AI Is Powering A VC Investment Rebound In Healthcare Technologies

Investment in AI applications for healthcare has survived the breathless Covid-era hype about identifying and providing instant solutions to emerge with more mature approaches that actually solve problems, offer scalability and make a profit. 

This is not unlike what is happening in the rest of the AI investment universe but may even be further along. As a result, venture capital interest in the sector is soaring - and there is even talk about accessing public markets. JL

Brian Gormley reports in the Wall Street Journal:

U.S. and European healthtech startups raised $7.9 billion in venture capital in the first half, putting this year on pace to be the best funding year for the sector since 2022. AI’s potential to streamline administration and enable more personalized and preventive care is driving the resurgence. Venture capitalists are searching for startups with market traction that have a clear path to delivering a return on investment (such as) automated insurance verification and AI-driven software to check in on patients between doctor visits. Insufficient numbers of clinicians in mental health, family medicine and other specialties also drive interest in AI startups seeking to fill gaps in care.  “There’s pent-up demand for healthcare-tech deals on the public markets.”

Growing acceptance of artificial intelligence in medicine is powering a revival of venture-capital investment in medical software and other healthcare technologies.

U.S. and European healthtech startups raised $7.9 billion in venture capital in the first half, putting this year on pace to be the best funding year for the sector since 2022, when companies collected $16.3 billion for the full year, according to Silicon Valley Bank, a division of First Citizens Bank.

 

Healthtech venture funding peaked at $30 billion in 2021 and slid the next two years, falling to $10.7 billion in 2023. A rebound began in 2024, when investment rose to $13.6 billion, according to SVB.

AI’s potential to streamline administration and enable more personalized and preventive care is driving the resurgence. Some AI-driven companies are gaining scale and raising expansion rounds, including Qventus, which disclosed a $105 million Series D, led by KKR in January, and Ambience Healthcare, which in July secured $243 million in Series C funding led by Oak HC/FT and Andreessen Horowitz.

This isn’t a return to the pandemic-era frenzy, when a rush of initial public offerings and mergers and acquisitions fueled the run-up in investment. In 2021, a total of 59 healthtech startups globally went public or staged IPOs; in the first half of 2025, six did, according to SVB.`

Venture capitalists are searching for startups with market traction that have a clear path to delivering a return on their investment.

“There’s a continued focus from investors and boards and companies alike on profitability and ROI,” said Julie Betts Ebert, managing director, life science and healthcare for SVB.

Healthcare has many tasks ripe for AI automation, investors said.

This year, for example, startup Mandolin said it raised $40 million in seed and Series A funding to automate insurance verification, so patients can receive specialty medications sooner, and Ellipsis Health picked up $45 million, in Series A-1 backing, to expand its rollout of AI-driven software used to check in on patients between doctor visits.

“Healthcare is a very good end market for a lot of AI-driven workflow solutions,” said Ambar Bhattacharyya, managing partner with Maverick Ventures, an investor in Mandolin.

Long hospital and health-system sales cycles have slowed healthtech startups, but some now sell directly to consumers or clinicians and are growing quickly as a result, said Wayne Hu, a partner with venture investor SignalFire.

Healthcare has many tasks ripe for AI automation, investors say. Photo: Jeff Moore/Zuma Press

SignalFire-backed Grow Therapy, for instance, uses its platform to help therapists launch their own practices, a model pioneered in the technology sector by the likes of e-commerce company Shopify.

“Many of the most-explosive, highest-potential business models you see elsewhere in the technology ecosystem are finally making their way into the healthcare world,” Hu said.

Insufficient numbers of clinicians in mental health, family medicine and other specialties also drive interest in AI startups seeking to fill gaps in care, said Sara Choi, a partner with Wing VC.

“There’s a supply-demand dislocation because of a provider shortage in so many areas,” Choi said. “Patients are desperate for solutions.”

As AI makes inroads in medicine, startups are maturing faster, investors said. Not long ago, it wasn’t a foregone conclusion seed-stage startups would have revenue, said Julie Yoo, a general partner with Andreessen Horowitz.

 

Today, healthtech startups are generating revenue and product adoption sooner, which gives investors confidence to underwrite them, she added.

Initial adoption of a startup’s technology doesn’t assure the company’s success.

Healthcare customers often deploy AI tools in a limited capacity before considering a wider rollout, said Michael Greeley, co-founder and general partner of Flare Capital Partners.

“They’re running these pilots to determine if there is a real hard-and-fast ROI,” Greeley added. 

Healthtech companies with significant revenue are approaching the public markets. Three healthtech startups globally, including musculoskeletal-care company Hinge Health, held IPOs in the first half. That tops last year, when only two held IPOs, according to SVB.

The next 12 months will likely be stronger for IPOs than the past year because healthtech startups are maturing and investors show significant interest in the industry, said Jefferson Rives, managing director and head of healthtech investment banking for Truist Securities.

“There’s pent-up demand for healthcare-technology deals on the public markets,” he said.