Digital health funding held steady in the first half of 2025, with AI-focused startups capturing the majority of capital and driving rapid adoption among providers. The digital health space also saw two long-awaited IPOs as well as rising M&A activity, which are two signals of market maturity — but looming policy shifts may challenge long-term growth.
The digital health world showed real signs of market traction during the first half of this year, with startups in the space raising $6.4 billion in venture capital funding, according to a report released by Rock Health on Monday.
Digital health startups’ funding total during the first half of 2025 is slightly more than the $6.2 billion and $6 billion that these startups raised in the first halves of 2023 and 2024, respectively. This signals a steady market that has figured out what its new normal looks like following a pandemic-era boom, the report noted.
AI-focused startups captured 62% of all digital health venture funding in the first half of the year, raising an average of $34.4 million per round — which is an 83% premium over these startups’ non-AI peers, the report said. Most of these AI-first companies made products to improve clinical workflows, nonclinical administrative tasks and data infrastructure.
Of the 11 megadeals — fundraises totaling $100 million or more — that were closed by digital health startups during the first half of 2025, nine were raised by AI-focused companies. For instance, clinical documentation startup Abridge raised $250 million in February and another $300 million in June. Other AI startups including Innovaccer, Hippocratic AI, Qventus and Truveta all closed rounds larger than $100 million.
The report noted that providers are rapidly adopting some of these tools, too.
For AI tools that tackle things like ambient documentation and medical reference platforms, some hospitals are reporting usage rates as high as 90%, which is a striking shift given providers’ past resistance to new tech, the report stated. It also said that AI startups are earning providers’ trust by delivering products that are more intuitive, implementing tools more seamlessly into the existing tech infrastructure and generating measurable outcomes.
In addition to the billions flowing to AI vendors, the first half of 2025 also featured the long-awaited IPOs of Hinge Health and Omada Health — two exits that many felt were overdue, following years of stagnation. The report pointed out that these companies spent over a decade building trust, refining their care models and deploying AI to deliver scalable care.
The public debuts of Hinge and Omada could mark the beginning of a more mature digital health market, which may help reignite investor confidence, as well as set the stage for future exits and healthier investment cycles.
While public offerings draw headlines, the report noted that most digital health startups are exiting through M&A, with 107 such deals in the first half of 2025 — which puts the year on pace to nearly double 2024’s total.
Private equity firms are also fueling consolidation by combining legacy healthcare businesses with AI-native startups. They’re betting that these roll-ups will enable greater efficiency and scale, according to the report.
Amid the promising exit environment and increasingly fast pace of AI adoption, digital health companies also face growing policy and economic uncertainty, particularly regarding the recent passage of the One Big Beautiful Bill Act. The bill’s Medicaid work requirements and changes to ACA marketplaces could leave millions of people uninsured, shrinking the addressable market and exacerbating providers’ financial strain .
To navigate these shifts, Rock Health encouraged digital health startups to engage early with federal initiatives and try to align with priorities like chronic disease and AI in care delivery.
