The following is a guest article by Julien de Salaberry, CEO at Galen Growth
For much of the past decade, digital health has enjoyed the spotlight. Fueled by pandemic urgency, investor exuberance, and a proliferation of new technologies, the space saw record-breaking funding rounds, skyrocketing valuations, and breathless headlines about how AI, wearables, and telemedicine would reinvent healthcare overnight.
But as we enter the second half of 2025, the tone has changed. That’s not a bad thing. In fact, it’s necessary.
Our latest Q2 2025 Digital Health Funding Trends report at Galen Growth confirms what many in the sector have suspected: we’ve reached a turning point. Global digital health funding totaled $12.1 billion in the first half of the year, a 13% decline compared to H1 2024. At first glance, that may seem like a setback. But beneath the surface, something far more interesting is happening.
While the number of deals is falling, the size and quality of those deals are rising. Late-stage financings are up 1.6x year-over-year. AI-powered ventures that can demonstrate cost reduction, workflow efficiency, or improved clinical outcomes are attracting outsized attention. Health Management Solutions alone captured 23% of all venture funding and 18% of new partnership announcements, more than any other cluster in the ecosystem.
The message is clear: the market is no longer interested in moonshots or prototypes. Investors want performance. Hospital systems want integration. And patients want solutions that work.
This is not a “cooling” of digital health; it’s a refinement. The days of “spray and pray” investing are over. Now, capital is flowing toward companies with clinical validation, scalable platforms, and clearly defined pathways to reimbursement and revenue. AI solutions are at the center of this shift, especially those that deliver a “productivity premium” by shortening care journeys or reducing provider burnout.
We’re also seeing a change in how partnerships form. Corporations and providers are entering fewer collaborations, but those partnerships are more strategic and implementation-focused. The high-profile dissolution of Novo Nordisk’s deal with Hims & Hers is a cautionary tale: brand alignment is not enough. Outcomes matter.
This market discipline is a healthy correction. It separates hype from substance and forces innovators to prove their value. And while some early-stage ventures may struggle, the ones that survive will be better equipped to deliver long-term impact.
We need to move past the obsession with “the next big thing” and instead focus on what creates real, measurable improvement in healthcare. The digital health sector must now mature into the system-changing force it always promised to be. This is a moment of evolution, not contraction.
There’s no doubt that challenges remain. The IPO window remains narrow. Many scale-ups will need to raise capital again within 12 to 18 months, often at flatter valuations. But those that can prove their clinical and economic value will find backing.
Digital health doesn’t need another hype cycle. It needs results. And finally, it’s being asked to deliver.
