Digital health is showing signs of life despite financial markets that seem determined to bring some of 2023’s volatility into the new year. Stocks are up and down, and bond yields are climbing. Inflation is proving stubborn, and the Federal Reserve is sticking with the hawkish tone that is known to keep equity prices sluggish.

The year ahead could be frustrating for those who measure success only in capital gains. But for fans of innovation in digital health and seismic change, 2024 is already shaping up to be an incredible year. It’s not because the numbers that fell into a slump last year—including valuations, funding round sizes and IPOs—have abruptly changed direction. It’s because real innovation doesn’t hinge on these numbers and continues without missing a beat.

The needs that propel innovation in healthcare are as pressing as they have ever been. The World Health Organization predicts a global shortage of healthcare workers to the tune of 10 million by 2030, all while the world’s aging population needs more medical care, not less.

The healthcare system needs to do more with less, and new digital technologies are making this possible. There are already exciting developments this year, and we are only a few weeks into 2024. But before we delve in, let’s revisit the year that was for digital health startups.

2023 by the Numbers

Our friends at Rock Health do an excellent job of tracking the important deals and the sentiment that make up the digital health sector. They note that 2023 was a continuation of the downward slide that just about every sector began the year before. In the lowest venture funding total since 2019, last year saw $10.7 billion invested across 492 deals.

Many startups in the sector used “lifeline” measures to get through a cash-strapped year, including raising extension rounds, raising rounds not labeled with a Series letter like “A” or “B,” or even raising silent rounds—rounds from insiders that are not promoted.

While those measures may have been good, short-term fixes for many startups, 2024 will be the year they will have to “face the music,” Rock Health analysts said, by either returning to labeled rounds at a reduced valuation, or making an exit. The analysts expect a “recalibration and consolidation” of the sector.

But for many startups solving real-world problems, 2024 will likely be a year of great opportunity.

Much to Look Forward to

There will be strong growth drivers for digital health this year and beyond, and among the most powerful is generative AI. Though ethical, security and privacy concerns all need to be addressed before there is widespread adoption in healthcare, the wheels are already turning. Tech giants and vaunted medical organizations are standing side-by-side with startups aiming to bring generative AI deeper into the industry.

Other changes are afoot that should spell new opportunity for digital health startups.

At this year’s JP Morgan Healthcare conference, there was much talk about the rise of GLP-1 weight loss drugs – as well as talk about how much digital infrastructure patients will need to access the right treatments, get reimbursement from insurers and manage side effects.

Similar infrastructure must also be created and maintained as Amazon, CVS, Walgreens and other retailers continue to transform themselves into providers of primary care.

Other opportunities for digital health companies include improving remote medicine, using data to create “end-to-end care pathways” for women’s health, and creating new wellness and mental health solutions, as Boston Consulting Group spelled out in its annual prediction for digital health.

The year ahead may see the dormant IPO market coming to life, larger funding rounds and improving sentiment—or it might take more time. In any event, opportunities abound in digital health and there are many innovators ready to seize them.

I’m thrilled to continue to work side by side with companies and investors who continue to make progress in the digital health space, through good times and in bad.

We’ve added new episodes of Closing Time, a new healthcare startup-focused podcast I host alongside healthcare investor and 3X founder Halle Tecco. We go over how to navigate a new era of digital health M&A, and get into the details of “dirty terms.” I hope you can check them out.