AI-Enabled Startups Drive Digital Health Funding Surge in First Half of 2025

Digital health funding has shown signs of recovery in the first half of 2025, with artificial intelligence (AI) playing a pivotal role in attracting investor interest. The sector saw a modest increase in venture capital funding, signaling a stabilization of the market following the volatility experienced during the pandemic era.

Funding Landscape and AI Dominance

U.S.-based digital health companies raised $6.4 billion in the first half of 2025, marking a slight increase from $6 billion during the same period last year and $6.2 billion in 2023, according to a report published by Rock Health. Notably, AI-enabled startups accounted for 62% of the total funding, representing the first time these companies have constituted the majority of digital health venture capital funding.

The second quarter of 2025 proved particularly strong, with digital health firms raising $3.4 billion, significantly higher than the average quarterly funding of $2.6 billion since Q1 2023. While the number of deals decreased to 245 from 273 in the previous year, the average deal size grew to $26.1 million from $20.4 million, driven by larger late-stage rounds.

AI-enabled firms demonstrated their appeal to investors, raising an average of $34.4 million per round, compared to $18.8 million for their non-AI counterparts. These AI-focused startups also dominated the mega-deal landscape, securing nine out of the eleven funding rounds exceeding $100 million in the first half of 2025.

Public Exits and M&A Activity

After a prolonged period of limited public exits in the digital health sector, the first half of 2025 saw encouraging developments. Two notable initial public offerings (IPOs) took place: digital musculoskeletal company Hinge Health and chronic condition management firm Omada Health went public in May and June, respectively. These IPOs represent a positive shift in the industry's public market activity, which had seen only two digital health companies go public in the preceding three years.

Despite the uptick in IPOs, mergers and acquisitions (M&A) remain the primary exit strategy for digital health companies. The first half of 2025 witnessed over 100 M&A deals, putting the sector on track to significantly surpass the 121 digital health acquisitions recorded in the previous year.