Healthcare Venture Capital Predictions for 2026: More AI and M&A, but Few IPOs

It’s been a hot year for healthcare deals, but some investors are predicting a shift in how startups attract venture capital’s attention next year.

The year 2025 saw a welcome increase in venture capital funding in the healthcare sector, as investors rushed to back leading AI startups. Last December, Venture Capital Firms Predict Huge Fundraising for AI Scribe Startups as Shorten And Healthy atmosphere; indeed, Abridge and Ambience have landed hundreds of millions of dollars in venture capital this year.

Investors also said in December 2024 that they foresee a race for these startups to expand beyond AI health and expand into other product lines, like coding and medical billing. This pressure intensified in August, when Medical records giant Epic announced the release of its own AI toolsincluding for clinical documentation, competing with its closest startup partner, Abridge.

With Epic in the mix and tech giants like OpenAI is working on its own healthcare AI gamesVenture capitalists told Business Insider they expect different profiles of healthcare startups to secure funding next year, as companies focus on cost savings, building patient and provider trust, and ensuring high-quality data.

“AI has caught on well for passive listening in clinical settings and administrative simplification,” said Dan Mendelson, CEO of Morgan Health, the healthcare investment arm of JPMorgan. “AI must now show savings to payers by helping consumers make good choices and reducing the burden on clinicians.”

Investors also expect more healthcare exits in 2026. Two venture capital-backed digital health companies went public this year: Hinge health in May, and Health Omada in June. Venture capitalists weren’t optimistic that 2026 would bring a deluge of new public health care companies, but they are looking forward to what many see as an active year for mergers and acquisitions in the health care sector.

AI behind the scenes

This year, investment has increased in AI startups that tackle the administrative burdens of large health systems. AI scribe startups Abridge and Ambience Healthcare achieved valuations of $5.3 billion and $1.25 billion, respectively, while AI-based medical knowledge platform OpenEvidence hit a $6 billion valuation with its own raise.

Many of these startups have expanded into coding and billing to help hospitals generate more revenue from health insurers. But in 2026, insurers could use AI to fight back, said Todd Cozzens, co-founder and managing partner of Transformation Capital.

Cozzens said many insurers have already partnered with large organizations such as Palantir and Anthropic on custom AI solutions. Next year, he expects these payers to contract with more specialized AI platforms trained on complex clinical data, as providers already do.

“Ultimately, it’s a zero-sum game, but like the nuclear arms race, a lot of money is going to be spent here, and doing nothing is no longer an option for either side,” he said.

Several venture capital firms have suggested that the next wave of healthcare investments will go toward business models that prioritize better AI behind the scenes.

Cathy Gao, partner at Sapphire Ventures, predicted a conscious move away from “black box” AI models in high-stakes sectors like healthcare, calling them “uninvestable.”

“The next unicorns in healthcare will be ‘glass box’ platforms whose core product will be the digital paper trail,” she said. “Any engineering team can create an AI that fills out a medical form. The real opportunity is to create the governance layer that proves why the AI ​​made that decision.”

Liam Donohue, co-founder and managing partner of .406 Ventures, said his firm has also invested in companies focused on AI decision transparency and data quality.

“One of the hurdles for AI to be more widely used in business is the ability to trace back to the source of why a process happened or why a decision was made. And there’s a lot of infrastructure being built to do that,” he said.

As insurers cut reimbursement rates for key services, investors also expect a rise in business models prioritizing lower-cost care settings and point solutions, combined with AI to reduce administrative expenses.

Norwest partner Irem Rami said she expects a boost for home care models incorporating AI agents. Mercedes Bent, co-founder and partner at Premise VC, observes healthcare startups that aim to support patients in a chosen specialty, such as women’s health technology that helps patients from fertility monitoring through conception.

The return of technology-based healthcare services

Tech startups that actually provide health care have fallen somewhat out of favor with venture capital firms in recent years. The costs of hiring providers or running physical clinics can make it difficult for these companies to generate venture capital-like returns.

But in 2026, according to 7wireVentures partner Alyssa Jaffee, “tech services are coming back, baby.”

After the venture capital boom of 2021 and the subsequent funding droughtSome technology services companies have struggled to maintain growth or reach their next stage with low margins, especially early on, Jaffee said.

But many startups that have made it to the other side have stronger businesses as a result, including lasting relationships with key customers like health plans, she said.

She also highlighted the successful IPOs of Hinge Health and Omada Health; Both companies are technology service providers that sell to employers and health plans.

“We have a number of companies in our portfolio that have really reached their full potential. It’s just a bigger sector, and I think we’re going to get a lot of interest from later-stage investors who will come in and support these types of companies,” Jaffee said.

Northzone partner Wendy Xiao said she is now seeing some employers try different technology services solutions within a given category, such as Management of GLP-1and test them against each other.

Contracting with multiple companies could be a tough sell for employers who already see their healthcare costs are skyrocketing. But Xiao said many of these startups receive a portion of the money they save from employers — a model that significantly reduces employers’ financial exposure.

Cautious IPO Candidates

There are a few healthcare companies that might consider exiting next year. Virta Health has publicly stated that it expects to be ready for an IPO in 2026. And Business Insider previously reported that two private equity-backed health tech companies, Zelis Health And Health Packageare in talks with bankers about possible IPOs.

Yet there have been no reports of venture-backed healthcare startups filing their S-1s. This time last year, Hinge Health and Omada Health were already in the midst of preparations for their IPOs.

Although Xiao believes there are a handful of health-tech startups waiting to debut, she’s not convinced they’ll take the plunge before the second half of 2026.

“I think they’ll probably come out in a similar time frame, if not the end of next year, then the year after that. There seems to be a lot of momentum built up around IPO readiness at an organizational level over the last few years. I think a lot of these companies are in pretty good shape in that regard, and they’re just waiting for one of the bigger ones to come out,” Xiao said.

Michael Greeley, co-founder and general partner of Flare Capital Partners, agrees that the new year is unlikely to bring a steady stream of revenue. new healthcare IPOs. But he expects more M&A activity as interest rates fall and private equity buyers seek AI acquisitions in the venture capital industry.

“Many of us are still sitting on a lot of unrealized gains, and the obsession around liquidity is going to increase,” Greeley said. “We’re seeing a lot more interest from the large buyout funds in our sector, which are coming down to the market to buy AI assets to wind down their legacy platform companies.”

The year 2025 saw a few such deals. New Mountain Capitalin particular, has made several AI acquisitions this year as the PE company has integrated the startups into its existing healthcare bets. Greeley also cited companies such as Bain Capital, TPG, Silver Lake and KKR as potential buyers in 2026.

Donohue is also optimistic that 2026 will bring a flurry of exit activity as more companies consider going public, selling, or merging with a competitor. In particular, he expects strategic buyers, such as health plans, to become more active in the second half of 2026.

“I actually think it’s going to be a good release year. I see a lot of signs of life, both within our portfolio and more broadly. There’s a lot of activity creeping in that you just haven’t seen in several years,” he said.