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AI-powered businesses draw 40% of Q1 health funds

Illustration of a medical professional's pocked with a stethoscope and a cursor inside

Illustration: Natalie Peeples/Axios

AI-powered health care was one of this quarter's best-funded digital health categories, per a recent Rock Health report.

Why it matters: The sector was last fall's talk of the town, and the numbers prove there's no slowdown in investor interest despite an overall funding crunch.

By the numbers: Q1 saw 10 AI health care deals over $50 million, per the report.

Zoom in: Companies including Abridge, Ambience, Fabric and Hippocratic AI drew large checks for technologies offering everything from medical scribes and automated nurses to AI-enabled operating systems.

What they're saying: "AI is a bright light in today's funding environment, with multiple fundraises, partnerships, and acquisitions attracting investors to the space and energizing startup teams," Rock Health head of research Adriana Krasniansky and associate Mihir Somaiya write in the report.

  • "Model evolutions, large scale rollouts, and new coalitions remind us that we're building the infrastructure of AI-enabled health care in real time," they add.

Follow the money: Venture is still finding its footing in digital health after the pandemic-induced boom-bust the sector saw over the last three years.

  • VCs invested $2.7 billion in health tech across 133 deals, with average deal size totaling $20.6 million.
  • Three digital health companies saw their stocks delisted: Science 37, Better Therapeutics and Veradigm — joining nine companies that have been thrown from the Nasdaq or NYSE since 2022. (Digital health's list of publicly traded companies dropped to 43 from a 2021 peak of 54.)
  • In the private markets, health tech dealmaking was characterized by what Rock Health refers to as "creative financing measures," including unlabeled fundraises and debt financing.

Between the lines: "Expectations are resetting for digital health players both private and public, pushing them to align to different paradigms of success (strong outcomes and healthy margins instead of high projected growth rates) and change their practices (structuring deals differently, forecasting conservatively)," the analysts write.

State of play: Despite challenges, AI-powered digital health companies scored large deals spanning early and late stages of fundraising in Q1. Last month alone:

February was just as busy, kicking off with Ambience Healthcare's $70 million Series B.

The takeaway: "AI drove investment energy and attention refocused on startups' abilities to demonstrate outcomes," Krasniansky and Somaiya write.

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