AI Fuels Surge in Digital Health Funding, Reaching $14.2 Billion in 2025
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Digital health startups experienced a significant funding resurgence in 2025, attracting $14.2 billion in investment—the highest total since 2022—as investors increasingly prioritized companies leveraging artificial intelligence (AI).
A new report released Monday by Rock Health reveals a marked shift in venture capital allocation, with AI-focused firms capturing 54% of total funding, a substantial increase from 37% in 2024. This trend also translated into larger investment rounds, with AI companies securing a 19% premium on average deal size compared to their non-AI counterparts.
A Meaningful Increase, But Not a Return to Peak Levels
While the $14.2 billion represents a considerable jump from the $10.5 billion invested in 2024, the digital health funding landscape didn’t quite reach the record-breaking heights seen in 2021. However, according to Rock Health, the increase signals a positive trajectory after a period of relative stagnation.
Despite the overall increase in funding, challenges remain for many digital health companies. A notable indicator is the prevalence of “unlabeled” funding rounds—those that don’t fall into traditional Series A, B, or C classifications. This suggests that some companies are seeking capital but haven’t yet met the benchmarks for further investment. Thirty-five percent of deals in 2025 were unlabeled, down from a peak of 44% in 2023, but still significantly higher than pre-2021 levels.
Deal Size and Mega-Deals on the Rise
The total funding increase wasn’t driven by a surge in the number of deals, but rather by larger individual investments. The total deal count decreased from 509 in 2024 to 482 in 2025, resulting in a rise in the average deal size to $29.3 million, up from $20.7 million the previous year.
Mega-deals—raises exceeding $100 million—accounted for 42% of the total investment in 2025, the highest proportion since 2021. These larger rounds were overwhelmingly concentrated in companies focused on AI and those backed by prominent venture capital firms.
For instance, when firms like Andreessen Horowitz or General Catalyst participated in a Series A deal, the average size reached $24.1 million, compared to $18.9 million without their involvement. The impact was even more pronounced in later-stage rounds, with deals including these investors averaging $265.7 million compared to $172 million without their participation.
The premium placed on AI-enabled startups extended across all funding stages. The average Series C deal size for an AI company was $83.7 million, significantly higher than the $52.1 million for non-AI companies. Several AI firms successfully closed multiple large funding rounds throughout the year.
However, Rock Health cautioned that accelerated fundraising timelines can be risky, potentially limiting the time companies have to demonstrate progress between rounds. “That may reflect mounting pressure to ‘get in on’ the AI race (at whatever cost) or confidence that AI itself can speed the path to product-market fit,” the report’s authors wrote. “Whether that bet pays off remains to be seen.”
The enthusiasm for AI in healthcare is understandable, but these startups will face competition from established health IT vendors and tech giants like OpenAI, which are also exploring opportunities in the sector.
M&A Activity and Public Exits Increase
Alongside funding, mergers and acquisitions (M&A) activity also saw a significant increase, rising to 195 deals in 2025 from a five-year low of 121 in 2024. This activity was fueled by both growth-stage companies seeking to expand their capabilities and, in some cases, the acquisition of distressed assets.
The year also witnessed a modest return of initial public offerings (IPOs), with five digital health companies—including digital musculoskeletal care provider Hinge Health and chronic condition management firm Omada Health—going public after a prolonged period of inactivity in the public markets.
Despite growing demand for public exits, policy and economic uncertainties pose potential challenges. The historically long government shutdown in late 2024 created a backlog of filings with the Securities and Exchange Commission, and looming Medicaid cuts threaten to reduce coverage for millions, potentially impacting the sector’s growth.
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