In recent years, the global digital health market has undergone significant changes amid economic challenges and growing investor caution. The year 2025 marks a pivotal shift — moving away from the hype and entering a phase of selective scale. This shift has notably impacted exit strategies, where only companies with strong clinical validation, profitability, and sustainable business models are managing to secure exits.
What happened in the first half of 2025?
Global funding in the digital health sector reached $12.1 billion across 616 deals, marking a 13% decline compared to the same period in 2024.
Exit activity also slowed — only 113 deals were recorded globally, including 6 IPOs and 107 mergers and acquisitions (M&A). The IPO market remains sluggish, although some companies cautiously ventured into it. Notably, Hinge Health and Omada Health successfully went public on NASDAQ in the first half of 2025.
IPOs: a cautious return
Hinge Health, a digital musculoskeletal care provider, went public on May 22, 2025, opening at $32 per share and closing its first trading day at $37.56 — a 17% gain. While the company’s post-IPO valuation was approximately $3 billion — down from its $6.2 billion valuation in 2021 — analysts view this reset as reasonable given its strong financials and growth trajectory. In Q1 2025, Hinge Health generated $123.8 million in revenue and recorded a net income of $17.1 million.
Shortly after, Omada Health, which provides virtual care for obesity, diabetes, and heart conditions, launched its IPO on June 6, 2025, raising $150 million. Its shares jumped 21% on debut. With over 1 million members and 2,000+ enterprise clients, Omada is also integrating AI, such as its real-time nutrition feature “OmadaSpark.” In Q1 2025, Omada reported $55 million in revenue — a 57% YoY increase — and significantly reduced its net loss.
Despite these landmark listings, the IPO market for digital health remains tight. Many large companies still consider public offerings a “last resort,” especially given the post-2021 IPO drought and ongoing economic uncertainty.
M&A takes the lead
As IPOs remain limited, M&A has become the dominant exit route. In H1 2025, 107 deals were recorded globally, with 70% of them being venture-to-venture — highlighting a trend toward strategic consolidation.
This is a continuation of a trend from 2024, where 101 M&A deals were logged. Acquisitions are being driven by attractive valuations of distressed assets and regulatory shifts (especially in the U.S.) facilitating healthcare mergers.
Key targets include digital diagnostics and integrated care platforms. Acquirers like Oura, Innovaccer, and Fabric expanded aggressively through acquisitions. The U.S. led in deal volume, followed by Europe. Hotspots included Medical Diagnostics, Health Management Solutions, and Research Solutions.
A growing number of VCs are employing a “roll-up” strategy, buying smaller competitors to form AI-powered conglomerates. Firms such as Thrive Capital, General Catalyst, and Bessemer Venture Partners are at the forefront of this movement, aiming to unlock a “productivity premium” by digitizing back-office and clinical operations.
AI as the top investment priority
Investors are prioritizing AI-powered solutions that reduce healthcare delivery costs and shorten care pathways. In H1 2025, AI ventures captured 65% of total digital health funding, although only 40% of companies deploy AI.
Recent FDA guidance on AI/ML in Q2 2025 also boosted confidence, lowering perceived regulatory risks. Corporate venture capital arms (from pharma, med-tech, and insurers) made up about 40% of active investors in May.
Late-stage funding rounds are also seeing a shift toward larger deals, with the average round size reaching $27.5 million in May 2025 — a 1.6x increase from H1 2024. This indicates a “fewer, bigger bets” investment philosophy, especially for AI-native startups with validated products and strong revenue traction.
Outlook for H2 2025
The second half of 2025 is expected to continue on a path of disciplined growth and selectivity. AI-focused ventures with proven clinical and financial outcomes will remain top funding targets. Galen Growth forecasts global digital health funding for the year to reach $24.8 billion, under neutral market conditions.
However, headwinds remain. IPO activity is likely to stay soft, and large-scale M&A may be rare due to economic uncertainty and regulatory hurdles. Instead, smaller acquisitions and secondary share sales will dominate, as unicorns seek liquidity options for early investors and employees without going public.
Encouragingly, some AI-native startups are preparing for Q4 IPO filings, and successful pricings could raise overall investor confidence. Still, a full IPO recovery is unlikely until macroeconomic and policy uncertainties are resolved.
Final thoughts
The digital health sector in 2025 is entering a new phase — one where outcomes, not just ideas, determine success. Startups must focus on clinical validation, efficient delivery models, and AI integration to win investor confidence. The coming months will test the sector’s ability to consolidate, adapt to investor priorities, and innovate responsibly under increased scrutiny.
