
Top recent funding rounds
A look at the companies that have raised the largest funding rounds in the past nine months provides a snapshot of how some of these long-term trends have evolved and the new areas that investors are most excited about.
Scroll through the chart beow to see all 20 companies:
In 2024, artificial intelligence clearly dominated the venture funding ecosystem. As noted above, generative AI startup Abridge reportedly raised a whooping $250 million in October, which would bring its total fundraise to $457.5 million to date. Abridge also banked a hefty $150 million series C funding round in February.
Within health tech, there are two AI categories that are rising to the top of investor interest--AI documentation and AI coding, Yuan noted.
Physicians are burned out post-COVID and are looking for tools to streamline administrative work. AI notetaking and documentation companies like Abridge, Suki ($70 million) and Regard ($61 million) have all raised significant rounds in the past nine months.
"The idea of AI documentation, this technology has existed; Suki and companies have been around for seven, eight years, but it wasn't until recently that there has been mass adoption because you had the combination of the supply side of physicians, these physicians themselves are getting burned out and they're reaching a tipping point. AI has become more front and center for the enterprise level, the C suites of these hospitals who are now saying, "OK, we really now feel confident about this technology, and our physicians want it, so it's now the time to buy," Yuan said.
AI coding companies are taking off because coding has historically been an extremely manual and highly skilled task, resulting in human errors and denials from payers, which ultimately affects the revenue and timing of cash flow for hospitals. In this sector, CodaMetrix and SmarterDx have all raised significant rounds in the past 9 months. CodaMetrix pocketed $40 million in March and SmarterDx banked $50 million in May.
PayZen rose to the top of the recent funding list also because it is a fintech solution helping hospitals with their cash flow by using AI to personalize payback plans for patients, Yuan noted.
Looking at the list of top recent funding rounds and it's clear that mental health continues to be a hot area of investment. Spring Health, Headway and Grow Therapy represent three out of the 12 companies that raised $80+ rounds in the past nine months and "in a market where very few growth deals are getting done," Yuan said.
The mental health crisis was further exacerbated by COVID and this opens up opportunities for investment in tech-enabled mental health services to improve access to care and quality of care.
The trend line of value-based care also continues to pull through into 2024 as startups expand value-based care models into new specialties. Oncology value-based care Thyme Care raised $95 million this year, while Pearl health, a primary care value-based care player, pocketed $58 million this year.
"Value-based care models are something investors put in money 10 years ago and continue to do so. This is the holy grail of where we hope healthcare to be. The reason why there has been continuous funding over the last 10 years is because we hope that, with the inefficiencies between our provider side and the payer side, if we could collapse these two and the incentives are aligned for both sides, we should be saving a lot more money," Yuan said.
But these models need a lot of capital to succeed, she noted.
"That is why Devoted has raised so much capital. Devoted has been doing phenomenally well. I think they've really paved the path to show what can really work at scale. I haven't seen a single value-based model that won't need at least, to be successful, $100 to $200 million of capital to get themselves there," she said.
As we head into 2025, it's expected that healthcare AI will continue to drive investments in health tech.
Yuan notes there are lessons to be learned from looking back over the past decade, analyzing both the successes and the failures.
"Olive and Forward shutting down provides a cautionary tale around overhyped companies receiving too much capital ahead of traction and a proven business model that can drive profits at scale," she said. "While a lot of capital has poured into all things AI recently, time will tell on who will prevail 10 years from now."