• After a slower-than-anticipated year for healthcare funding, investors expect sunnier skies in 2025.
• 13 VCs from firms like ICONIQ Growth and AlleyCorp share their predictions for digital healthcare next year.
• They expect more M&A, funding for AI agents and clinical decision support, and Medicare shake-ups.

The healthtech sector will see more private-equity-backed M&A and a fierce battle between AI-scribing startups next year, according to thirteen investors in the healthcare VC market.

At the beginning of the year, healthcare venture capital appeared poised for a rebound. Investors hoping to do deals again after a two-year funding drought watched as healthcare startups flooded back to the market to grab more cash.

Those VCs raced to break out their checkbooks for hot new AI startups in the first quarter, from scribing startups like Abridge to automated prior authorization players like Cohere Health.

A confluence of macroeconomic factors — from still-high interest rates to fundraising struggles for venture firms to the uncertainty of a looming presidential election — dampened the anticipated resurgence. 2024's funding appears to be, at best, on pace with 2023 levels, with $8.2 billion raised by US digital health startups in the first three quarters of this year compared to $8.6 billion through Q3 2023, per Rock Health.

Now, with interest rates expected to drop and a new administration on the way, VCs are anticipating sunnier skies in 2025.

A pickup in healthcare M&A and IPOs

After a slow year for healthcare M&A, investors want to see more deals in 2025.

With interest rates expected to come down — and investors facing pressure to deploy capital — private equity buyers should be more active in 2025, said .406 Ventures managing director Liam Donohue.

And Flare Capital Partners' Parth Desai said he's already seeing private-equity-backed healthcare companies looking to buy smaller startups. Their goal, as he understands it, is to make tuck-in acquisitions in 2025 that improve their growth stories as they look ahead to potential IPOs in 2026.

"Maybe they're not phenomenal outcomes, but at the end of the day, they'll create some liquidity," Desai said of those acquisitions. "I expect that to be one of the first exit windows starting to manifest in 2025."

Investors were hopeful but unsure that the IPO window would meaningfully reopen for digital health startups in 2025, despite startups like Hinge Health and Omada Health signaling their intentions to test the public markets.

Venrock partner Bryan Roberts said he expects the healthcare IPO market to remain relatively quiet. LRV Health managing partner Keith Figlioli suggested we won't see IPO activity kick off until the second half of the year after other exit windows open.

VCs said they're mostly looking for smaller deals next year, from mergers of equals to asset sales. Figlioli and Foreground Capital partner Alice Zheng said we'll see even more consolidation and shutdowns in digital health next year as startups run out of cash.

"Investors will have to make tough decisions on their portfolio companies," Zheng said. "We want to support all of them, but we can't indefinitely."

Healthcare AI competition will get fierce

Healthcare startups using AI for administrative tasks were easily the hottest area of healthcare AI investment in 2024. Investors think the crop of well-funded competitors will face increasing pressures next year to expand their product lines.

ICONIQ Growth principal Sruthi Ramaswami said she expects the group of AI scribing startups that landed big funding rounds this year, from Abridge to Ambience Healthcare to Suki, to scale significantly next year using the fresh cash as hospitals scramble for solutions to the healthcare staffing shortage.

As these startups scale, however, they'll face pressure to expand beyond ambient scribing into other product lines, like using AI for medical coding and billing, said Kindred Ventures managing partner Kanyi Maqubela. Scribing technology could become a commodity sooner than later, with many providers trying free off-the-shelf scribing software rather than contracting with startups, Maqubela said.

"It'll be a race to who can start to build other services and build more of an ecosystem for their provider customers," he said.

Some AI startups, like Abridge, have already been vocal about their plans to expand into areas like coding or clinical decision support. The best-funded AI scribing startups may be able to acquire smaller startups to add those capabilities, but other scribing companies will be more likely to get bought out, Maqubela said.

Flare Capital Partners' Desai suggested that healthcare companies already focused on RCM will try to pick up scribing solutions as the tech becomes a must-have for hospitals. He pointed to Commure's $139 million take-private acquisition of Augmedix in July.

