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Diving brief:
- Digital health funding peaked in 2025 as investors poured increasing amounts into artificial intelligence companies, according to a report released Monday by Rock Health.
- American digital health startups raised $14.2 billion last year – the highest funding total in the industry since 2022, the venture capital and advisory firm said. In comparison, companies invested $10.5 billion in venture capital in 2024.
- Companies touting AI offerings raised 54% of total funding in 2025, up from 37% the previous year. These startups also launched larger fundraising rounds, securing a 19% premium on average deal size compared to companies that did not focus on AI.
Dive overview:
Last year’s digital health financing landscape wasn’t a return to business as usual record investment environment observed in 2021but this is a significant increase over the past two years, according to Rock Health.
Still, many digital health companies have faced challenges in 2025. One sign is a relatively high number of unlabeled funding rounds, where raises do not receive a letter like Series A or B. This may suggest that companies need cash, but does not meet the criteria for another labeled cycle.
Last year, 35% of transactions were unlabeled, compared to 44% at their peak in 2023, but that’s still high compared to the single-digit numbers seen before 2021, the report said.
And fewer companies received funds. Although the total funding was higher, the number of deals was 482 last year, compared to 509 in 2024. As a result, the average deal size increased to $29.3 million, up from $20.7 million in 2024.
Mega deals have also increased. Fundraising worth more than $100 million accounted for 42% of total investments last year, the highest proportion since 2021.
Startups that have raised larger rounds of funding are associated with two characteristics: Companies tend to focus on AI, and large venture capital firms have participated in the raise, according to Rock Health.
For example, when Andreessen Horowitz or General Catalyst participated in a Series A deal, the average amount was $24.1 million, compared to $18.9 million even though these companies were not involved. For Series D and beyond, funding rounds including these investors totaled an average of $265.7 million, compared to $172 million without their participation.
AI companies also enjoyed a premium over non-AI companies. The average Series C deal size for an AI startup was $83.7 million, compared to $52.1 million for non-AI companies.
Some AI companies closed several large fundraising rounds last year. According to Rock Health, accelerating fundraising timelines can be risky because it leaves little time between rounds to progress as companies burn through cash.
“This may reflect growing pressure to ‘join’ the AI race (at all costs) or confidence that AI itself can accelerate product-market fit,” the report’s authors write. “It remains to be seen whether this gamble will pay off. »
Increasing funds invested in AI startups could be justified, given the healthcare industry’s enthusiasm for the technology, the report’s authors wrote. Still, AI startups will face competition from incumbent health IT companies, like electronic health record vendors – And companies like OpenAI who have expressed interest in the sector.
Meanwhile, mergers and acquisitions soared last year, to 195 deals from 121 in 2024, the lowest level in five years. Some M&A were driven by acquisitions of growth-stage digital health companies looking to add new capabilities, talent and customers – but other deals were purchases of distressed assets.
Last year also saw five digital health IPOs, including companies such as digital musculoskeletal care company. Hinge health and chronic disease management company Health Omadaafter years of slow activity on public markets for the sector.
And while there is pent-up demand for more public releases, political and economic uncertainty could make it difficult for companies to move forward, the report’s authors write.
The historically long government shutdown last fall created a backlog of filings with the Securities and Exchange Commission, while the healthcare industry faces significant coverage losses when massive cuts to Medicaid come into force.