Health AI, Unicorns, and Stretched Valuations

Image Credit: CB Insights

In recent years, digital health has been a hot-bed of innovation as companies tackle healthcare inefficiencies with new technology, but the rapidly climbing valuations are causing many to wonder: how much higher can they go?

Healthcare AI raises $8.5b in 2021.

According to a report from CBInsights, private healthcare AI companies have raised $8.5b through the first three quarters of the year, surpassing 2020’s full-year total of $6.6b.

  • Q3 2021 was healthcare AI’s strongest quarter ever ($3.2b raised across 149 rounds)
  • Top areas of focus include remote patient monitoring, decentralized clinical trials, and home diagnostics.
  • AI startups account for approximately 40% of year-to-date digital health funding

Unicorns are no longer endangered.

The term “unicorn” used to indicate that a young company was a successful outlier with a $1b+ valuation, but has recently been diluted as more startups earn the designation.

  • CBInsights now counts the total number of “unicorns” at 925 globally, including 13 healthcare AI companies that received the title just last quarter.
  • When the term unicorn was coined in 2013, there were fewer unicorns than there are “decacorns” with a $10b+ valuation today (45).
  • Devoted Health currently has the highest healthcare company valuation ($12.6b).

How much higher can valuations go?

Digital health companies scaled quickly during the pandemic by taking on outside investment to keep up with the surge in demand, which sent private valuations soaring. Many of these valuations were based on the size of the total addressable market, driven more by potential than current revenue. If these companies fail to capture share, or if health-tech adoption declines as the pandemic wanes, then these expectations might be hard to meet and we could start to see some moderation.

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