Fundraising Considerations for Healthcare Entrepreneurs

In recent years, opportunities to improve healthcare equity, access, and quality have grown significantly, with technological innovations in the sector attracting considerable private equity and venture capital investor interest. In fact, despite larger economic challenges, U.S. digital health startups secured $5.7 billion across 266 deals in the first half of 2024.

If you’re a digital health entrepreneur, aligning with evolving investor expectations to secure early-stage funding and long-term support is a must, particularly as competition intensifies. Falling interest rates and an excess of dry powder are further fueling investor interest, offering exciting prospects for digital health companies. To capitalize on this, remain flexible and adapt strategies such as monitoring growth and top-line revenue, managing expenses, and driving profitability.

An important tip to remember is to structure your venture with investor confidence in mind. Rather than focusing strictly on growth potential, investors are increasingly prioritizing proven business models that have a demonstrated track record of healthy liquidity and sustainable revenue. Essentially, the digital health segments that are driving major interest are based on proven and established models that solve practical problems. These include both care-focused segments, like drug discovery and smart devices, as well as internal functions, like virtual health systems and revenue-cycle management. AI, in particular, is one of the go-to investment options in the digital health space because the technology is centered around solving practical problems, whether that’s through data analytics, clinical trial optimization, or improving patient and clinician outcomes.?

Even if your organization already falls under one of these popular segments, there are specific factors to consider when attracting investors. These metrics to boost investor confidence include strong revenue growth rates and clinical outcomes, as well as low-cost customer acquisitions. Other factors to consider include whether or not a company has a scalable and repeatable business model, whether a company is profitable or has visibility to being profitable, and whether the company is focused on underserved or growing markets. Each variable will have a direct impact on how leaders can best position their organization to potential investors.

Keep in mind that it’s also essential to research potential investors carefully. Investment firms are far from one-size-fits-all, with each firm bringing unique areas of focus, performance metrics, and investment preferences. Start by identifying firms that typically support companies like yours—considering factors such as company size, stage, and sector focus—and take time to understand each firm’s portfolio and check their references. Speak to other founders about their experiences to gauge the firm’s reputation and suitability as a partner. Not every investment firm may align well with your vision, so it's vital to identify those with strong reputations for collaboration and support. Lastly, don’t wait until you’re actively raising capital to reach out. Establish connections with a targeted list of investors early and keep them updated on your progress. Regular, quarterly updates build familiarity and trust, positioning both parties for a more efficient decision-making process when it’s time to raise funds.

The key is truly knowing what you need, understanding the investor mindset, and recognizing what makes them comfortable when looking at an opportunity. At times, an underrecognized element that can help digital health startups succeed in securing investor interest is the support of capable interim executives. During extended periods of growth, restructuring, or fundraising, as in this case, digital health organizations often need experienced interim executives to fill leadership gaps. These interim leaders can advance transformation efforts and further support the operational stability, customer growth, and regulatory compliance that are crucial to longevity and investor trust.

If you’re not a believer yet, let’s look at health tech potential at scale. Take HLTH Las Vegas, for example. Events like this are showcasing the value proposition of healthcare products and systems to tens of thousands of people in just a few days time (not to mention attracting some big-name celebrities and medical professionals along the way). At this size, it’s clear that there’s no shortage of investment opportunities in the space. What matters, though, is identifying the difference between ‘brilliant ideas’ and ‘brilliant ideas that should make it to market’; understanding the investor point of view will help you shift your product or system towards the latter.

This is an important moment for digital health entrepreneurs; there are ample opportunities for growth, innovation, and long-term business success. To take advantage though, you have to work to align your ventures with investor expectations. With the right mix of metrics, leadership, and operational strategy, startups can meet and exceed investor expectations, driving industry innovation while also achieving impressive profits.