Healthcare tech startups are booming. Digital health startups powered by AI secured $3.3 billion in venture funding from January to October 2024. These investments make up 36% of all healthcare sector funding and show how digital solutions are reshaping healthcare delivery.
The digital health space is growing faster than ever. Digital obesity care startups have already raised $664 million. Funding for digital food as medicine solutions has grown two-fold between 2023 and 2024. 85% of healthcare leaders worldwide plan to invest in generative AI over the next three years. This shows their strong push toward tech adoption.
At Bask Health, we know that building a healthcare tech company requires clear direction and a smart strategy. This piece covers everything you need to build a successful healthcare tech venture.
You'll learn about market validation, regulatory compliance, funding strategies, and scaling operations. Our insights will help both new founders and seasoned entrepreneurs understand today's digital health opportunities and challenges.
Key Takeaways
- Healthcare tech startups are booming, with digital health AI-driven ventures securing $3.3 billion in funding, making up 36% of total healthcare investments in 2024.
- The global digital health market is projected to grow at 23.8% CAGR, with key market segments including telehealth, AI-powered diagnostics, and healthcare SaaS solutions.
- Regulatory compliance is critical for health tech startups, requiring FDA approval, HIPAA compliance, and adherence to data privacy laws to ensure patient safety and legal protection.
- Funding strategies include venture capital, healthcare startup accelerators, and strategic partnerships, with U.S. digital health funding reaching $17.2 billion in 2024.
- AI, blockchain, and interoperability are driving innovation in digital health, improving patient care, workflow automation, and operational efficiency for healthcare providers.
- Growth strategies focus on market expansion, strategic partnerships, and scalable SaaS models, with healthcare SaaS companies taking 5.5 years to reach $10M ARR and 8.5 years to $100M ARR.
- Bask Health supports health tech entrepreneurs with expert insights on product validation, funding acquisition, regulatory compliance, and scaling operations for long-term success.
Current State of Healthcare Tech Startups
The digital health sector has reached its most important milestone. The global market size hit $85.00 billion in 2017 and experts project it to grow at 23.8% CAGR through 2026. We at Bask Health have witnessed this growth in a variety of market segments.
Key market segments
Three major segments shape the healthcare technology landscape: the provider market, payer market, and supplier market. The provider market leads the pack and makes up about two-thirds of the $3.60 trillion US healthcare market. The digital health ecosystem covers:
- Healthcare Services: Including telehealth, remote monitoring, and virtual care solutions
- MedTech/Digital Health: Focusing on electronic health records, health monitoring apps
- Life Sciences Tools/Diagnostics: Covering genomic and molecular diagnostic testing technologies
Investment landscape 2024
U.S. digital health funding has shown amazing strength with a 4% year-over-year jump to $17.20 billion in 2024. The U.S. leads the pack by contributing 70% of global venture capital funding in digital health. Andreessen Horowitz, General Catalyst, and Flare Capital remain the most active investors.
Major players and success stories
Several companies now lead the digital health revolution. Teladoc Health stands out with impressive numbers, bringing in $2.03 billion in revenue and seeing 38% more total visits. Epic Systems has become the top EHR vendor by building strategic collaborations with major healthcare providers.
Innovative startups have also made their mark. Devoted Health now holds a value of $12.90 billion, while Tempus sits at $8.10 billion. These companies illustrate how tech entrepreneurship in healthcare creates real value through state-of-the-art solutions.
Our team at Bask Health has noticed a trend. Healthcare tech startups that succeed often combine different product types into complete solutions. They create interfaces that work for both patients and physicians. This strategy helps them win over health systems and stimulate growth.
Building a Healthcare Tech Product
Successful healthcare tech product development needs a well-laid-out approach. Bask Health has learned that identifying market gaps starts with understanding specific medical problems that need solutions.
Identifying market gaps
The healthcare software market, valued at $12.5 billion in 2020, offers many opportunities for breakthroughs. We evaluate new ideas for usefulness and feasibility before investing resources. We also conduct full background research to learn about existing technologies and potential barriers.
