Digital health startups are running out of cash — firesales are expected

The digital health sector is anticipating more firesales in the next 12 months, following the collapse of Babylon and a significant drop in funding in 2023. The slower-than-expected adoption of digital health solutions and a shift in investor focus towards sectors like biotech and medtech have led to challenges for many startups. 

With bridge rounds becoming the norm in 2023, there is an expectation that M&A will become a probable option for startups unable to secure their next round of funding. While some see this as a potential opportunity for acquisitions by well-funded companies, others are sceptical about the prospects of digital health startups finding suitable acquirers.

The lack of alternatives and dwindling cash reserves may force some digital health startups to sell at lower valuations, presenting opportunities for companies, including pharmaceutical firms, Big Tech, and traditional healthcare providers, to acquire digital health startups and expand their offerings. However, challenges such as fit with core business and scale may hinder the acquisition prospects for digital health startups. 

Despite the funding crunch, some well-funded startups are actively exploring M&A opportunities to acquire sub-scale competitors and expand their market presence. Firesales are viewed as a great opportunity for well-funded pre-seed and seed startups to access talent and broaden their offerings through acquisitions.