Function Health’s $298M Bet on Preventive Care: Unit Economics, Competitive Dynamics, and the Quest for Scale

DISCLAIMER: The views and opinions expressed in this essay are solely my own and do not reflect the views, opinions, or positions of my employer, Datavant, or any of its affiliates.

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ABSTRACT

Function Health recently closed a $298 million Series B at a $2.5 billion valuation, one of the largest rounds in direct-to-consumer healthcare history. The company offers comprehensive annual lab testing packages for $499 per year, promising to track over 100 biomarkers with quarterly testing and physician consultations. This essay examines:

• Function’s business model and unit economics, including customer acquisition costs, lifetime value projections, and margin structure

• The implications of a $2.5B valuation for required growth trajectories and exit expectations

• Competitive landscape spanning direct-to-consumer lab testing, concierge medicine, and traditional preventive care

• Market sizing and addressable opportunity in the wellness-focused consumer segment

• Key risk factors including regulatory challenges, medical necessity standards, and insurance integration questions

• Growth trajectories and scenarios that could determine whether Function becomes a decade-defining healthcare company or a cautionary tale about late-stage venture excess

The analysis suggests Function’s success hinges on three critical factors: scaling to multi-million member count while maintaining reasonable CAC, achieving 70%+ annual retention to justify customer lifetime value assumptions that support the valuation, and potentially pivoting to B2B or insurance channels without undermining their DTC positioning.

TABLE OF CONTENTS

Introduction and the $2.5B Question

The Function Health Model Explained

Breaking Down the Unit Economics

What a $2.5B Valuation Actually Means

Competitive Landscape and Market Positioning

Total Addressable Market and Growth Constraints

The Path to Venture Scale Returns

Risk Factors and Ways This Goes Sideways

Conclusion and Investment Framework

Introduction and the $2.5B Question

Function Health just raised $298 million at a $2.5 billion post-money valuation and the healthcare venture community is either nodding in approval or screaming into the void depending on which chat groups you frequent. This is the kind of round that makes you stop and really interrogate your assumptions about what constitutes a reasonable valuation in consumer healthcare. For context, $2.5B is more than what many profitable healthcare companies with actual revenue scale trade at in the public markets. It’s the kind of number that implies Function isn’t just building a nice business, they’re building something that could fundamentally reshape how Americans think about preventive care.