2025 kicked off with big digital health and healthcare AI fundraises, tech partnerships and M&A deals, including DispatchHealth and Medically Home's tie-up, and plans for a potential blockbuster IPO.
Against this backdrop, the first three months of 2025 also saw a steady volume of funding deals, as digital health startups raised $3 billion, compared to $2.7 billion raised the same quarter last year.
There were 122 funding deals in the first quarter compared to 133 the same quarter a year ago.
Compared to last quarter, the first quarter saw more total dollars invested across a relatively steady deal volume, pushing average deal size from $15.5 million in the fourth quarter of 2024 to $24.4 million in the first quarter of 2025, according to Rock Health's first-quarter digital health funding report released Monday.
"While Q1’s overall funding uptick aligns with seasonal patterns—Q1 funding totals beat Q4 of the prior year in the past four out of five years (2020-2024)—these trends also reflect a continuation of last quarter’s market dynamics and the return of late-stage funding in digital health," Rock Health researchers wrote in the report.
As a comparison, the first three months of 2024 marked the lowest first-quarter funding since 2019. In the first quarter of 2023, digital health startups raised $3.6 billion.
Continuing a trend seen throughout 2024, early-stage startups dominated deal count, while the biggest moves and raises were helmed by large companies or startups prioritized by mega funders, according to the report written by Rock Health chief commercial officer Sari Kaganoff, Clara Sun, who serves on Rock Health's consulting team and associate researcher Mihir Somaiya.
Earlier-stage raises drove dealmaking during the first quarter of 2025: Seed, series A and series B rounds comprised 83% of labeled deals in the period, similar to 2024’s 86%. Large early-stage rounds during the first quarter include Achira’s $33 million seed round, Open Evidence’s $75 million series A and Hippocratic AI’s $141 million series B.
The first quarter of 2025 also marked a return of larger late-stage funding rounds. There were only five funding deals that were series D or later, but three of them were megadeals, or deals over $100 million—Innovaccer ($275 million), Abridge ($250 million) and Qventus ($105 million).
Rock Health researchers note that digital health startups and investors are navigating a market that is quickly shifting as the Trump administration reshapes budgets, leadership and oversight, which sets the stage for changes to reimbursement and innovation. Startups are facing a more selective investment climate, while challenging markets make it especially difficult for publicly traded companies to succeed.
Everyone has their eyes on digital health company Hinge Health's upcoming public market debut. But, just over the weekend, Business Insider reported that the company is considering delaying its IPO plans amid a plunging stock market.
Uncertain times can create opportunities for both large and small companies, noted Somaiya, Kaganoff and Sun in the Rock Health report. Companies can take advantage of shifting market dynamics to jump ahead, or “leapfrog,” over incremental change and shift to more leveraged strategies.
The researchers outlined several "leapfrogging" strategies startups and large healthcare players deployed in the first quarter.
Companies are using strategic mergers and acquisitions to stitch together new features and capabilities into their healthcare offering, what the Rock Health report authors called "tapestry weaving." Of the 46 M&A deals Rock Health tracked in the first quarter of 2025, 67% involved digital health startups acquiring other digital health startups—up from 53% across 2024.
Hone Health used its series A raise to expand into home health services by acquiring Ivee. H1 acquired Ribbon Health to offer new payer- and provider-facing products, moving beyond offerings for life science customers. And, Hims & Hers leveraged its cash reserves to acquire Trybe Labs to provide more personalized treatment through the addition of at-home testing.
Companies also are taking a modular approach to their tech stack. As the pace of AI innovation intensifies, healthcare organizations are learning that "aligning too closely with any one technology player or solution is risky business," Rock Health researchers wrote.
"We're seeing both startups and large companies bake flexibility into their tech infrastructure by creating modular tech stacks, where components can be easily swapped out as better or more cost-effective solutions emerge," they wrote.
Chinese virtual care provider Ping An Health quickly integrated DeepSeek’s large language model into two of its existing medical AI models less than one month after DeepSeek’s official launch. As another example, Apple added Google Gemini to its Apple Intelligence platform, in addition to other internally and externally developed AI models. Lumeris launched a Primary Care as a Service agentic AI platform—dubbed "Tom"—by leveraging best of breed capabilities amongst 60+ LLMs that can be interchanged for various use cases, Rock Health noted.
Channel partnerships are another strategy that both large healthcare companies and smaller startups are using to drive growth. Eli Lilly continues to build out its platform for channel partnerships, LillyDirect, adding new partners in the first quarter of 2025. Other channel partnership initiatives also rounded out their networks, from Amazon’s Health Benefits Connector to Teladoc’s Connected Care Program, Rock Health noted.
Digital health players Wheel and Huma launched a joint venture to offer direct-to-consumer channel access as a service.
“Channel partnerships, if done right, can be very successful. Sales cycles are long for healthcare, and for startups, channel partnerships allow you to ‘skip the line’ and acquire customers more quickly in the early stages. But the wrong channel partner is just as bad as the good channel partner is beneficial, so you need to select partners who are top in their class,' said Michelle Davey, CEO of Wheel, as quoted in the Rock Health report.
Another key trend—larger companies directly engaging with startup competitors, a strategy that may seem counterintuitive but can better position these companies in the market, the Rock Health researchers noted.
As one example, Eli Lilly partnered with virtual care platform Ro to offer consumers access to lower-cost vials of Zepbound.
Also of note, Labcorp participated in Teal Health’s $10 million raise, investing in an at-home, self-collecting cervical cancer screening device that redefines the traditional, in-office pap test.
"Instead of viewing innovators as outright competitors, these engagements position larger enterprises as partners, investors, or future acquirers of potential rivals," Rock Health researchers wrote.
The entire industry will be watching to see how these strategies play out in an evolving market in 2025.