The digital health sector is making a strong comeback in 2025, according to CB Insights Q1 2025 report.
While deal volume has dipped, funding and M&A activity have hit multi-year highs, along with the rise of new unicorns.
Investors are placing bigger bets on proven players, especially those using AI to solve niche healthcare challenges.
With billion-dollar exits returning, it is clear the market is doubling down on focused, high-impact innovators rather than spreading capital thin.
Here are the key insights from CB Insights’ State of Digital Health Q1 2025 report:
Investors double down on high-potential digital health startups
According to CB Insights, the digital health sector saw its biggest funding jump in years. A 47% quarter-over-quarter surge, hitting levels not seen since mid-2022.
While money flowed, deals were fewer with a 9% drop in deal volume, proving investors are being selective and writing bigger checks to proven players.
The median deal size climbed to $6.4 million, fueled by massive rounds like Isomorphic Labs’ $600 Mn Series A—a record for AI in drug discovery.
Early-stage deals now account for just 51% of total deals year-to-date, down significantly from 60% in 2024. Meanwhile, late-stage funding is surging, with median deal sizes nearly doubling (up 96% quarter-over-quarter).
Takeaway:
The market is not just rebounding. It is smarter, with capital consolidating around the strongest contenders.
Mega-rounds return, dominated by AI ventures
The first quarter of 2025 saw mega-rounds roar back to life, with $2.5 billion pouring into just 11 deals, more than double Q4 2024’s total despite only a modest rise in deal count.
These blockbuster rounds accounted for 46% of all digital health funding as per CB Insights, marking the sector’s strongest showing since late 2021.
Artificial intelligence ventures claimed 8 of the 11 mega-rounds. Isomorphic Labs’ record $600 million raise led the pack alongside Truveta’s $320 million Series C and Innovaccer’s $275 million Series F.
This concentration demonstrates investors are betting big on AI’s potential to transform healthcare.
AI captures the majority of digital health funding
AI has officially taken centre stage in digital health funding. CB Insights reports that in Q1 2025, AI companies captured 60% of all sector investment, up sharply from 41% in 2024 and marking the first time AI has claimed more than half of total funding.
What is more remarkable is that this growth comes against a declining deal market. While overall digital health deals dropped, AI-specific transactions increased 6% quarter-over-quarter.
The biggest winners are AI-powered drug discovery (notably small molecule development with $204M across 5 deals) and clinical documentation tools ($372M across 4 deals).
Standout performers like Ubie (Mosaic score: 922) and Suki (Mosaic score: 913) demonstrate where investor confidence and dollars are flowing.
M&A revival driven by billion-dollar acquisitions
CB Insights data shows that the digital health M&A market is heating up again, with Q1 2025 marking a 27% quarter-over-quarter jump to 51 deals—the highest activity since early 2023. The U.S. led this charge with an 85% surge in deals, reaching 37 transactions.
Billion-dollar buyouts are back after a nearly three-year hiatus. Two massive deals stole the show:
- Roper Technologies snapped up CentralReach for $1.6B
- Paulus Holdings acquired Alto Pharmacy for $1.5B
These acquisitions spotlight what buyers value most: scale and data dominance.
CentralReach boasts 200,000 users, while Alto Pharmacy serves over 500,000 patients, proving that in today’s market, established platforms with large user bases and proprietary data command premium valuations.
Unicorn creation rebounds, led by AI-native platforms
Per CB Insights, the quarter saw 6 new unicorns emerge—the highest count since mid-2022 and more than all of 2024 combined. These startups are leaner (avg. 196 employees vs. 408 in 2021-22), with OpenEvidence reaching a $1 Bn valuation with just 21 staff.
Time-to-unicorn shrank to 6 years (from 7 in 2022), as AI-powered tools like Hippocratic AI and Abridge led half the cohort.
The US produced 4 unicorns, Europe 1, and Asia welcomed its first since 2021.
Notably, OpenEvidence has a 35% acquisition probability, well above the 20% industry average, highlighting investor appetite for capital-efficient, tech-driven models.
The bottom line
CB Insights Q1 2025 report signals a new era for digital health—one defined by focus, scale, and smart capital.
The quarter marks a turning point where smarter capital, sharper bets, and AI-native innovation are shaping a more disciplined, resilient ecosystem.
Investors are no longer chasing every shiny object; they’re doubling down on startups that can demonstrate impact, scalability, and clear clinical relevance.
With billion-dollar exits returning, mega-rounds dominated by AI, and lean unicorns breaking records, it’s clear the sector has entered a new phase—more focused, more formidable, and more future-ready.
-By Alkama Sohail and the AHT Team
