The venture capital market seems to be truly normalizing following the highs and lows of the pandemic, which is good news to the thousands of healthcare startups out there vying for funding dollars.
Global venture funding totaled $65.7 billion in the second quarter of 2024, according to a recent report from market intelligence firm CB Insights.
The market research also showed that deal volume is decreasing while deal size is rising. This has resulted in the average venture capital deal size increase of 17%, now $14.4 million compared to the $12.3 million average deal size from last year.
Another report — this one from Rock Health, a seed fund that supports startups working in digital health — noted that this year’s digital health venture funding dollars are on pace to exceed the totals from 2019 and 2023, which the report referred to as “helpful comparators outside of the pandemic-fueled funding cycle from 2020 to 2022.”
During the first half of this year, U.S. digital health startups raked in $5.7 billion across 266 deals. The sector’s year-end venture capital fundraising totals for 2019 and 2023 were $8.2 billion and $10.7 billion, respectively.
A large majority of the deals that occurred in the first half of 2024 were early-stage deals, meaning they came during the seed, Series A or Series B rounds. These early-stage transactions accounted for 84% of all deals in the first half of the year.
Series A activity was especially robust in the first half of 2024 — with the median deal size being $15 million, which is $3 million larger than the median Series A deal size last year. The strong Series A activity was driven by large rounds by startups like Zephyr AI, which raised $111 million in March, and Allez Health, which raised $60 million in May.
Rock Health’s report also noted that unlabeled rounds — those that don’t have a designated letter like “Series B” or “Series C” — are beginning to wane in the digital health startup sector. Last year saw a massive influx of these deals, setting a new annual record with 44% of last year’s digital health fundraising deals being unlabeled. In the first half of this year, 40% of deals were unlabeled.
“Q1 and Q2 2024 showed a decline in percentage of raises that were unlabeled (47% and 33%, respectively) from a peak of 55% in Q4 2023. This waning could mark the beginning of our return to a ‘more normal’ cadence of labeled raises, something we predicted for 2024,” the report said.
It’s also worth noting that three digital health companies exited the startup market in the second quarter of this year — following 21 months without a public exit. Remote fetal monitoring platform Nuvo exited via an SPAC merger in May, and revenue cycle company Waystar and precision diagnostics firm Tempus AI launched IPOs in June.
In a statement sent to MedCity News, Keith Figlioli, LRVHealth’s managing partner, said he found Rock Health’s latest data to be promising.
“We are in an active and steady market, which will be the new normal. Good companies will find their way to solid growth, and capital will be available for those with proven, durable business models and attractive unit economics. There was just over $10 billion in new money invested last year, and this year we’re on track for a similar amount. The new normal will probably hover around that dollar amount for a while as investments remain steady. The signs are encouraging on both the M&A and IPO front, but we’re still in the early stages,” he stated.
Picture: Feodora Chiosea, Getty Images
