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December 07, 2023

Anna Ruth Williams

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Partner

patient and doctor sitting together

New Crunchbase data shows that global venture funding is down 42% year-over-year. While startups and growth-stage companies are struggling to raise rounds and battling lower valuations, one bright spot in 2023’s VC market is healthcare.

In April alone, healthcare stood apart from all other sectors raising $5.7 billion in VC dollars (Crunchbase). And in November, healthcare accounted for nearly 17% of all venture investments (S&P). 

While VCs aren’t shying away from health tech, 2023 has seen a steady decline in private equity healthcare IT deals. In the first three quarters, PE healthcare IT deals totalled 573. And given the QoQ decline in dealmaking pace, it’s highly doubtful the sector will reach 2022’s total of  873 deals (Pitchbook).

So, what healthtech subsectors are investors backing?

What’s hot & what’s not

To date, 1% of 2023’s healthtech financing deals have been megadeals ($100 million+). While that percentage is decisively down from the prior two years, what’s interesting to note is that half of these companies’ are in the value-based care space (Silicon Valley Bank). 

Value-based care emerged in 2006 and promises to create a new care environment that prioritizes health care over sick care. Over the past two decades, CMS has championed the shift to VBC by rewarding providers with incentive payments for the quality of care they give to patients. 

So, while VBC is hardly new, the pandemic gave investors a hearty reason to believe in it. Insider Intelligence  analyst Rajiv Leventhal says, “Providers who only got compensated under a traditional fee-for-service payment model {during COVID} suffered revenue losses due to abrupt reductions in patient visits. Investors quickly realized that providers would want greater financial protection against future FFS downturns.”

While innovations in value-based care are receiving investor interest, the digital health heyday of 2021 and 2022 appears to be over. 

In July 2023, RockHealth published H1 2023 digital health funding: A Brave New (lower funding) World, which reported that U.S. digital health startups raised $6.1 billion across 244 deals in the first half of the year. That’s down 41% from the total amount invested in 2022 and a whopping 59% from 2021. This decline is also seen in private equity deals with digital health M&A deal volume down from 2022.

 2024: Healthtech dealmaking outlook

While overall healthtech investments might be down from 2022, this year venture capitalists raised stockpiles of dry powder - $21.8 billion to be exact - to invest in healthcare next year (Silicon Valley Bank). And according to BCG, private equity dry powder has increased 7%, giving the firm a reason to be “cautiously optimistic that more robust transaction volumes will return.” 

As healthtech brands and their investors get aggressive in the New Year, Alloy is ready to support their go-to-market activities. Our HealthTech marketing strategists are deeply experienced in technologies that span the entire healthcare ecosystem – from the lab to the back office, and from the exam room to the patient's home. See why we’re a two-time grand prize finalist for Ragan’s Health Communications Agency of the Year.