Ramaswami said that demonstrating a high return on investment would be critical for these startups as hospitals pick their favorites among various AI pilots.

Health insurance in flux in Trump's second term

While many VCs quietly celebrated the potential for more M&A and IPOs in 2025 following Trump's election in November, the incoming administration could bring some big shake-ups for healthcare markets.

Trump could move to boost private health insurers, including Medicare Advantage plans, in his second term, Venrock's Roberts said. That could be a boon for young insurers like Devoted Health and Alignment Healthcare fighting for Medicare Advantage market share, as well as startups contracting with insurers to improve healthcare payment processes.

He suggested the new administration may even roll back changes made in the Center for Medicare and Medicaid Services' latest reimbursement model for Medicare, which went into effect this year and resulted in lower payments for many Medicare Advantage plans in the agency's attempt to improve payment accuracy.

Brenton Fargnoli, a general partner at AlleyCorp, said he expects to see health insurers respond to these risk adjustment changes and move to control higher-than-expected medical costs over the past year by launching a bevy of new value-based care partnerships in 2025 for specialties, including oncology, cardiology, and musculoskeletal care.

Some healthcare experts are also concerned that the federal government could cut funding for Medicaid plans. These changes could force states to scramble for new strategies and potentially new partnerships to control healthcare costs for their Medicaid populations.

"If there is a significant shift in direction at the federal level, I think you're going to see certain states do much more than they have in the past to try to continue to address health disparities," said Jason Robart, cofounder and managing partner of Seae Ventures. "As it happens, that creates opportunities for private companies to leverage their innovative solutions to address the need."

Similarly, Muse Capital founding partner Rachel Springate said that while investors in reproductive health startups will be closely watching state-level regulatory changes that could impact their portfolio companies, those startups could see surges in consumer demand as founders step up to fill gaps in reproductive care access.

Some of the Trump administration's proposed moves could stunt progress for health and biotech startups by stalling regulatory oversight. Robert F. Kennedy Jr., Trump's pick to lead Health and Human Services, has said he wants to overhaul federal health agencies, including the Food and Drug Administration and the National Institutes of Health. Marissa Moore, a principal at OMERS Ventures, said the promised audits and restructuring efforts could lead to major delays in critical NIH research and FDA approvals of new drugs and medical devices.

What's hot in AI beyond scribes

In 2025, AI will be an expectation in healthcare startup pitches, not an exception, said Erica Murdoch, managing director at Unseen Capital. Startups have pivoted to position AI as a tool for improved efficiency rather than as their focal point — and any digital health startups not using AI, in turn, will need a good reason for it.

With that understanding, investors expect to see plenty more funding for healthcare AI in 2025. While many tools made headlines this year for their ability to automate certain parts of healthcare administration, .406 Ventures' Donohue and OMERS Ventures' Moore said they expect to see an explosion of AI agents in healthcare that can manage these processes autonomously.

Investors remain largely bullish about healthcare AI for administrative tasks over other use cases, but some think startups using the tech for aspects of patient diagnosis and treatment will pick up steam next year.

"We will begin to see a few true clinical decision support use cases come to light, and more pilots will begin to test the augmentation of clinicians and the support they truly need to deliver high quality, safe care," said LRV Health's Figlioli. He hinted the market will see some related funding announcements in early 2025.

Moore said she's also expecting to see more investments for AI-driven mental health services beyond traditional cognitive behavioral therapy models — "for example, just today I got pitched 'the world's first AI hypnotherapist."

Dan Mendelson, the CEO of JPMorgan's healthcare fund Morgan Health, said he's watching care navigation startups from Included Health to Transcarent to Morgan Health's portfolio company Personify that are now working to improve the employee experience with AI. The goal, he says, is for an employee to query the startup's wraparound solution and be directed to the right benefit via its AI, a capability he says he hasn't yet seen deployed at scale.

"These companies are racing to deploy their data and train their models, and we'd love to see a viable product in this area," he said.

