Post-Pandemic Healthtech Investments Steady as AI Takes Center Stage

The healthtech sector, which has experienced fluctuating valuations and investment cycles in recent years, appears to be stabilizing in 2024, according to a new report from Silicon Valley Bank (SVB).

In the Future of Healthtech Report 2024, SVB highlights that investments in the sector have rebounded from the volatile post-pandemic lows, now stabilizing between $3.5 billion and $4.5 billion per quarter. This level of investment surpasses pre-pandemic figures, signaling a recovery in a field increasingly dominated by artificial intelligence (AI) applications.

The 5th edition of SVB’s report provides an analysis of the healthtech market, focusing on investment trends, the sector’s evolution, and the growing role of AI in driving efficiencies in healthcare operations. It also emphasizes the challenges healthtech companies face in securing subsequent rounds of capital or planning exits, as investors become more selective following a recalibration in market valuations. The report further underscores that healthtech remains a vibrant field for innovation, with segments like Provider Operations and Alternative Care leading the way.

“We are witnessing a transition from the inflated valuations of 2021 and the first half of 2022 to more sustainable investment practices,” said Julie Betts Ebert, Managing Director of Life Sciences and Healthcare Banking at SVB. “AI is playing a crucial role in streamlining administrative workflows, and companies that can demonstrate a clear return on investment are driving the sector forward.”

This recalibration in valuations contrasts sharply with the runaway investment trends of the early 2020s. As capital poured into healthtech during and immediately after the pandemic, valuations skyrocketed, but that pace has since slowed. Now, the focus has shifted to sustainable growth, particularly for companies that leverage AI to improve efficiency. AI-driven startups are at the forefront of healthtech innovation, especially those targeting administrative functions within healthcare systems, where inefficiencies have long plagued operations. According to SVB’s report, administrative healthtech, driven largely by AI, attracted $4 billion in funding this year, accounting for half of all AI healthtech investments in 2024.

Seed funding rounds have become a more prominent feature of the landscape, making up 42% of all healthtech deals this year.

The role of AI in the healthtech sector has expanded significantly, with more investments made in AI-powered healthtech in 2024 than in any previous year. Healthtech companies utilizing AI have not only attracted more funding but have seen their valuations grow by 50% compared to 2019 levels. This growth reflects broader market recognition of AI’s potential to reduce costs and streamline complex workflows within the healthcare industry. The report notes that 50% of AI investment in healthtech this year focused on administrative processes, with 37% directed toward clinical applications, and 13% allocated to research and development.

An example of the changing healthtech landscape is Tempus, an AI-powered healthtech firm that went public in June 2024. After raising $411 million in its initial public offering, Tempus accepted a valuation haircut—a reduction in its pre-IPO valuation—yet it has thrived since entering the public markets. Tempus has seen total returns of 48% as of August 2024, showing that companies willing to make such concessions can still succeed in a more cautious investment climate.

The Future of Healthtech Report 2024 provides key data points illustrating the sector’s current dynamics. Notably, dollars raised in the first eight months of 2024 (from January through August) have already exceeded the total for all of 2019. Seed funding rounds have become a more prominent feature of the landscape, making up 42% of all healthtech deals this year, compared to 21% in 2019. The median deal size is $3.8 million, reflecting a recalibration from the larger funding rounds of previous years. However, while there has been no shortage of deals, 12% of all healthtech deals in 2024 have been “down rounds,” where companies raise funds at lower valuations than in previous financing rounds—the highest proportion in recent years.

The global healthcare AI market could reach $45.2 billion by 2028, driven by the demand for automated solutions in both clinical and administrative settings.

The success of AI-driven companies, combined with growing demand for innovations that can address inefficiencies in the healthcare system, suggests that the sector is poised for continued growth. However, with no healthtech deals surpassing $500 million so far this year—an anomaly compared to prior years when at least one such deal was typical—companies are increasingly focused on incremental growth rather than aiming for blockbuster deals.

Healthtech’s trajectory is closely linked to broader industry trends, particularly the growing adoption of value-based care models. These models emphasize efficiency and patient outcomes, both of which are areas where AI-driven solutions can have a significant impact. According to the report, healthtech investment in 2024 is not only about new technologies but about aligning these innovations with the financial and operational realities of today’s healthcare providers.

As the healthtech landscape evolves, key players are adapting to the new environment. Industry analysts predict that the sector will continue to grow steadily, with particular strength in AI applications. Frost & Sullivan, a market research firm, projects that the global healthcare AI market could reach $45.2 billion by 2028, driven by the demand for automated solutions in both clinical and administrative settings. Still, the path forward may not be smooth for all healthtech firms. Rising interest rates and ongoing economic uncertainty could make access to capital more challenging, particularly for early-stage companies.

For a detailed analysis of the healthtech sector’s investment trends, AI-driven innovations, and future projections, you can access the full Future of Healthtech Report 2024 by Silicon Valley Bank by clicking HERE.

Silicon Valley Bank, founded in 1983 and headquartered in Santa Clara, California, focuses on providing financial services to technology, life sciences, and healthcare companies, as well as venture capital firms. SVB offers specialized banking solutions, including loans, treasury management, and investment services, supporting companies from startup through IPO. Its close connections with the venture capital ecosystem make it a key player in financing high-growth sectors.