Digital Health Funding Hits $3B in Q1, Remains Steady in Uncertain Environment

A new report reveals how digital health companies are attempting to take advantage of market shifts to get ahead of competitors.

Investments in digital health didn’t slow down at the start of the year in the face of volatile market conditions. On the contrary, they picked up pace as companies sought opportunities to "leapfrog" amid uncertainty, according to a report by Rock Health.

The research found that both startups and large players are utilizing various strategies to improve their positioning in the venture capital landscape, resulting in increased funding overall and larger late-stage funding rounds.

Through the first three months of 2025, digital health startups raised $3 billion across 122 deals, compared to $2.7 billion raised across 133 deals over the same period last year and $1.8 billion raised across 118 deals in the fourth quarter of 2024.

The average deal size jumped from $15.5 million in the fourth quarter of last year to $24.4 million in the first quarter, continuing seasonal patterns from previous years of first quarter totals beating fourth quarter numbers, the report stated.

Last year's 'David and Goliath' dynamic remained in the first quarter, with startups contributing to deal volume while large companies fueled deal size.

Dealmaking through the first three months was largely driven by earlier-stage funding. Seed, Series A, and Series B rounds made up 83% of labelled deals in the quarter, just a tick below 2024's 86%.

However, the quarter also featured a boom in late-stage funding rounds. The median Series D+ round size was $105 million, which almost doubled the $55 million across 2024 and marked the first time Rock Health tracked that figure above $100 million since 2021.

Companies of all sizes are pursuing different approaches to leverage market shifts, the report highlighted.

One of those strategies for companies is to add new healthcare features to their offerings through mergers and acquisitions. Of the 46 M&A deals Rock Health tracked in the first quarter, 67% involved digital health startups acquiring other digital health startups, compared to 53% across 2024.

"Tapestry weaving spikes when acquisition targets are cheaper and acquirers have cash on hand," the report's authors wrote.

Another approach companies are turning to is creating modular tech stacks to have more flexibility around their technology, allowing organizations to pivot as solutions like generative AI continue to evolve.

Meanwhile, channel partnerships are providing both smaller digital health startups and larger players a way of reaching consumers. Examples of this in the first quarter included Eli Lilly's LillyDirect adding partners and Amazon's Health Benefits Connector bolstering its network, Rock Health noted.

The final strategy the report called out was large companies engaging with startup competitors that are trying to be disruptors in their space.

"Instead of viewing innovators as outright competitors, these engagements position large enterprises as partners, investors, or future acquirers of potential rivals," the authors wrote.