Dry powder unleashed: The rise of private equity in digital health
Dry powder unleashed: The rise of private equity in digital health
By Kevin Smith
In an era defined by technological transformation, the digital health sector has experienced extraordinary expansion, propelled by advancements in technology, shifting patient expectations and growing demand for healthcare solutions that prioritize accessibility and efficiency. This evolution has created an increasing need for substantial capital injection, with private equity emerging as a fundamental funding source for both emerging startups and established enterprises in the healthcare technology space.
The strategic deployment of private equity has become instrumental in driving forward healthcare innovation, providing companies with the necessary resources to expand operations and accelerate the development of pioneering digital solutions. These investments span across the digital health ecosystem — from remote care platforms and wearable technology to sophisticated analytics solutions — as investment firms recognize and capitalize on the sector’s tremendous potential.
As digital health continues its trajectory of expansion, increasing competition for private equity backing will create both significant opportunities and formidable challenges for organizations looking to secure this vital financial support.
February 2025: A month of remarkable investment activity
The digital health industry’s ability to attract substantial capital was prominently displayed during February 2025, with several groundbreaking funding announcements. OpenEvidence, which provides AI assistance to physicians, successfully completed a $75 million Series A round led by Sequoia Capital, elevating its cumulative funding beyond the $100 million threshold. This significant investment will facilitate the enhancement of sophisticated medical language models and allow for team expansion in both the artificial intelligence and medical domains.
In a particularly notable transaction, Abridge — a solution that converts clinical conversations into structured documentation — secured an extraordinary $250 million in Series D financing. This round featured co-leadership from Elad Gil and IVP, alongside participation from various venture capital organizations and strategic partners. Simultaneously, Candid Health, which specializes in revenue cycle management for healthcare billing, received $52.5 million in Series C funding under Oak HC/FT’s leadership, bringing its total investment to $99.5 million.
Significant capital also flowed into the nutritional healthcare sector, with both Berry Street and Fay successfully raising $50 million each. Berry Street, a platform connecting patients with nutrition professionals, plans to enhance its technological infrastructure and artificial intelligence tools for practitioners. Similarly, Fay, which offers comparable services while supporting dietitians in establishing independent practices, will use this funding to broaden its offerings for both practitioners and their clientele.
These investment activities signal strong confidence in digital health’s future, particularly in sectors leveraging artificial intelligence and specialized platforms. The substantial backing of AI-driven solutions like OpenEvidence and Abridge underscores the industry’s commitment to enhancing clinical decision-making processes and operational productivity. Continued engagement from both traditional venture firms and strategic investors, including healthcare giant CVS Health Ventures and NVIDIA’s investment division, emphasizes the perceived enduring value and transformative capability of these healthcare technologies.
Private equity is serving as a catalyst for innovation acceleration and solution scaling, enabling organizations to broaden their market presence, refine their technological offerings, and potentially transform healthcare delivery frameworks. This capital influx will likely fuel further progress in personalized care approaches, operational enhancements, and the broader integration of artificial intelligence across numerous healthcare functions.
These substantial investments also demonstrate private equity’s readiness to deploy its accumulated capital reserves. The digital health sector, with its promising growth trajectory and technological advancements, has become a prime destination for what industry insiders refer to as “dry powder.”
Understanding the strategic value of dry powder
The industry term “dry powder” describes uncommitted capital that private equity firms maintain ready for deployment into promising opportunities. This financial reserve represents a strategic asset, allowing firms to respond quickly when attractive investment prospects emerge.
Within the digital health ecosystem, these capital reserves represent the financial resources private equity can leverage to foster growth in promising healthcare technology ventures. These substantial reserves provide flexibility to invest across various opportunities, from groundbreaking technologies to strategic acquisitions, and fuel ongoing development of innovative products and services.