• Cloud security startup Wiz has grown rapidly in just four years, raising $1.9 billion along the way.
• The AI boom has accelerated cloud adoption, says Raaz Herzberg, the CMO of Wiz.
• Wiz rejected a $23 billion Google acquisition offer in July and said it plans to IPO instead.

In early 2020, Raaz Herzberg was a product manager at Microsoft Azure when she was offered a position at Wiz, a newly created cloud security startup. Since then, Wiz has turned down a $23 billion takeover offer from Google, expanded into Europe, and reached $500 million in annual recurring revenue.

Its next priority is to double that revenue metric — and then become a public company.

Wiz was launched by four cofounders who sold their previous business, Adallom, to Microsoft. It bills itself as a cloud security company that helps companies identify risks in their cloud providers.

"It felt like an opportunity I couldn't possibly pass on," Herzberg, now the chief marketing officer and vice president of product strategy at Wiz, told Business Insider in an interview from the company's new London office. "I started as head of product — but we started in the worst time. This was March 2020, when COVID-19 started," she said. "It's easy to remember because everything changed immediately."

It turned out that the pandemic was a boon for business. As more companies shifted to remote work, they increasingly relied on cloud services — expanding Wiz's client base. Four years since its launch, the scaleup has raised over $1.9 billion in funding from investing heavyweights such as Andreessen Horowitz, Thrive Capital, and Index Ventures.

It now sees huge opportunities to use the AI boom to cement its position in the market before it launches its initial public offering.

AI adoption has supercharged Wiz's business

Cloud computing offers crucial infrastructure underpinning AI applications. As more companies rush to adopt AI, security and privacy have taken center stage.

"The adoption of AI is very similar to what happened with the accelerated use of cloud," Herzberg said. Wiz has found that over 80% of its customers are using AI services — which "are, in some ways, like cloud services. Companies don't buy their machines or chips, so they're using these technologies on the cloud," she added.

"Part of the reason we're growing so fast is because we have access to the public cloud, which is growing incredibly fast — and AI only pushes that growth further," she said.

Because AI services are often used on public clouds — a service offered by third parties rather than an internal network — cloud security has become a critical issue.

Wiz's rapid growth has also been bolstered by its arsenal of acquisitions. This year, it scooped up security startups Rafft, Gem, and Dazz in a bid to bulk up its engineering talent and product suite.

"When we acquire companies, we don't sell their product. They rebuild it from scratch in the Wiz infrastructure," Herzberg told BI, noting that the company is still on the hunt for more acquisitions. "We believe in this concept of growing inorganically."

European expansion on the road to IPO

Wiz's global headquarters is in New York, with offices in Virginia, Texas, Colorado, and Israel. In August 2024, Wiz established its European headquarters in London. Its plush office is a short walk from Silicon Roundabout — London's scaled-down answer to Silicon Valley.

"The European market has been an ideal fit for our technology because it's more constrained by security, and more privacy aware than the US market," Herzberg told BI. "We estimate we will be able to get 35% of our revenue from Europe."

Wiz works with industry heavyweights on the continent, such as Revolut, Tide, and BMW. In 2024, it says it reached $500 million in ARR — but is aiming to reach $1 billion before it IPOs.

Operating independently is a big priority for the company. Earlier this year, Wiz turned down a $23 billion offer from Google, instead opting to prime itself for a public debut.

Herzberg declined to comment about the Google deal but added that Wiz had lofty ambitions to establish itself as a market leader in the cloud security domain.

"We are building a company that I believe can be the biggest cybersecurity company in the world," she said. "And I think at this point we are on that path."

She likened companies buying security services to buying insurance packages, pointing to incumbents in the security industry with a similar model.

"So if I look at the wing of, for example, network security firewalls, it has a clear leader — people today buy Palo Alto firewalls. They used to buy checkpoint firewalls. Now the leader is Palo Alto," she said. "Another example would be like the endpoint production server protection, that's a big domain on its own, and then it has a clear leader, like CrowdStrike."

As the public cloud domain balloons, Herzberg believed there needs to be a "leader in place to protect that domain" — adding that Wiz had a goal of taking that mantle.

