From AI to M&A: 6 digital health investors weigh in on 2024

Digital health faced a tumultuous funding environment in 2023, and some investors expect more of the same in 2024. 

The year started with only a trace of the momentum following funding records in 2021 and early 2022. As the calendar turned to 2023, all signs pointed toward a tighter market.

Read more: Digital health funding lags: Pitchbook

Then it got worse when Silicon Valley Bank failed in March. The bank's downfall revealed the broader infrastructure’s challenges as interest rates rose in an attempt to cool inflation. Digital health and technology founders, who often relied on SVB as their bank of choice, were forced to pick up the pieces.

While some companies like Monogram Health ($375M), Aledade ($260M) and Strive Health ($166M) were able to secure large deals reminiscent of 2022, others faced a challenging environment and investors set a higher bar before writing checks. As a result, the number of unlabeled funding rounds surged. The year further widened the gap between companies that were able to grow closer to profitability and those that were struggling.

Heading in 2024, most investors are still cautious about their investments, although some are a little more optimistic, especially when it comes to artificial intelligence. Here are six digital health investors sharing their predictions for the coming year. Responses have been edited for clarity and length.

Ellen Herlacher, partner at LRVHealth

"I think it's going to get worse before it gets better for the founders. The bright spots, I think, are that a lot of venture capital firms that had spent a year sitting on the sidelines are getting off the sidelines now. So, I think there will probably be more deal volume than we have seen previously. But I also think we're going see companies finally wind down. There are companies that happened to be well funded when the market turned around and companies that convinced their insiders to bridge them. But I think for a lot of companies, we're going to see some wind downs in the first half of next year as the bridging stops and investors continue to proceed with caution." 

Sofia Guerra, vice president at Bessemer Venture Partners

"If we see companies that are a lot more efficient in the way that they're growing, but perhaps they're growing at a slower pace, we're going to pay a lot more attention than we probably would have paid in the past. … [We’re] thinking about this scalability and efficiency score: How fast are you growing plus how much [cash] are you burning? ...At the earliest [funding] stages, perhaps you're not growing at our top benchmark but you're doing it very efficiently. So that will capture a lot more attention from our perspective and the market in general."

Christina Farr, principal investor and health tech lead at OMERS Ventures

"I think AI is going to continue to see a lot of interest. That is an area where investors are still really paying attention. I think there will be good funding rounds in areas where investors see a lot of opportunity for growth, such as the obesity space. That's a very big one right now because of everything that's been going on with the GLP-1s and just realizing that there is this whole new category of drugs that actually seems to be quite effective...And the other one that I think we are quite bullish on is the fertility space."

Alex Momeni, partner at General Catalyst

"I think there's going to continue to be a lot of noise in 2024 in the market from fast followers, copycats and people who are going to be using AI as a buzzword in their decks. The most successful companies in my mind will be the ones that will have made that effort to establish trust and figure out how to evaluate these AI models. The second thing we'll see is companies who work with systems to actually design new roles within healthcare. I think everybody's very worried about AI taking away employment, I’m actually pretty bullish that AI is going to create completely new jobs. We will only learn about those jobs as adoption increases within the customer base. I think we’ll see a sort of return to complex enterprise sales. … I think the most successful companies are going to be the ones that understand AI is a complex, consultative sale. They will sit down and really focus on C-suite engagement, trust building and the change management aspect of AI."

Naimish Patel, President, Healthcare Practice at Red Cell Partners

"I don't think there's been a better time to be in this space than right now. For those of us who are making our whole careers doing this, we just got billions of dollars of free learning. A ton of people spent a ton of money to go basically tell us what worked and what didn't work. …There's like this cheat code because you can just go learn from what everyone else did and just make better decisions. I think that exists for the next few years and its just a unique place in time we’re in. So many people went to build $20 million funded healthcare apps that didn’t make money, and you can kind of look back at why they didn’t make it and [ask] what were the characteristics."

Deena Shakir, General Partner at Lux Capital

"Next year is not necessarily going to be a monolith. I don’t think we’re going to magically see in 2024 that the environment changes in January. I think we’re probably going to see more of what we’re seeing right now. But at the same time, [it's within] these macroeconomic environments where the wheat separates from the chaff. So hopefully, we will start to see the market open up on the public side, start to see more exits and start to see more M&A activity."