The availability of these uncommitted funds not only enhances private equity firms’ competitive positioning but also reflects their confidence in digital health’s long-term prospects. As demand for technology-enabled healthcare solutions continues to grow exponentially, the strategic allocation of these capital reserves becomes increasingly vital for driving innovation and establishing market leadership.
Strategic considerations for healthcare startups seeking investment
When pursuing private equity investment, digital health startups should thoroughly assess several critical factors to establish successful partnerships and sustainable growth. Consider these essential elements:
- Goal alignment: Ensuring fundamental alignment between the venture’s objectives and the investment firm’s values is paramount. Startups must develop a comprehensive understanding of the firm’s investment approach, growth targets and exit timeline to prevent potential conflicts or misalignment as the relationship progresses.
- Operational support: Leading private equity firms deliver value extending well beyond capital infusion. Startups should evaluate the firm’s industry expertise, market knowledge and capacity to contribute through strategic guidance, mentorship opportunities and access to valuable networks and resources.
- Governance considerations: Private equity investments typically involve substantial ownership positions and potential governance modifications. Startups should carefully consider what level of control they are prepared to share and help ensure that investment terms align with their strategic vision and long-term objectives.
- Regulatory complexities: The digital health sector operates under rigorous regulatory oversight and compliance requirements. Startups should assess investment partners’ understanding of the regulatory environment and their demonstrated ability to navigate complex legal and regulatory challenges successfully.
- Exit strategy: Private equity organizations typically operate with defined investment horizons and predetermined exit strategies. Startups should understand their potential partner’s preferred exit approaches (whether public offerings, acquisition or secondary sale) and confirm alignment with their own long-term strategic direction.
- Financial structure: Healthcare technology startups must carefully evaluate proposed valuations and agreement terms. Understanding the investment structure’s implications, including ownership dilution, board representation and provisions for future funding rounds, is essential for informed decision-making.
By methodically addressing these considerations, digital health ventures can enhance their prospects of securing private equity backing from partners whose approach complements their strategic objectives, values, and long-term vision, enabling sustainable growth and enduring success.
The future landscape of digital health investment
The digital health sector stands poised for continued expansion and innovation, driven by technological progress, evolving consumer expectations and increasing demand for efficient, accessible healthcare solutions. Consequently, private equity’s role in this ecosystem is projected to become increasingly vital in the coming years.
A primary driver of private equity investment in digital health will be the continued integration of AI and machine learning technologies. AI-powered healthcare solutions offer transformative potential across the care continuum, from diagnosis and pharmaceutical development to personalized treatment protocols and predictive analytics. Forward-thinking private equity firms recognizing this potential will likely increase their investments in ventures leveraging these advanced technologies.
The expanding availability of healthcare data, coupled with growing emphasis on analytics and interoperability, will drive demand for digital solutions capable of effectively aggregating, processing and extracting actionable insights from vast patient information repositories. Private equity organizations may increasingly target companies offering sophisticated data management and analytics capabilities, empowering healthcare providers and payers to make more informed decisions and improve clinical outcomes.
However, the future of private equity in digital health is not without significant challenges. Concerns surrounding data privacy and security, complex regulatory requirements and the need for sustainable reimbursement frameworks will continue presenting obstacles for both emerging ventures and established enterprises. Private equity firms must navigate these complexities effectively, working collaboratively with portfolio companies to ensure regulatory compliance and long-term viability.
Additionally, the competitive landscape continues to intensify, with both established healthcare organizations and disruptive newcomers competing for market position. Investment firms must conduct thorough due diligence, prioritizing ventures with distinctive value propositions, defensible competitive advantages and robust growth potential.
Despite these challenges, digital health remains fertile ground for private equity investment, offering potential for substantial returns while driving transformative healthcare innovation. As February’s investment surge demonstrates, the sector continues its dynamic evolution. Private equity organizations possessing deep industry understanding, strategic vision and the ability to provide meaningful operational support will be ideally positioned to capitalize on this dynamic sector’s tremendous growth potential.
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