Healthtech Startups Are Quietly Raising down Rounds

Hey SaaS Sentinel reader. Welcome back. Digital healthcare startups are struggling, Fidelity is upping its stake in Elon Musk’s X, and startup funding is booming in smaller U.S. states. Here’s what’s happening in SaaS this week.

• Many digital health startups are facing down rounds, asset sales, and closures as VC funding tightens in 2024

• Fidelity marked up its stake in Musk’s X by 32% due to its AI connections

• Startup funding is booming in smaller states driven by standout investments in industries ranging from space tech to electric aircraft

Healthtech’s Reality Check: Down Rounds, Shutdowns, and Survival

The healthtech industry is enduring a sobering reality check in 2024. Once the darling of venture capital, with record-breaking deals during the low-interest-rate era, many digital health startups are now grappling with down rounds, asset sales, or even quiet shutdowns.

The Numbers Tell the Story

In 2021, healthtech startups closed 729 deals worth $29.1 billion, but 2024 paints a starkly different picture. So far, only 379 deals have been completed, raising $8.2 billion—a significant drop. More alarmingly, 327 digital health startups that secured funding in 2021 haven’t raised capital since, according to PitchBook.

One high-profile casualty is Forward, a startup that raised $100 million for its AI-driven "doctor in a box" last year. The ambitious CarePods system faced logistical and technical failures, leading to the company’s shutdown this month.

A Tough Climate for Startups

While healthcare AI remains a hot spot for funding, other segments like virtual care are faltering. Telehealth startups have seen VC funding drop to $1.4 billion so far this year, down from $2.8 billion in 2023 and $10.2 billion in 2021. Similarly, clinic startups are struggling with capital-intensive models that fail to deliver promised returns.

The appetite for “defensive rounds” is waning. Limited partners are pushing venture funds to pivot toward new AI-driven opportunities, leaving struggling startups with few lifelines. Many are opting for mergers to extend their runway, as in the recent case of LetsGetChecked’s $525 million acquisition of Truepill.

The Path Forward

Some investors remain optimistic about the sector’s long-term potential, but they’re pushing startups to balance growth with profitability. “Hopefully now people have a more sober view of what it takes to be sustainable,” says Greg Yap of Menlo Ventures. Startups with strong unit economics and a clear path to profitability stand the best chance of surviving this shakeout.

As healthtech recalibrates, the winners will likely be those who adapt quickly, embrace market realities, and focus on sustainable growth. In the meantime, expect more headlines about down rounds, tie-ups, and the occasional quiet closure.

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Fidelity Bets Bigger on Musk’s X Amid AI Connections

Elon Musk’s X (formerly Twitter) received a vote of confidence from Fidelity in October as the investment giant marked up its stake in the platform by 32.37%. However, the valuation is still a far cry from the $44 billion Musk shelled out for the company in 2022.

The AI Angle

This boost in valuation may not solely reflect optimism about X’s social media trajectory. Instead, it could be tied to Musk’s AI venture, xAI, which Fidelity also supports. After investing in xAI’s $6 billion Series B earlier this year, Fidelity marked up its xAI shares by a striking 70% in October.

xAI’s chatbot, Grok, leverages X’s data to provide responses infused with Musk’s signature style—quirky and occasionally provocative. Grok is exclusive to X subscribers, potentially giving the platform an edge as AI becomes increasingly integral to its strategy. Reports also suggest X might hold a significant equity stake in xAI, further intertwining the two ventures.

A Mixed Election Aftermath

The valuation bump came just before the U.S. presidential election in November, which saw Donald Trump secure a victory and promise Musk a leading role in a new Department of Government Efficiency. While this announcement spurred a traffic spike on X, it also drove users to competitors like Bluesky, highlighting the ongoing struggle for dominance in the social media landscape.

The Long Game

Fidelity’s recent moves suggest it’s betting on Musk’s broader AI ambitions rather than X as a standalone entity. With xAI’s potential to reshape both X and Musk’s portfolio, the social media platform could pivot into a critical cog in a much larger AI machine.

For now, X’s valuation story remains complicated, but if Musk’s AI gambit pays off, Fidelity’s faith may prove prescient. Only time will tell if X can regain its former glory—or if its future lies in the shadow of xAI.

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These Smaller State Startup Scenes Saw Big Gains In 2024

While the spotlight often shines on Silicon Valley, a handful of smaller U.S. states are quietly building startup ecosystems that demand attention. Vermont, Hawaii, and Arkansas, among others, posted notable gains in venture funding this year, defying the overall decline seen across most states.

Big Deals in Small States

Crunchbase data reveals that Vermont, Hawaii, and Arkansas are leading the charge with impressive funding rounds fueling their growth:

• Vermont: Beta Technologies, an electric aircraft startup, secured a $318 million Series C, accounting for over 90% of the state’s total funding.

• Hawaii: Privateer, a Steve Wozniak-founded company tracking space objects, raised $57 million, representing a lion’s share of the state’s investment.

• Arkansas: Bentonville emerged as a startup hub, led by Laravel, a web app development framework, which raised $57 million after persistent courting by Accel.

Arkansas: The Rising Star

Arkansas is particularly notable, with startups raising $175 million—nearly a 50% increase from 2023. The state’s ecosystem benefits from its proximity to Walmart HQ in Bentonville, fostering a robust startup culture. Notable deals include:

• Crisp: A retail data provider that raised $67 million in equity and debt financing.

• Panacea Financial: A financial services startup for doctors, which raised a $24.5 million Series B.

Oregon: A Comeback Story

Oregon also enjoyed a resurgence, with over $600 million raised so far this year—a 77% increase from 2023. Key contributors include:

• Serán Bioscience: A pharmaceutical development and manufacturing startup, which secured a $200 million round.

• Agility Robotics: The humanoid robot maker reportedly landed commitments for $150 million in funding.

What’s Driving These Gains?

For smaller ecosystems, large funding rounds often make the difference between a standout year and a slump. While these states saw big wins, the reliance on a few headline deals means volatility remains a risk.

The Takeaway

The rise of these smaller ecosystems shows the growing geographic diversity of the startup world. States like Arkansas and Vermont are proving that innovation isn’t limited to the coasts. While challenges remain, these regions are staking their claim as the next frontiers for venture-backed success stories.

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Parting Thoughts

Well, that’s the tech news for this week. Hit reply and let us know—did you learn something from today’s newsletter?

Until next time!