The healthcare sector’s share of the global private equity and venture capital deal count is likely to continue decreasing in 2024, according to a new Pitchbook report.
Healthcare’s share of the global private equity deal count reached its peak in 2020 at 13.7%. This year, it fell to 10.8%, its lowest level since 2015. The industry’s share of global venture capital deals also peaked in 2020, reaching 18.4%, before falling to 16.5% this year. Pitchbook’s analysts expect these percentages to decline further in both categories in 2024.
This prediction does not mean that there is a lack of innovation or growth in the healthcare industry, but rather that the sector is in the midst of an economic cycle that is still deeply impacted by the pandemic and its fallout, the report explained.
Generative AI has been a hot area of investor interest in 2023, as providers scale their adoption of generative AI solutions that assist with clinical documentation and medical imaging interpretation. This trend is expected to carry into 2024 and beyond.
The report predicted that next year, investors will shift some of their interest toward companies selling generative AI products that improve care coordination. Large language models are well-suited to answer recurring employee questions regarding benefits, the report pointed out. The report also noted that generative AI tools may be able to perform specific tasks that employees request, such as scheduling appointments and summarizing information on available providers.
Surgical robotics has been another hot category for investors in 2023 — companies in this space have raised more than $860 million in venture capital dollars this year. Pitchbook’s analysts predicted that funding for surgical robotics startups will increase even further in 2024, citing three main reasons.
The first is that the country’s aging population is causing an uptick in demand for soft tissue procedures. The second is that there are new opportunities emerging in sectors currently not focused on by surgical robot incumbents. Lastly, healthcare’s workforce and burnout crises have made robotic solutions more attractive to providers, as these products improve efficiency and decrease clinicians’ cognitive burden.
There has been an IPO freeze in the digital health space this year, but the report said that it won’t last forever. In 2021, there were 13 digital health public listings, followed by five in 2022 and none in 2023. Next year, Pitchbook’s analysts expect at least three digital health companies to go public.
However, the market environment will continue to be a rough one for late-stage digital startups, according to the report. These startups will be facing a small number of acquirers, scant investor demand for unprofitable IPOs and economic headwinds.
“Even in a soft-landing scenario, wherein interest rates begin to decline — as currently predicted by the futures market — this will take time to flow through to the venture market, and we do not believe that slightly lower rates will be a quick fix for driving significant deal flow and IPOs,” Pitchbook Analyst Aaron DeGagne wrote in the report.
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