Product validation steps
Healthcare technology product validation follows a careful process. We implement these key steps:
- Prototype Development: Create working models based on original concepts
- Laboratory Testing: Conduct extensive bench tests under controlled conditions
- Design Refinement: Make modifications based on test results and feedback
- Regulatory Preparation: Ensure compliance with FDA guidelines
Our experience shows that successful validation needs extensive testing in simulated real-life conditions. The prototype goes through careful evaluation to ensure both safety and effectiveness.
User research methods
Bask Health uses several user research techniques to ensure product success. Our method has:
- Contextual Inquiry: We observe users in their natural environment as they interact with healthcare products. This helps us identify pain points and opportunities for improvement.
- Stakeholder Interviews: One-on-one sessions with healthcare providers help us learn about workflow needs and priorities. These interviews gather rich information about user experiences and decision-making processes.
- Usability Testing: Users perform specific tasks while we collect data on their performance. This method works especially when you have end users early in health app design. Research shows this reduces abandonment rates, which reached 80% in 2021.
Our user research focuses on diversity and inclusion from concept design to implementation. This complete approach ensures our products meet different user groups' needs while maintaining high quality and effectiveness.
Healthcare Regulations and Compliance
Bask Health recognizes that regulatory compliance serves as the foundation of successful healthcare technology ventures. The U.S. Food & Drug Administration (FDA) is 20 years old in its risk-based approach to regulating software that functions as medical devices.
FDA guidelines overview
The FDA evaluates software functionality to make regulatory determinations. Digital health products need FDA oversight if they aim to diagnose, treat, or prevent diseases. The agency provides complete guidance on "Digital Health Technologies for Remote Data Acquisition in Clinical Investigations." This document outlines vital recommendations for verification, validation, and data collection.
Data privacy requirements
HIPAA compliance is a vital requirement for healthcare tech companies. The Privacy Rule sets national standards to protect patient's medical records and identifiable health information. Bask Health has implemented these key HIPAA requirements:
- Written security policies and procedures
- Annual workforce compliance training
- Reliable access controls
- Regular risk assessments
- Documentation retention for at least six years
The Security Rule requires administrative, physical, and technical safeguards to protect electronic Protected Health Information (ePHI). Companies must report any breach of unsecured PHI within 60 days after discovery. Each incident of non-compliance can cost $50,000, with a maximum penalty of $1.5 million.
Certification processes
The World Health Organization's Global Digital Health Certification Network (GDHCN) is a vital platform for digital health certification. This open-source infrastructure creates the first building block of digital public health infrastructure. Member States use GDHCN as a trusted network to verify digital health records' authenticity through an interoperable trust architecture.
Healthcare tech companies need to complete detailed verification processes. The certification process includes complete onboarding procedures that start with transitive trust onboarding and end up with full onboarding. GDHCN uses WHO's SMART Guidelines and HL7 FHIR specifications to ensure standardized digital health records.
Funding Your Health Tech Venture
Getting funding is a vital milestone for healthcare tech ventures. Bask Health's data shows U.S. digital health funding reached $2.70 billion across 133 deals in Q1 2024.
Startup funding stages
The investment world has changed dramatically. The average deal size now stands at $20.60 million. Early-stage investment activity now leads the way, as 86% of labeled deals support seed, series A, and series B rounds. All the same, mature startups face their own set of challenges. The median Series C and D fundraises have dropped to $50 million and $55 million.
Investor pitch preparation
Bask Health's experience reveals these key elements of a powerful healthcare tech pitch:
- Market Analysis: Clear data showing market size and potential
- Clinical Development Timeline: Simple one-slide overview
- Financial Projections: Adoption rates and path to profits
- Team Credentials: The core team's industry expertise
- Intellectual Property: Your tech advantages
Investors look for companies that show strong outcomes data early. The data shows 48% of Q1 2024's deals had no labels, up from 44% in 2023. We noticed creative deal structures becoming more common. DecisionRx is a great example—they secured $100 million through innovative debt facilities.
Healthcare accelerators
Top healthcare accelerators give tech startups exceptional growth chances. The UnitedHealthcare Accelerator picks 10 outstanding health tech startups each year and connects them with industry experts and mentors. The StartUp Health network has grown steadily since 2011. They focus on vital areas like care access, health equity, and women's health.
