Digital Health Funding May Be Down, but AI Still Draws Interest from Investors

The global digital health market, once the darling of venture capital investors, has taken a tumble.

After remaining relatively flat for the last few quarters, Q2 2023 saw funding reach its lowest level — $3.4 billion — since Q3 2017, according to a recent CB Insights report. For the first half of this year, digital health funding totaled $6.9 billion, only half of last year’s total while the number of deals was the lowest since Q2 2015.

The U.S. accounted for nearly two-thirds of the digital health funding in Q2, but that was down 80% compared with Q1, the report notes.

Care delivery and navigation technologies by far drew the most interest from investors, recording 152 deals with $1.5 billion in investments followed by monitoring, imaging and diagnostics technology with 77 deals and $700 million in investments.

Nevertheless, interest among investors and health care leaders continues to rise in artificial intelligence (AI), noted Alex Lennox-Miller, CB Insights analyst, during a recent briefing about the firm’s first-half analysis. Clinical support areas and diagnostic imaging continue to be the most promising applications of AI, but more novel uses of the technology for automating documentation are drawing interest. Still, much work remains to enhance the accuracy of these systems, Lennox-Miller said, adding that generative AI will play a larger role in more digital health systems going forward.

One positive sign in the Q2 analysis found that mega-round funding and deals increased for the first time since Q4 2021. The U.S. accounted for four of the five mega-round deals in Q2.

The Top U.S. Equity Deals in Q2 Included:

• Adelade, a startup that uses data analytics to help independent physicians’ offices transition to value-based care models, received $260 million in Series E funding.
• HeartFlow, which developed AI-powered software that maps out the heart’s coronary arteries and any blockages through a 3D CT scan, received $215 million in Series F funding.
• Strive Health, which provides value-based care to adults living with chronic kidney disease, received $166 million in Series C funding.
• Author Health banked $115 million for its new platform offering care for Medicare Advantage patients with serious mental illness and substance-use disorders.