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Cranfield, UK, 9th August 2024 –
Thank you for tuning in to this month’s Generative AI newsletter. This edition focuses on the current investment landscape in healthcare IT, particularly digital health funding and the rise of ambient listening technologies.
My colleague Jon Hill summarised this month’s healthcare IT generative AI news on his page. To see the post, click here. I am providing a snapshot of the announcements below for your convenience.
Two major themes have emerged this month: the funding rounds raised by digital health companies and the plethora of news surrounding the ambient listening space. I am writing an article on ambient listening solutions and potential developments, which will be posted on Signify Research’s website this week. For now, let’s focus on the funding landscape, which is particularly timely given that we are at the half-year mark of 2024.
Several digital health companies, including Regard, K Health, Adonis, and Huma, completed significant funding rounds in July. Does this signify the end of the dry spell for healthcare IT start-ups and a swing of the pendulum, or is 2024 mirroring the trends of the last few years? This article aims to shed light on this question and more.
Investment Landscape Overview
According to Rock Health’s H1 2024 report, the digital health sector shows resilience with growing funding and exits, suggesting a positive trend for 2024. In the first half of the year, U.S. digital health startups raised $5.7 billion across 266 deals, potentially surpassing the funding levels of 2019 and 2023 if the trend continues. Early-stage investments dominated the landscape, particularly Series A rounds driven by AI. The decline in unlabelled funding rounds indicates a return to more typical funding practices. While acquisitions have decreased, private equity involvement has increased, favouring companies with robust business models. Recent IPOs and acquisitions suggest a cautiously optimistic outlook for exits in the sector.
The HSBC Venture Healthcare H1 2024 report examines venture investment and exit activity in the US and Europe. It segments the market into Biopharma, Medical Devices, Dx/Tools, and Healthtech. The report concludes that 2024 provided a glimpse of hope through increased investment across every sector and numerous new investor-led financings. “In 2023, HealthTech investments significantly declined from Q1 to Q2 due to the banking crisis. The trend reversed in 1H 2024, with deal activity rising each quarter”.
Key highlights include:
- Investment picked up in 1H 2024, with 52% of post-first-financing deals having a new lead investor, up from 49% in 2023.
- Later-round deals attracted new funding, with investors seeking clear paths to profitability.
- Big deals have declined, with only one $200M+ deal in 1H 2024 (Innovaccer), whilst 2022 and 2023 had fourteen and six, respectively.
- The market shows signs of normalisation, improving Series A trends, more early-stage investments, combined with fewer insider/unlabelled rounds and larger investments in mature later-stage companies.
The HGP Health IT Market Review notes conflicting signals in 2024. Despite the surge in M&A, buyout, and investment activities, underlying valuations have yet to rebound to their pre-pandemic levels. However, low-quality and distressed deals increasingly characterise the surge in M&A activity.
Beyond healthcare IT, the global tech investment landscape also shows positive trends. According to Dealroom’s The State of Global VC, as per its Global Tech Update Q2 2024 report, VC investment has grown, and gen AI and related segments remain the most funded frontier tech segments in 2024, with the USA raising the funding.
Influenced by AI investments, the broader economy adds complexity to the market’s outlook. CB Insights’ State of AI Q2’24 report highlights a 59% QoQ jump in global AI funding, reaching $23.2B, the highest quarterly level on record.
In Europe, Sifted’s H1 2024 Review reports that Europe’s tech ecosystem is better than six months ago, with the UK leading in total funding raised. The UK’s previous government’s more relaxed approach to AI regulation likely contributed to this growth. However, with the recent election of a Labour government, AI regulation approaches might shift, potentially redirecting VC investments. For instance, the Labour government recently cut GBP1.3 billion of funding for AI and tech projects — including £500m for AI computing power and £800m for a supercomputer. This could mean that the UK may not be able to compete on a global scale, and startups may relocate to more favourable locations, like the US.
Conclusion
The overall investment activity in healthcare IT is rising, with significant early-stage funding and a gradual return to standard investment patterns despite ongoing market uncertainties driven by the promise of AI proliferation.
The HGP Report notes that health AI investment is soaring, with investment in AI-powered workflow tools outnumbering clinical AI tools by a 7:1 ratio. There is a huge focus right now on providing ROI for healthcare providers in light of labour shortages, the ageing population with comorbidities, and rising expectations. Healthcare providers are in desperate need of improving and streamlining the workflow. Hence, it makes sense that workflow tools are in more demand. Especially given that clinical AI tools such as AI in the Medical Imaging Market have faced challenges. Raising over $5 billion since 2017, Signify Research estimated the market to be only around ~$735 million in 2023, highlighting the significant return gap that investors are going through. Hence, the previous shortcomings and the rise of generative AI (not yet fit for clinical purposes) leave the workflow area prime for innovation and investment opportunities.
However, whether the investors will see a return remains to be seen, as the commoditisation of technology is highly likely, and perhaps all of the investments will never be recouped. Michael Spence has captured some interesting analysis on the promise of generative AI here. I will look to do something similar in the future, focusing on the healthcare IT market.
Are there any other reports I missed, and do you have any thoughts? Please share in the comments below for the benefit of the community!
Thank you for investing your time in this update, and I wish you a fantastic day ahead! 👋
About the Author
Vlad joined Signify Research in 2023 as a Senior Market Analyst in the Digital Health team. He brings several years of experience in the consulting industry, having undertaken strategy, planning, and due diligence assignments for governments, operators, and service providers. Vlad holds an MSc degree with distinction in Business with Consulting from the University of Warwick.
About the AI in Healthcare Team
Signify Research’s AI in Healthcare team delivers in-depth market intelligence and insights across a breadth of healthcare technology sectors. Our areas of coverage include medical imaging analysis, clinical IT systems, pharmaceutical and life sciences applications, as well as electronic medical records and broader digital health solutions. Our reports provide a data-centric and global outlook of each market with granular country-level insights. Our research process blends primary data collected from in-depth interviews with healthcare professionals and technology vendors, to provide a balanced and objective view of the market.
About Signify Research
Signify Research provides healthtech market intelligence powered by data that you can trust. We blend insights collected from in-depth interviews with technology vendors and healthcare professionals with sales data reported to us by leading vendors to provide a complete and balanced view of the market trends. Our coverage areas are Medical Imaging, Clinical Care, Digital Health, Diagnostic and Lifesciences and Healthcare IT.
Clients worldwide rely on direct access to our expert Analysts for their opinions on the latest market trends and developments. Our market analysis reports and subscriptions provide data-driven insights that business leaders use to guide strategic decisions. We also offer custom research services for clients who need information that can’t be obtained from our off-the-shelf research products or who require market intelligence tailored to their specific needs.