The Future of Digital Health Startups

Selective Funding: A Shift Towards Clinical Validation and Commercial Traction

The 2024 State of Digital Health Report by CB Insights reveals a key trend: investors are becoming increasingly selective about where they place their money. While overall funding in digital health saw a modest 3% year-over-year increase, the total number of deals dropped by 23%, reaching its lowest annual total (1,225) since 2014. This decline suggests a consolidation in investment, where funding is directed toward companies that demonstrate strong clinical validation, commercial viability, and regulatory readiness.

Key Factors Driving Selective Investment:

1. Regulatory Compliance – Startups that meet FDA, EMA, and other regulatory standards are more attractive to investors.

2. Commercial Traction – Companies showing early revenue streams or established partnerships with healthcare providers gain a competitive edge.

3. Clinical Efficacy – Solutions backed by robust clinical trials and real-world data attract greater interest.

4. AI-driven Solutions – AI-focused startups continue to dominate, capturing 42% of total digital health fundingin 2024.

   
   

Impact on Startups:

• Increased Due Diligence: Investors now require comprehensive data proving a startup’s potential for impact and scalability.

• Longer Fundraising Cycles: Startups may need to extend fundraising timelines as investors scrutinize their business models more closely.

• Greater Emphasis on ROI: Companies must demonstrate how their solutions lead to cost savings, better patient outcomes, or operational efficiencies.

  
  

Exit Trends: Fewer IPOs and M&As, Longer Paths to Liquidity

Another significant insight from the report is the decline in exit opportunities for digital health startups. The number of IPOs and mergers & acquisitions (M&As) remains lower than in previous years, indicating that startups are staying private for longer periods.

Exit Landscape in 2024:

• IPO Activity Remains Low: Public market conditions and interest rate concerns continue to deter startups from going public.

• M&A Activity Hasn’t Rebounded: Despite some consolidation, many companies are still waiting for stronger acquisition interest.

• Mega-rounds Are Back: A 50% YoY increase in mega-rounds ($100M+ deals) suggests that late-stage companies are opting for additional private funding rather than seeking exits.

  
  

Implications for Startups:

• Extended Growth Strategies: Without quick exit opportunities, startups need sustainable revenue models to survive longer as private entities.

• Strategic Partnerships Over Acquisitions: Collaborations with healthcare giants may be a more viable path for expansion rather than seeking acquisition.

• Increased Valuation Pressure: Companies may face higher expectations for profitability before they can consider going public or merging.

  
  

The Road Ahead for Digital Health Startups

While funding remains available, it is increasingly concentrated among startups that meet higher performance benchmarks. The key to survival and success in this evolving landscape is differentiation, proven impact, and strong financial sustainability.

What Startups Should Focus On:

1. Demonstrate Real-World Impact – Ensure clinical trials and user data validate effectiveness.

2. Build Sustainable Revenue Models – Investors favor companies with clear paths to profitability.

3. Strengthen Regulatory and Compliance Strategies – Adhering to global health regulations increases credibility and funding potential.

4. Consider Alternative Funding Paths – Government grants, corporate partnerships, and venture debt can supplement traditional VC funding.

   
   

The future of digital health is one of higher scrutiny but also greater potential for companies that can navigate these evolving investor expectations and exit challenges. As the sector matures, the most successful startups will be those that prove their long-term viability, both clinically and financially.

Reference:

1. CB Insights. (2025, January 16). State of Digital Health 2024 Report. CB Insights Research. https://www.cbinsights.com/research/report/digital-health-trends-2024/