What You Should Know:
– After a strong start to the year, the digital health sector experienced a significant pullback in Q2 2025, with deal volume declining to its lowest quarterly activity level in the last five years, according to new report from CB Insights.
– The new CB Insights report, “State of Digital Health Q2’25” reveals the drop reflects growing investor selectivity and capital concentration in fewer, high-conviction bets amidst ongoing global economic uncertainty. Despite the contraction in the broader sector, AI continued to dominate funding, and two established companies achieved $1B+ valuations upon going public.
Deal Volume Hits 5-Year Low
Digital health equity funding experienced a 21% quarter-over-quarter (QoQ) drop in Q2 2025, falling to $4.4B. Deal count also declined to 267 from 325 in Q1 2025, marking the lowest quarterly total in the last five years, according to CB Insights data. This pullback follows a robust Q1 and mirrors the broader venture landscape, where deal activity reached its lowest level since 2016.
The funding landscape this quarter shows a clear preference for more mature companies. While early-stage rounds averaged $7.7M in Q2 (down from $11.7M in Q1), late-stage deals averaged $137M, a 69% increase from the prior quarter. This rise was powered by a few significant raises, most notably Neuralink’s $650M Series E round, the largest digital health deal since 2021, which will advance the company’s AI-powered brain-computer interface platform.
Despite the overall pullback, Q2 produced two new unicorns this quarter:
- Pathos: An AI-driven oncology drug developer, achieved unicorn status after raising a $365M Series D round, one of the largest digital health funding rounds of the quarter.
- Nourish: A telenutrition platform, also reached unicorn status after securing its $70M Series B round.
AI Companies Capture More Than Two-Thirds of Digital Health Funding
AI continues to be the dominant force in digital health investment. AI-focused companies captured an impressive 69% of all digital health funding in Q2 2025, up from 60% in Q1, while their deal share held steady at 41%. Notably, AI companies claimed 9 of the 10 largest deals this quarter, including 6 of the 7 mega-rounds (fundraises of $100M or more).
AI-driven investments spanned multiple high-impact markets in Q2:
- Medical Brain-Computer Interface (BCI): This was the highest-funded market in digital health, driven solely by Neuralink’s $650M Series E round.
- Clinical Documentation Solutions: This market was the second highest-funded, attracting $639M across 5 deals. Key companies in this space include Abridge ($300M), Commure ($200M), and Nabla ($70M), all focused on AI-powered clinical note-taking tools. All three boast strong CB Insights Mosaic scores above 900.
Two Digital Health Companies Go Public with $1B+ Valuations
Digital health saw its first significant IPO activity in over a year, signaling a potential thawing of the public markets. Hinge Health and Omada Health debuted in Q2 2025 at valuations of $2.6B and $1.1B, respectively. These are the first digital health IPOs to surpass the $1 billion mark in the last four quarters.
Both companies offer employer-driven chronic care programs, betting on access to commercially insured patients to attract payers seeking cost savings.
- Hinge Health: Provides musculoskeletal therapy programs to employers and health plans, combining virtual physical therapy, motion tracking, and personalized coaching. It raised $854 million across 12 rounds before its IPO.
- Omada Health: Targets chronic conditions like diabetes, hypertension, and obesity through its AI-enhanced virtual care platform, which introduced a nutrition-focused AI agent this year. It raised $530 million over 14 rounds before its IPO.
These IPOs break a multi-year drought, during which digital health companies delayed going public amid market volatility. As two of the sector’s most mature startups, their successful exits may serve as bellwethers for the broader industry.
Deal Sizes Continue to Rise as Investors Prioritize Larger Rounds
Despite the overall decline in deal volume, the global median digital health deal size reached $6M as of Q2 2025, up from $5.1M in 2024—the highest level in the last four years. The average deal size also jumped to $22.2M, a 35% increase from 2024, reflecting a concentration of larger deals at the top. In fact, 44% of total digital health funding in Q2 came from the seven mega-rounds.
Late-stage median round size hit $49M in the first half of 2025, a 23% increase from $40M in 2024, reaching its highest level since 2021’s $74M peak. These figures indicate that investors are consolidating capital around fewer, larger late-stage bets.
For more information about this report, visit https://www.cbinsights.com/research/report/digital-health-trends-q2-2025/
