Digital health funding: How should healthtech startups pursue capital partnerships?
The healthtech industry has witnessed remarkable growth in recent years, driven by technological advancements, changing consumer preferences and the increasing demand for efficient and accessible healthcare solutions. But as digital health continues to evolve, the need for leaders to develop new funding sources becomes paramount.
Private equity firms, with their deep pockets and strategic expertise, have emerged as a crucial source of capital for healthtech startups and established companies alike. Private equity funding has played a pivotal role in fueling innovation, enabling companies to scale their operations and accelerating the development of cutting-edge digital health solutions.
From telemedicine platforms to wearable devices and data analytics tools, private equity firms have recognized the immense potential of this industry and have actively invested in promising ventures.
As the healthtech landscape continues to expand, the demand for private equity funding is expected to rise, presenting both opportunities and challenges for companies seeking to tap into this valuable resource.
Digital healthcare market overview: Private equity and venture capital are major players
The digital health sector has attracted significant attention from private equity and venture capital firms. In recent years, investors have delivered funding for digital health startups and growing companies developing artificial intelligence (AI), documentation or billing solutions and nutrition tech.
- OpenEvidence, an AI copilot for doctors, secured a $75 million Series A funding from Sequoia Capital, bringing its total funding to over $100 million.
- Abridge, a platform that transforms medical conversations into clinical documentation, raised an impressive $250 million in Series D funding. The round was co-led by Elad Gil and IVP with participation from numerous venture capital firms and strategic investors, including the venture arms of NVIDIA and CVS. Meanwhile, Candid Health, a revenue cycle platform for medical billing, obtained $52.5 million in Series C funding led by Oak HC/FT, pushing its total funding to $99.5 million.
- The nutrition sector also saw significant investments, with Berry Street and Fay each raising $50 million. Berry Street, a nutrition counseling platform connecting patients with dietitians, plans to enhance its platform and AI tools for providers. Fay, which offers a similar service and supports dietitians in building private practices, will use the funding to expand its offerings for both professionals and clients.
Funding events like this signal a robust future for the healthtech industry, particularly in areas leveraging AI and specialized platforms. The substantial investments in AI-driven solutions like OpenEvidence and Abridge highlight the industry’s focus on improving clinical decision-making and operational efficiency.
To investors, digital health delivers long-term value and transformative potential
The continued interest from both venture capital firms and strategic investors underscores the perceived long-term value and transformative potential of these technologies in healthcare.
Private equity is playing a crucial role in accelerating innovation and scaling these solutions, enabling companies to expand their reach, refine their technologies and potentially reshape healthcare delivery models. This influx of capital is likely to drive further advancements in personalized care, operational efficiency and the integration of AI across various healthcare domains.
These investments also indicate a willingness from private equity to unleash its capital reserves. The healthtech industry, with its promising growth potential and technological innovations, has become an attractive target for what industry professionals call “dry powder.”
Dry powder reserves help private equity quickly deploy funding in the digital health marketplace
The term “dry powder” refers to the unallocated capital that private equity firms have at their disposal, ready to be deployed into new investments. This reserve of funds serves as a strategic advantage, enabling firms to act swiftly when attractive investment opportunities arise.
In the context of the healthtech industry, dry powder represents the funding muscle that private equity firms can leverage to support the growth and expansion of promising healthtech companies. With substantial dry powder reserves, these firms have the flexibility to invest in innovative technologies, acquire complementary businesses and fuel the development of new products and services.
The availability of dry powder not only provides a competitive edge for private equity firms but also signals their confidence in the long-term prospects of the healthtech industry. As the demand for healthtech solutions continues to soar, the strategic deployment of dry powder becomes increasingly crucial for driving innovation and capturing market share.
How can digital health startups attract the right private equity funding partner?
When seeking private equity funding, healthtech industry startups should carefully evaluate potential partners on cultural alignment, capabilities and overall fit. Here are some key considerations:
- Alignment of goals and values: It’s crucial to ensure that the goals and values of the startup align with those of the private equity firm. Startups should clearly understand the firm’s investment strategy, growth expectations and exit timeline to avoid potential conflicts or misalignments down the line.
- Operational and strategic support: Private equity firms can provide valuable operational and strategic support beyond just capital investment. Startups should assess the firm’s expertise, industry knowledge and ability to add value through guidance, mentorship and access to resources and networks.
- Control and governance: Private equity investments often involve a significant ownership stake and potential changes in the company’s governance structure. Startups should carefully evaluate the level of control they are willing to relinquish and help ensure that the terms of the investment align with their long-term vision and goals.
- Regulatory and compliance considerations: The healthtech industry is subject to stringent regulations and compliance requirements. Startups should assess the private equity firm’s understanding of the regulatory landscape and its ability to navigate complex legal and regulatory challenges.
- Exit strategy: Private equity firms typically have a defined investment horizon and an exit strategy in mind. Startups should understand the firm’s exit preferences (e.g., IPO, acquisition or sale to another investor) and make sure their long-term goals align with the firm’s exit plans.
- Valuation and deal terms: Startups should carefully evaluate the valuation and deal terms proposed by the private equity firm. It’s essential to understand the implications of the investment structure, including dilution of ownership, board representation and potential future funding rounds.
By carefully considering these factors, healthtech startups can increase their chances of securing private equity funding from a partner that aligns with their goals, values and long-term vision, enabling them to achieve sustainable growth and success.
Where is the digital health industry headed next?
The healthtech industry is poised for continued growth and innovation, fueled by technological advancements, changing consumer preferences and the increasing demand for efficient and accessible healthcare solutions. As a result, the role of private equity funding in this sector is expected to become an even more crucial trend.
Digital health tools using AI, machine learning or analytics could revolutionize the healthcare industry
One of the key drivers of private equity investment in healthtech will be the ongoing integration of artificial intelligence and machine learning technologies. AI-powered solutions have the potential to revolutionize various aspects of healthcare, from disease diagnosis and drug discovery to personalized treatment plans and predictive analytics. Private equity firms recognizing the transformative potential of AI are likely to increase their investments in healthtech startups and companies that leverage these cutting-edge technologies.
The increasing availability of healthcare data and the growing emphasis on data analytics and interoperability will drive demand for healthtech solutions that can effectively aggregate, analyze and derive insights from vast amounts of patient data. Private equity firms may seek to invest in companies that offer advanced data management and analytics capabilities, enabling healthcare providers and payers to make more informed decisions and improve patient outcomes.
Data privacy, regulatory hurdles and competition create challenges for digital health startups to overcome
However, the future of private equity funding in the healthtech industry is not without challenges. Data privacy and security concerns, regulatory hurdles and the need for robust reimbursement models will continue to pose challenges for healthtech startups and established companies alike.
Private equity firms will need to navigate these complexities and work closely with portfolio companies to help ensure compliance and long-term sustainability.
Additionally, the competitive landscape in the healthtech industry is becoming increasingly crowded, with both established players and disruptive startups vying for market share. Private equity firms will need to carefully evaluate investment opportunities and prioritize companies with unique value propositions, defensible competitive advantages and strong growth potential.
Despite these challenges, the healthtech industry remains a fertile ground for private equity investment, offering opportunities for substantial returns and the potential to drive transformative change in the healthcare sector.
How Wipfli can help
If you’re a healthtech startup seeking private equity funding or an established company looking to accelerate your growth, our team of dedicated professionals can help you navigate the complexities of securing private equity investment. Contact us today to explore how we can support your journey toward success in the dynamic healthtech industry.
Let’s talk healthtech growth