The National Science Foundation stands out by giving non-dilutive funding up to $2 million per startup. They invest about $200 million yearly in roughly 400 startups. These accelerators provide more than just capital—their industry connections and regulatory guidance help startups navigate the complex healthcare world.
Growth Strategies in Digital Health
Growing in digital health takes a smart mix of market insights and operational excellence. Bask Health's data shows tech-enabled services reach $10 million in annual recurring revenue within two years. These services hit $100 million around the five-year mark.
Market expansion tactics
Healthcare SaaS businesses take 5.5 years to reach $10 million in ARR. They need 8.5 years to achieve the $100 million milestone. Tech-enabled services grow faster at every stage. They capture new market segments while keeping market penetration under two percent.
Our experience shows early adopter support pays off big time. Companies that know how to land and expand accounts drive the most revenue growth in healthcare. Clear performance metrics take time and money but create lasting value.
Partnership opportunities
Joint ventures and strategic collaborations now power growth. Healthcare players adapt to the changing world through partnership models beyond traditional M&A. These collaborations are a great way to get:
- Access to new capabilities and expertise
- Increased speed to market
- Improved capital efficiency
- Better operational scale
- A stronger market position
Partnerships with healthcare organizations and new players offer an affordable path to breakthroughs. To cite an instance, General Catalyst's health assurance network has grown faster by adding 10 new health system partners to its 90-plus digital health portfolio companies.
Scaling operations
Measuring operational, financial, and clinical performance metrics is vital to scale quickly. Customer Acquisition Cost (CAC) payback shows how well sales and marketing investments work. Tech-enabled services see their CAC payback drop by a lot to about 15 months once they pass $25 million ARR.
Healthcare SaaS businesses match cloud companies' CAC payback early on. They keep steady payback periods even after $100 million ARR. Both healthcare SaaS and tech-enabled services show LTV/CAC ratios almost double those of Cloud companies. This makes the longer development time worth it.
Successful scaling needs effective evaluation, structure, and operation of partnerships. Success comes more often when all parties keep collaboration as their top focus. Organizations should think of different ways to get the capabilities they need. Partnerships might work better than building in-house or buying companies.
Conclusion
We at Bask Health have seen how tech entrepreneurship transforms healthcare delivery. Digital health has evolved from an $85 billion market to become the life-blood of modern healthcare. This sector now attracts substantial venture funding and drives innovation in multiple segments.
Healthcare tech ventures just need to focus on a few things to succeed. A full picture of product validation comes first, followed by strict regulatory compliance and proper funding. The core team must build mutually beneficial alliances and flexible operations to propel development.
The digital health sector brings unique challenges. Companies that create complete solutions for both patients and providers end up achieving the most important wins. Our work with healthcare startups has proven this time and again.
The healthcare technology future looks bright. AI adoption, increased funding, and innovative business models push the sector forward. Your business can achieve long-term success in this evolving market by understanding these basics, whether you're building a new healthcare solution or growing an existing one.
References
- Coherent Market Insights. Major players in the digital health industry. Coherent Market Insights Blog. https://www.coherentmarketinsights.com/blog/insights/major-players-digital-health-industry-1903. Accessed January 17, 2025.
- Foley & Lardner LLP. Regulation of digital health products by the FDA. Foley & Lardner Insights. https://www.foley.com/insights/publications/2023/07/regulation-digital-health-products-fda/ Accessed January 17, 2025.
- World Health Organization (WHO). Global Digital Health Certification Network initiative. WHO. https://www.who.int/initiatives/global-digital-health-certification-network. Accessed January 17, 2025.
- Rock Health. Q1 2024 digital health funding: The great reset of expectations. Rock Health Insights. https://rockhealth.com/insights/q1-2024-digital-health-funding-great-reset-expectations/. Accessed January 17, 2025.
- Bessemer Venture Partners. How to scale a health tech business to $100 million ARR and beyond. BVP Atlas. https://www.bvp.com/atlas/how-to-scale-a-health-tech-business-to-100-million-arr-and-beyond. Accessed January 17, 2025.