Digital health investors predict more startup bankruptcies in 2025

The abrupt end of a well-funded startup in November had many digital health stakeholders buzzing, looking ahead to what could be a bumpy 2025 for the sector.

Forward, a tech-enabled, subscription-based primary care company, said it was shutting down 12 months after raising $100 million. Analysts predict it will be one of many companies to meet the same fate as venture capital investors write fewer checks for digital health companies and potential buyers rethink their investments into tech. 

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A more challenging funding environment could send a lot of companies past the brink and into bankruptcy, experts said.

“We’re going to have at least three or four years of a bleed-out of a lot of these businesses that, quite frankly, didn't have unit economics that made any sense,” said Keith Figlioli, managing partner at venture capital firm LRVHealth. “There are so many businesses that are offering something that’s more of a feature, not something that [should be the basis of a] company.”

In 2021, companies received nearly $30 billion in investments from venture capital firms on the post-COVID-19 pandemic bet that healthcare was going to embrace virtual care. While the industry has shifted to digital platforms, it didn’t happen to the degree in which investors initially predicted, said Oliver Kharraz, CEO of digital health company Zocdoc.

“That’s why it’s been so hard for these companies to get funding because it's no longer an unknowable question [on the adoption of digital health],” Kharraz said. “In many ways, we have the answer, and the answer is that the patient rejects a lot of these solutions.”

Digital health funding in 2024 likely fell just below the $10.8 billion achieved in 2023, according to research firm Rock Health. That would be far less than the 2021 high mark of $29.2 billion. Companies receiving funds are often forced to take unlabeled or down rounds, which signify a lower valuation. The end result could lead to more companies folding. 

Fewer exits available for companies

Forward wasn’t the only company to shut down in 2024. COVID-19 testing company Cue Health, maternal health company Ruth Health and diabetes app developer Better Therapeutics also ended operations. 

Analysts expect this year to be worse because companies will start run out of their initial venture capital funding. Sam Toole, partner at venture capital firm Primary Venture Partners, said there is a lack of liquidity available to those companies. 

"There will be more blood in the water in 2025," Toole said.

Mergers and acquisitions aren’t completely out of the question and private equity has shown more interest in the sector, according to a July report from Rock Health. Companies likely will have to swallow their pride to stay alive, said Pitchbook analyst Aaron DeGagne. For example, online pharmacy company TruePill, once valued at $1.6 billion, was purchased by home testing startup LetsGetChecked in October for a reported $525 million. 

LetsGetChecked did not respond to a request for comment.

Diabetes tech company DarioHealth isn’t profitable, but the company is in a strong position to acquire digital health companies with depreciated valuations, said Chief Medical Officer Dr. Omar Manejwala. In February, DarioHealth acquired Twill, a company that convenes virtual peer groups for patients with specific conditions, for $10 million in cash and 10 million shares of common stock.

“There’s a lot out there on how companies are failing…but that also means companies will be on sale,” Manejwala said. “That’s how we got Twill. A ridiculous amount of money was dumped into making it an amazing solution and we acquired it for not even pennies, but fractions of pennies.” 

Digital health areas are in danger

Certain areas of digital health are more susceptible to failure than others. Toole said startups that act as providers in a virtual or hybrid setting will face challenges. Larger provider organizations, such as health systems, already operate on low margins, which shows the difficulty of running that kind of business at a smaller scale, he said.

“When we look at care delivery businesses…we ask ourselves what’s the path to $500 million or $1 billion in revenue,” Toole said. “You have to be thinking about that kind of scale if you’re going to get a venture-style return.”

Direct-to-consumer companies could struggle, DeGagne said. While Hims & Hers has done well offering telehealth to consumers, other companies like Talkspace have shifted to an enterprise model. Zocdoc has found success working with electronic health record and practice management software vendors and directly with health systems to grow its business.

Artificial intelligence will be an area to watch, Kharraz said.  AI was a popular area for VC funding in 2024 but some predict the well will dry up as the hype gives way to reality. Kharraz said AI companies focused on EHR documentation will have to differentiate themselves to stand out in a crowded field.

“The technology is starting to be commoditized and will just continue to get cheaper,” Kharraz said. “It doesn't mean that there are not going to be good products out there, but it appears to be that most of the value will probably accrue to the incumbents.”