The digital health market saw a strong start to 2025 with big rounds for AI-enabled startups, a revival of the IPO market and growing provider adoption of AI tools.
Digital health venture capital funding continues at a steady pace, reaching $6.4 billion in the first six months of 2025, up from $6 billion in H1 2024 and $6.2 billion in the first half of 2023, according to Rock Health's mid-year funding report.
In Q2 alone, the sector brought in $3.4 billion in venture funding—up from the average of $2.6 billion per quarter since Q1 2023. As comparison, digital health startups raised a total of $10.2 billion in 2024 and $10.9 billion in 2023.
The market is holding steady despite the uncertain policy and economic backdrop, Rock Health analysts wrote. Big developments in the past six months—the thawing of the IPO freeze with Hinge Health and Omada Health going public and investor excitement for AI solutions—signals market maturity and momentum, Rock Health's Megan Zweig, Mihir Somaiya and Tiffany Marie Ramos wrote in the report.
The first half of 2025 saw fewer deals, with 245 fundraising deals compared to last year’s first half, with 273 deals. If H2 continues at this pace, this year could yield the lowest overall deal count since 2020, according to Rock Health.
But, average deal size grew — $26.1 million compared to $20.4 million in 2024 — spurred by larger investments in later-stage rounds (series B-D) as well as the bolstering impact of AI.
Investor excitement about healthcare AI is propelling the market. AI-enabled startups pocketed the lion's share of venture capital funding in 2025 so far, capturing 62% of venture capital dollars, or $3.95 billion.
These companies, on average, raised $34.4 million in funding per round—an eye-popping 83% premium compared to the $18.8 million of their non-AI-enabled counterparts. The average series A and series B deal sizes for AI-enabled startups were $24.4 million and $54.8 million respectively compared to $15.6 million and $39.6 million for non-AI-enabled digital health companies.
Rock Health defines AI-enabled digital health startups as startups using artificial intelligence, machine learning, and/or deep learning as a core part of their product or offerings.
The top three funded value propositions of digital health startups in H1 2025 were: non-clinical workflow ($1.9 billion), clinical workflow ($1.9 billion) and data infrastructure ($893 million). All three of these areas are being transformed by AI-enablement and automation, Rock Health researchers note.
These value propositions drew more than half (55%) of overall digital health funding in H1, marking a first since Rock Health began tracking venture funding back in 2011.
AI-enabled startups not only picked up the majority of VC funding deals but they also banked the most mega deals, or fundraises over $100 million. In the first half of 2025, there were 11 mega deals, on pace to surpass the 17 mega deals throughout 2024. Nine of the 11 mega deals went to AI-enabled startups.
AI scribe startup Abridge announced two mega rounds in just four months’ time. The company raised $300 million in series E funding in June, on the heels of a $250 million series D round in February.
Other mega deals in H1 include Innovaccer ($275 million series F); Hippocratic AI ($141 million series B); Qventus ($105 million series D); Truveta ($320 million series C); Commure ($200 million growth round); Persivia ($107 million growth round) and Tennr ($101 million series C).
OpenEvidence is rumored to be on the verge of a mega deal after its $75 million series A in February, the newsletter Newcomer reported.
Investor confidence in healthcare AI startups grows along with providers' rapid adoption of AI tools and validation of the technology's strong outcomes and impact.
Medical ambient documentation tools are being adopted at an unprecedented pace, faster than any technology in recent history, according to the Peterson Health Technology Institute (PHTI).
"The promise of these solutions to reduce burnout and improve workflows has driven an industry with notoriously long sales cycles and implementation timelines to adopt ambient scribes," wrote PHTI in a recent report. "Ambient scribe represents the first large-scale application of generative AI in health systems."
Overall adoption rates hover between 30% and 40% across physician groups, with some leading hospitals reporting utilization as high as 90%.
The M&A environment and navigating policy uncertainty
Digital health also saw robust M&A activity in the first half of 2025. There were 107 M&A deals in H1 2025, and this year is on track to quickly surpass—and nearly double—the 121 M&A deals recorded in 2024, Rock Health reported.
"Digital health companies continue to be the most frequent acquirers of other digital health companies, accounting for 63% of all deals so far this half. Many are continuing to execute what we refer to as the “tapestry weaving” playbook—acquiring new capabilities to create more robust and broad offerings (e.g., longevity upstart Superpower acquiring Base and Feminade," Zweig and her colleagues wrote.
Private equity are banking on a new roll-up strategy: AI-native startups coupled with legacy healthcare players.
New Mountain Capital combined Access Healthcare, a RCM and business process outsourcing firm, with the AI tech of SmarterDx and Thoughtful.ai to form Smarter Technologies. Earlier this year, the PE firm also acquired Machinify, weaving its AI tech into a (previously) combined entity of legacy payment integrity providers Apixio, Varis, and The Rawlings Group.
"The bet is that combining the established distribution networks and trusted services of legacy companies with cutting-edge technology will drive meaningful efficiency, margin, and scale gains. New Mountain Capital (NMC) has been putting this new playbook to work," Rock Health researchers wrote.
Despite the highlights in the first half of 2025, digital health startups are trying to navigate an uncertain economic and policy backdrop. The digital health sector faces broader economic and tariff-related uncertainty and the impact of President Donald Trump's megabill.
The bill introduces Medicaid work requirements and Obamacare marketplace changes that are projected to leave millions uninsured, which could create ripple effects, including intensifying uncompensated care losses and shrinking addressable markets. While the bill provides a modest, temporary increase in Medicare reimbursement rates, it does not include provisions from prior versions to address physician payment sustainability in the long term.
Rock Health researchers recommend that digital health startups identify how they may support federal priorities—such as chronic disease or food as medicine—and elevate initiative-aligned digital health solutions.
Federal agencies and legislative committees have signaled an interest in a more tech-enabled healthcare experience. HHS put out requests for information from stakeholders on the use of AI in clinical decision support or new care models.
"Participating can both steer federal digital health initiatives and strengthen future lobbying positioning. All-in-all, early engagement during this first-year window could shape the contours of policies that will determine how healthcare is paid for, regulated, and accessed—all of which set innovation trajectories in motion," Zweig wrote.