US 2024 digital health funding explored some new lows, yet again. Plainly put, despite some perking up at the end of the year, 2024 was not a righting of 2023’s wobbly year when looking at the key metrics. It was more like a stabilization to 2019 levels with the pandemic period standing out in sharp relief as an aberration. Let’s see what this all means….

2024 by the numbers:

• Year totals were $10.1 billion across 497 deals, versus 2023’s $10.8 billion across 503 deals
• 63% of 2024’s funding rounds were labeled–up from 2023’s 57%
• Average deal size shrank to $20.4 million from $21.5 million
• 86% were seed, Series A, and Series B rounds
• Series C and D fundings shrank in the wash to median sizes of $50 million and $55 million respectively—well below 2023’s $62 million and $58 million. Mega deals dwindled to 17 or 21% of overall sector funding from 2023’s 32% in 2023 and 38% in 2022.
• M&A activity hit a 10-year low at 118 deals.

We’re back to 2019 in absolute dollars. Using the pre-pandemic year of 2019 as a benchmark, Rock Health factors in three years of inflation to calculate that 2024’s funding is back at 2019 levels. While 2024 outperformed in current dollars 2019’s $8.2 billion across 425 deals, knocking off $0.18 on each dollar (worth $0.82 in 2019 value) brings 2024’s total to $8.3 billion in 2019 dollar value–essentially flat.

Why is this happening? Rock Health is attributing this to:

• More attractive Davids versus the Goliaths: earlier-stage startups are not encumbered by the inflated valuations of later-stage funded ventures. The later-stage Goliaths which are not in something resembling profitability are now faced with down or stalled rounds. They, or their key investors, may seek buyouts or ‘shotgun marriages’–or shut down. In Rock Health’s view, this may restart M&A activity. (From this Editor’s perch, it already has–check General Catalyst’s portfolio condensing.)
• Fewer investors concentrating the available capital. Of the 391 VC funds, 30 raised 75% of all  US committed capital. Nine of those funds accounted for 50%.(Pitchbook) Editor’s note: it’s not clear if this accounts for private equity funders.
• If you are tired of seeing Andreessen Horowitz (a16z) and General Catalyst (GC) in funding announcements, that is because they have between them about 20% of committed LP funding. Their dominance means unusual control over the direction of companies and their technologies. For instance, GC has HATco which as earlier reported, just entered a partnership with AWS to develop AI tools for its portfolio companies like Commure and Aidoc. This standardization means more control over ‘transforming healthcare’–and (as Rock Health doesn’t mention), over their investments in terms of costs, IP, and their business practices.

AI enablement was 2024’s hot button. It accounted for $3.7 billion, or 37% of the year’s sector funding, in 191 deals. There’s a discussion in the article about how foundational AI models for healthcare are gigantic large language models (LLMs) trained on vast data sets, which is why the seemingly low barrier to AI entry is in reality very high and can be dominated by a few Goliath players. The Davids need to work some niches and carefully consider their positioning.

2024’s leading value propositions and clinical indications. Still top in value props is disease treatment; moving up dramatically, disease monitoring. Funding is increasingly concentrated among the six top value propositions, now at 85%, 10 points higher than previously. In clinical indications, mental health takes home the prize as the five-year champ at #1, with cardiovascular and oncology following. Weight management and obesity was the comer, moving in one year from #8 to #4. Expect to see this move up even more in 2025. Clinical indication funding was less concentrated but nearly doubled, with the top six taking 48% of sector funding versus 28% in 2023.

Rock Health 2024 Report. Also Healthcare Dive