Healthcare AI drives nearly $4 billion in venture funding, powering digital health’s strong momentum in 2025

Key Takeaways: 

• AI-enabled healthcare startups secured nearly $4 billion in venture capital in the first half of 2025, accounting for 62% of digital health investment.
• Adoption of generative AI, particularly ambient documentation tools, is accelerating across healthcare, with some hospitals reporting utilisation rates as high as 90%.
• Despite economic and policy uncertainties, the digital health sector is seeing robust M&A activity and larger average deal sizes, underscoring investor confidence.
  

Strong start for digital health in 2025

The digital health sector began 2025 with considerable strength, marked by major funding rounds for AI-focused startups, a revival in the IPO market, and increased uptake of AI tools by healthcare providers.

According to Rock Health’s mid-year funding report, venture capital investment in digital health reached $6.4 billion in the first six months of 2025, surpassing the $6 billion recorded in the first half of 2024 and the $6.2 billion from the same period in 2023.

In the second quarter alone, digital health companies raised $3.4 billion, significantly above the quarterly average of $2.6 billion since early 2023. By comparison, the sector raised $10.2 billion over all of 2024 and $10.9 billion in 2023.

Rock Health analysts noted that the sector’s resilience is notable given an uncertain policy and economic environment. “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,” wrote Megan Zweig, Mihir Somaiya and Tiffany Marie Ramos.

Fewer deals but larger investments

Although the first half of 2025 saw fewer funding deals—245 compared to 273 in H1 2024—the average deal size rose to $26.1 million, up from $20.4 million last year. This growth was driven by larger investments in later-stage rounds (Series B through D) and the accelerating influence of AI across digital health.

AI-enabled startups received the bulk of venture funding, capturing 62% of capital deployed so far this year, amounting to $3.95 billion. On average, these companies raised $34.4 million per round—an 83% premium over the $18.8 million typical of their non-AI counterparts.

For Series A and B rounds specifically, AI-focused startups secured average investments of $24.4 million and $54.8 million, respectively, compared to $15.6 million and $39.6 million for non-AI digital health businesses.

Rock Health defines AI-enabled startups as those using artificial intelligence, machine learning, or deep learning as central elements of their products or services.

AI reshaping key areas of healthcare

The top three funded areas in the first half of 2025 were non-clinical workflow ($1.9 billion), clinical workflow ($1.9 billion) and data infrastructure ($893 million). These three areas combined accounted for 55% of total digital health investment, marking the first time such a concentration has been recorded since Rock Health began tracking funding in 2011. All are being fundamentally transformed by AI and automation.

AI-enabled startups also dominated the largest funding rounds. Of the 11 mega deals (over $100 million) in H1 2025—already on pace to surpass the 17 mega deals seen throughout 2024—nine went to AI-driven companies.

Notable transactions included:

• Abridge, an AI scribe company, which raised $300 million in a Series E round in June after securing $250 million in Series D funding just four months earlier.
• 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)
• Tennr ($101 million Series C)

OpenEvidence, which closed a $75 million Series A in February, is reported by Newcomer to be approaching a mega deal.

Rapid uptake of generative AI tools

Investor confidence in healthcare AI is matched by rapid adoption among providers. The Peterson Health Technology Institute (PHTI) observed that medical ambient documentation tools are spreading at an unprecedented rate—faster than any previous technology in healthcare.

“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,” PHTI wrote in a recent report. “Ambient scribe represents the first large-scale application of generative AI in health systems.”

Adoption rates are now estimated at between 30% and 40% across physician groups, with some leading hospitals reporting usage levels of up to 90%.

M&A activity and new private equity strategies

Digital health is also experiencing significant merger and acquisition activity. There were 107 M&A transactions in the first half of 2025, putting this year on track to nearly double the 121 deals recorded in all of 2024.

“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,” wrote Zweig and colleagues. They noted that many are pursuing what Rock Health terms a “tapestry weaving” strategy—acquiring diverse capabilities to build more comprehensive offerings. Examples include longevity-focused startup Superpower acquiring Base and Feminade.

Private equity firms are experimenting with a new playbook that pairs AI-native startups with established healthcare businesses. New Mountain Capital, for instance, combined Access Healthcare (a revenue cycle and business process outsourcing company) with the AI technologies of SmarterDx and Thoughtful.ai to form Smarter Technologies. Earlier this year, the same firm acquired Machinify and integrated its AI solutions into a combined entity with traditional payment integrity companies 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 explained.

Navigating policy and economic uncertainty

Despite strong funding and operational trends, digital health startups face notable policy and economic headwinds. Broader economic uncertainty, trade tariffs, and the implications of President Donald Trump’s wide-ranging healthcare legislation all loom large.

The bill’s provisions—including Medicaid work requirements and changes to the Affordable Care Act marketplace—are projected to leave millions uninsured. This could shrink addressable markets and exacerbate losses from uncompensated care. Although the legislation offers a modest temporary rise in Medicare reimbursement rates, it does not incorporate long-term physician payment reforms found in earlier drafts.

Rock Health advised digital health startups to align their solutions with federal priorities, such as chronic disease management and food-as-medicine initiatives. Federal agencies and legislative committees have indicated a desire for a more technology-driven healthcare system. The Department of Health and Human Services recently sought input on the use of AI in clinical decision support and new care delivery 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.