Q1 of 2025 brought a cautious sense of optimism to the U.S. digital health sector, with total funding reaching $3.8 billion across 122 deals—an increase in capital compared to the previous year, though with fewer transactions overall. The average deal size also grew, continuing a trend of larger but fewer investments. Early-stage rounds (seed through Series B) continued to dominate, making up 83% of all deals. Notable exceptions included major rounds like Hippocratic AI’s $141 million Series B, Open Evidence’s $75 million Series A, and Innovaccer’s massive $275 million Series D. Meanwhile, a handful of large mergers and acquisitions quietly reshaped the market, even as some high-profile companies stumbled or exited altogether.
A key theme this quarter was the strategic shift Rock Health refers to as “leapfrogging”—where digital health companies rapidly evolve through tactical partnerships, acquisitions, and adaptable tech infrastructure. This includes acquiring capabilities through M&A (like Transcarent’s $621 million acquisition of Accolade), building modular tech stacks for easy upgrades, leveraging partnerships for expanded reach, and working with disruptors rather than competing against them. Though the report avoided deep dives into value propositions or clinical outcomes, it highlighted how leading companies are positioning themselves in a rapidly changing market. Hippocratic AI stood out again, not only for its funding but as part of a broader trend of firms doubling down on scalable, AI-driven health solutions.