Growth ambitions

A slate of elections this year has pushed the company to prepare for more government-mandated cybersecurity measures, especially in the US. In anticipation of Donald Trump's second term, Wiz has started building on a federal sales strategy.

Still, Herzberg said the scaleup is in "no rush" to go public. It's now looking for a chief finance officer, a requirement for companies that want to IPO.

"With the place we are at in terms of revenue and publicity and everything, it just brings us better candidates than we had as little as a year ago," Herzberg said. "I don't think we necessarily need someone with cloud security experience," she added. "We're hoping to announce that hire soon."

Elsewhere, it's gearing up to release two new products as it cements its presence in Europe with an impending hiring spree.

Still, the team hopes to come full circle to its New York roots by the time it's ready to IPO.

"Which one has the gong?" Herzberg laughed. "New York is where we'd list."

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The post Software startup ServiceTitan valued at $8.97 billion as stock pops 42% in IPO debut on Nasdaq first appeared on Tech Startups.

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• Klaviyo achieved high growth with minimal cash burn after it IPO'ed in 2023.
• Klaviyo CEO Andrew Bialecki said to follow a similar path, a company needs to align with investors.
• This article is part of "Road to IPO," a series exploring the public-offering process from prelaunch to postlaunch.

In Silicon Valley, there's often a perceived dichotomy that startups must choose between chasing high growth or achieving profitability. But Klaviyo has shown that it’s possible to do both, the company's chief executive and founder, Andrew Bialecki, said.

"Businesses will pay you to solve real problems. You should be able to fund this stuff if you're good at building software," Bialecki said at the Underscore VC Core Summit, where Business Insider interviewed him in October.

Klaviyo uses artificial intelligence to help merchants sell more by stepping up their email and text marketing. In September 2023, the Boston-based company went public on the New York Stock Exchange, maneuvering through a logjam of initial public offerings for software startups.

Part of the investor buzz around Klaviyo's IPO was that it was an ideal model to go public. It had been able to scale and grow with very little cash burn, a rare feat even in software. One of Klaviyo's biggest flexes in its investor prospectus was that of the roughly $450 million in venture capital it had raised, it spent only $15 million.

Bialecki said in the past 10 years, many entrepreneurs have fallen into a cycle that looked something like this: raise cash, build something, and then get acquired by a bigger company. Companies that focused instead on steady, organic growth were often labeled as lifestyle businesses, seen as lacking the ambition or potential for the exponential returns that venture capitalists crave. That didn't sit well with Bialecki.

"You look at Microsoft, Apple, IBM, and Intel, all these tech companies that came up in the 20th century. They all went public, and they were profitable — and they were growing really fast. Like, why is it that either-or?" Bialecki said.

Bialecki borderline-bootstrapped the company he started in 2012. It grew to a $1 million revenue run rate before hiring any employees or raising a cent of venture capital.

Even after it started selling equity, with a $1.5 million seed round of funding in 2015, Bialecki and his cofounder, Ed Hallen, raised as little cash as they needed and spent it scrupulously. They focused on getting the product right.

This self-reliant streak allowed the founders to secure capital on their terms without diluting themselves six ways to Sunday. Before the IPO, Bialecki owned a 38.1% equity stake, while Hallen had a 13.9% stake, putting them in the top echelon of founders of software and cloud startups with the largest pre-IPO ownership stakes.

Bialecki advises founders who want to follow a similar path to be disciplined and loud about it. For a company to pursue high growth and profitability, it needs to align with investors who share the founder's vision and values rather than pressure them into taking additional venture capital just to inflate valuations for their own gain.

"Be clear about what you stand for as a company, and you will get the investors that believe in that," Bialecki said.

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Late last month, we reported on ServiceTitan after the software startup filed paperwork for an initial public offering (IPO) in the U.S. Just two weeks later, ServiceTitan is reportedly targeting a valuation of up to $5.16 billion in its IPO. […]

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With the number of generative AI startups steadily climbing since ChatGPT’s debut in 2022, one company has taken the leap to go public, becoming Europe’s first listed generative AI startup. Paris-based generative AI startup LightOn made its market debut today, […]

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