AI Startups Drive Growth in Digital Health Funding in Early 2025

In the first half of 2025, the U.S. digital health sector raised $6.4 billion, marking an increase from $6 billion in the same period of the previous year. This growth continues a trend from 2023, when funding reached $6.2 billion. A significant portion of this year's funding surge is attributed to the influence of AI-focused startups, which accounted for 62% of all investments in the sector.

Rising Investment and Deal Sizes

The digital health industry witnessed a robust $3.4 billion raised in the second quarter of 2025, surpassing the average quarterly funding of $2.6 billion since the first quarter of 2023. Despite a decrease in the number of transactions from 273 in the first half of 2024 to 245 in the same period of 2025, the average deal size increased significantly. The average deal size grew to $26.1 million, up from $20.4 million last year, highlighting investors' growing confidence in larger, more established ventures.

AI's Dominance in Funding Rounds

AI-focused firms have significantly outpaced their non-AI counterparts in securing investment. On average, AI startups raised $34.4 million per round, nearly double the $18.8 million per round garnered by non-AI firms. Of the 11 mega-rounds—defined as funding rounds exceeding $100 million—nine were secured by AI startups, underscoring the sector's preeminent role in attracting large-scale investments.

Globally, AI venture capital investments exceeded $290 billion, with 78% of companies worldwide either utilizing or exploring AI technologies. Despite the high levels of investment, concerns about an AI skills gap and the persistence of data biases remain prevalent. These issues are compounded by the fact that only 10% of AI grants are directed towards initiatives in low-income countries, potentially widening global inequalities.

Mergers and Acquisitions Trends

The first half of 2025 also saw over 100 mergers and acquisitions (M&A) in the digital health sector. Although this number marks a slight decrease from 121 purchases the previous year, it indicates a continuing trend of consolidation within the industry. This activity reflects a broader rebound in healthcare tech venture capital investments, with a renewed focus on AI-driven solutions.

While AI startups raised a staggering $192.7 billion globally in 2025, there is an emerging call to redirect AI budgets towards social innovation. Critics highlight that current funding practices favor high-income country initiatives and that leading AI models often perpetuate algorithmic biases. As a result, there is an increasing demand for sustained, well-resourced partnerships to address these issues and accelerate social transitions.

Challenges and Calls for Change

Despite the impressive funding figures, the digital health sector faces several challenges. High entry costs continue to hinder widespread AI adoption, and venture capital remains the dominant source of AI funding. Many innovative solutions remain small-scale, as social entrepreneurs struggle with funding access. Furthermore, 95% of AI solutions reportedly fail to integrate seamlessly into business operations, often due to startups neglecting internal operations and documentation.

Investors frequently face difficulties distinguishing viable ideas from less promising ones. There is a growing recognition of the need to address these challenges to ensure that AI does not exacerbate existing inequalities. Ecosystem support is seen as a crucial factor in accelerating the transition towards socially beneficial AI applications.

In conclusion, while AI startups have driven significant growth in digital health funding in early 2025, the sector must navigate complex challenges related to equity, integration, and sustainability. Addressing these issues will be essential to harnessing the full potential of AI technologies in creating a more inclusive and effective digital health landscape.