Capital gap pushing digital health founders offshore

New data points to a widening imbalance in Australia’s digital health sector, where accelerating demand for capital is increasingly colliding with tightening funding conditions. This is despite an industry forecast to exceed A$45 billion by 2033 and materially reshape national healthcare delivery.

According to ANDHealth’s FY2026 Industry Sentiment Survey, the sector’s growth ambitions remain aggressive. Ninety-two percent (92%) of digital and connected health SMEs plan to raise growth capital within the next 12 months, while 90% intend to expand geographically over the same period, up sharply from 49% in FY2023.

In Australia, digital health has become one of the fastest-expanding health technology segments, posting a 55% compound annual growth rate since 2018 and nearly doubling in scale over the past three years. Globally, the sector is projected to reach US$946 billion by 2030.

Yet the same survey highlights a structural constraint where access to capital has become the dominant bottleneck. A majority of respondents (51%) identified funding availability as their single greatest challenge, signalling mounting pressure on early-stage and scaling companies. Eighty percent (80%) of respondents called for digital and connected health-specific investment funds to attract more capital into the ecosystem, while 39% said they remain uncertain whether domestic investors have the capability to support scaling digital health businesses.

“There is a significant gap in Australian investment mandates and expertise to support early-stage Australian healthcare innovation that will have a real-world impact. Our next challenge to scale is likely going to require us to go offshore to the US, meaning taking significant resources and talent opportunity out of Australia,” said Antonia Dalton, Chief Strategy Officer, SeeTreat Medical.

Despite the funding pressures, the survey shows incremental progress in leadership diversity. Sixty percent (60%) of companies now report at least one female founder, up from 47% in FY2022, while 39% report a female CEO or managing director, compared with 33% in FY2022. However, the data also indicates that women-led companies are generally smaller, have raised lower median capital, and report weaker confidence in local investor support compared with male-led counterparts.

Capital scarcity is shaping operational behaviour across the sector. Rather than pursuing expansion-led strategies, many start-ups are adopting defensive postures under funding strain: 46% are raising capital as a survival measure, 21% have reduced headcount, and 17% have paused market expansion plans.

“If we are serious about unlocking the potential of Australia’s digital health sector and supporting Australian founders to capitalise on the over US$1 trillion opportunity globally, we have to be serious about shifting the mindset of investors,” said Rachel Yang, Partner at Giant Leap. “Using ‘would I use this product myself’ as an investment filter is a lazy shortcut that has done enormous damage to the capital pipeline for women-led businesses, and it causes investors to miss the very opportunities in front of them. The best founders build from lived experience, solving problems for populations they are part of. Investors need to do the same in reverse: back founders solving problems for populations they are not in.”

Survey participants also pointed to policy and procurement as key levers for change. Seventy-four percent (74%) called for reforms to public sector procurement to better prioritise local innovation, while 66% highlighted the need for a dedicated health technology assessment (HTA) and reimbursement framework.

These findings align closely with the federal government’s Ambitious Australia SERD report, which identified health and medical innovation and technology among six national priorities. The report also called for stronger capital availability and procurement settings designed to better support Australian R&D and innovation scale-up.

According to Bronwyn Le Grice, CEO and Managing Director of ANDHealth, the data represents a warning signal for a sector with significant national economic and health system potential.

“Australia has the foundations of an internationally competitive digital and connected health sector, but too many companies are being held back by the settings that determine whether local innovation can reach patients and scale,” Le Grice said. “The ‘if not, why not’ procurement principle recommended in the SERD report is one example of the reform needed to give Australian-developed technologies a fair opportunity to be adopted locally.”

Yet, the financing environment has deteriorated sharply in recent years. The proportion of companies reporting that macroeconomic conditions have negatively affected their ability to raise capital has more than doubled since FY2022, rising from 32% to 66%. Meanwhile, 49% say the same conditions are limiting access to government funding.

“Companies need access to capital that understands the complex pathway from clinical evidence to commercial scale, and reimbursement frameworks that reflect how health and care delivery is changing,” added Le Grice.

The capital bottleneck has broad systemic consequences. Digital and connected health technologies have the potential to expand access to care, enable remote patient monitoring, reduce hospital pressure, and improve outcomes for rural and regional communities.

“It’s not a new observation that Australia lags the world with VC being only 0.16% of Australia’s GDP – but it represents real companies that stall, real breakthroughs that don’t reach patients, and real talent that eventually finds a better-funded home somewhere else,” said Elaine Stead, Principal, Main Sequence Ventures. “What concerns me more is the second finding: the lack of dedicated digital health investors. The question is whether we’re willing to invest in it with conviction before that opportunity moves offshore.”

In response to these findings, ANDHealth is calling for a coordinated national response. This includes dedicated digital health investment funds, stronger mobilisation of institutional capital, reform of public procurement settings, and the development of a fit-for-purpose reimbursement framework for digital and connected health technologies.

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