Venture capitalists are bracing for a transformative shift in the healthcare startup landscape as 2025 wraps up with a flurry of AI-driven investments. Following a significant surge in healthcare venture funding, particularly in AI technologies, industry experts predict that the focus will soon pivot towards startups that can demonstrate cost efficiency, build trust among patients and providers, and deliver high-quality data solutions.
Last December, many VCs anticipated that AI scribing startups like Abridge and Ambience Healthcare would attract significant funding, a prediction that materialized as both companies secured hundreds of millions this year. However, competition intensified following a major announcement from medical records giant Epic, which revealed its own AI tools aimed at clinical documentation, directly challenging Abridge’s offerings.
As Epic joins the fray alongside tech leaders like OpenAI, venture capitalists have indicated that they expect new types of healthcare startups to emerge in 2026. Dan Mendelson, CEO of Morgan Health, underscored the need for AI solutions that can provide tangible savings to payers by guiding consumers towards informed choices and alleviating clinician workloads. “AI has diffused nicely for passive listening in clinical settings, and administrative simplification,” he noted, emphasizing the necessity for AI to show clear financial benefits.
Interest in healthcare exits is also growing, with expectations for a more active merger and acquisition (M&A) market in 2026. Although two venture-backed digital health companies — Hinge Health and Omada Health — made their public debuts in 2025, many investors remain skeptical about a wave of IPOs. Instead, they are anticipating strategic acquisitions, particularly as private equity firms eye healthcare AI startups.
AI Behind the Scenes
This year, significant investments have flowed into AI startups focused on alleviating administrative burdens in large healthcare systems. Abridge and Ambience Healthcare achieved valuations of $5.3 billion and $1.25 billion, respectively, while OpenEvidence, a medical knowledge platform, reached a valuation of $6 billion. As these companies expand their offerings to include coding and billing solutions, the emergence of countermeasures from insurers is expected, as they increasingly leverage AI to enhance their competitive edge.
According to Todd Cozzens, cofounder of Transformation Capital, many insurers are already collaborating with organizations like Palantir and Anthropic to develop custom AI solutions, with plans to contract more specialized AI platforms that focus on complex clinical data. “It’s a zero-sum game in the end,” he remarked, foreseeing a costly arms race in AI deployment.
Amidst these shifts, some venture capitalists are championing business models that prioritize transparent and high-quality AI. Sapphire Ventures’ partner Cathy Gao expressed concerns regarding “black box” AI models, which she considers uninvestable in critical fields like healthcare. “The next healthcare unicorns will be ‘glass box’ platforms where the core product is the digital paper trail,” she asserted, highlighting the need for governance layers that clarify AI decision-making processes.
Investors are also turning their attention to the resurgence of tech-enabled health services. After a downturn in interest, Alyssa Jaffee, partner at 7wireVentures, believes that companies offering tech-enabled services are poised for a comeback in 2026. She noted that successful firms like Hinge Health and Omada Health have demonstrated robust business models that cater to employers and health plans, establishing durable customer relationships.
The evolving landscape has led to some employers experimenting with multiple tech-enabled services in specific categories, such as GLP-1 management, while also significantly lowering their financial exposure through innovative payment models tied to savings. Northzone partner Wendy Xiao remarked on the cautious optimism surrounding these startups, which are increasingly seen as viable solutions to rising healthcare costs.
Looking ahead, there are whispers of potential IPO candidates. Companies like Virta Health have publicly expressed their intention to be IPO-ready by 2026, while private-equity-backed firms such as Zelis Healthcare and Ensemble Health have reportedly discussed IPO plans with investment bankers. Nonetheless, a steady stream of new IPOs remains improbable in the near term, with many companies biding their time until the market stabilizes.
Michael Greeley, cofounder of Flare Capital Partners, anticipates an uptick in M&A activity as interest rates decline and private equity firms seek acquisitions in the healthcare AI sector. He suggested that significant liquidity events may be on the horizon, driven by an increased interest from major buyout funds looking to enhance their portfolios with AI assets. “There seems to be a lot of activity percolating that you just haven’t seen for the last several years,” said Liam Donohue, managing partner at .406 Ventures, reinforcing the sentiment that 2026 could be a fruitful year for healthcare exits.
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