02

Where the money went

Two categories built around administrative cost took $1.27 billion between them. Virtual care closed more deals than anyone but raised far less per deal.

Revenue cycle and administrative AI took $742 million across 14 rounds, a 58% increase on the same quarter last year. The category has become the default destination for growth capital because its buyers measure results in dollars collected, which makes the sales conversation unusually short.

Clinical documentation followed with $528 million, almost all of it in two late-stage rounds. Excluding those, documentation raised just $96 million across seven deals, a sign that the category is consolidating around a few platforms as EHR vendors ship competing tools of their own.

03

The biggest rounds

The five largest rounds accounted for 31% of all capital raised in the quarter.

Four of the five went to companies selling directly to health systems, and all five were led by investors who had backed the company in an earlier round. New lead investors were rare across the quarter: insiders led 58% of Series B and later rounds, up from 41% a year ago.

04

Why fewer, larger checks

Three forces explain the shape of the quarter. Health-system buyers have cut the number of vendors they will evaluate, which rewards companies with existing enterprise contracts. Crossover funds that inflated 2021 valuations have not returned. And corporate investors, mainly payers and pharma, now take part in a third of all deals and prefer later-stage companies with revenue.

Quarterly funding ($B) and deal count, Q3 2025 to Q3 2026.

“We are not short of capital. We are short of companies that can show a CFO a payback period under eighteen months.”

05

Who wrote the checks

Corporate venture arms took part in 34% of deals, the highest share we have recorded. Traditional healthcare specialists remained the most active lead investors, but the median number of investors per round fell from five to three as syndicates narrowed.

Payer-affiliated funds were the most active corporate group, joining 19 deals, mostly in revenue cycle, care at home and data exchange. Pharma investors concentrated on clinical trial technology and patient support. Health-system venture arms took part in 11 deals, typically alongside a commercial contract with the company they backed.

Deals can include more than one investor type, so shares exceed 100%.

Generalist funds have not disappeared, but they have moved later. Of the 31 deals with a generalist investor, 22 were Series B or beyond. Seed and Series A rounds are now led almost entirely by specialists and by a small group of operator-angels, many of them former health-system executives.

06

Category deep dives

Headline totals hide very different stories inside each category. Four are worth a closer look because they will shape what buyers see from vendors over the next year.

Revenue cycle and administrative AI

This is now the most crowded category in digital health. We count 61 funded companies chasing roughly 200 large health-system buyers. The companies that raised this quarter share three traits: integration with at least two major EHRs, a contracted customer base above 20 health systems, and pricing tied to measured collections or denial reductions.

Prior authorization automation drew the most interest within the category, with five rounds totalling $198 million. Investors are betting that the 2027 CMS deadlines will force payers and providers to buy rather than build.

Clinical documentation

Ambient documentation is the clearest example of concentration. The two largest companies raised more this quarter than the next 15 combined. Buyers tell us they are standardizing on one vendor per system, and that EHR-native tools are now the benchmark every independent vendor must beat on price.

“The pilots are over. We picked one ambient vendor for 40 hospitals, and the decision came down to integration depth and price, not accuracy. Accuracy is table stakes now.”

Virtual care

Virtual care closed 21 deals but averaged only $16 million per round. One in four was flat or down. The companies still attracting capital are those selling to employers and payers on a per-member basis, rather than direct-to-consumer brands that depend on paid acquisition.

Care at home

Care-at-home platforms raised $296 million, much of it tied to the hospital-at-home waiver debate in Congress. Investors described these rounds as a bet on policy: if the waiver is made permanent, the category could double its funding in 2027; if it lapses, several companies will need to change their model.

07

Valuations and deal terms

Median pre-money valuations rose at every stage after Series A, but the increase was driven by a small number of high-priced rounds. Excluding the top decile, Series B and C valuations were essentially flat on Q2.

Terms tell a more cautious story than valuations. Structured terms such as liquidation preferences above 1x, participating preferred and ratchets appeared in 17% of Series B and later rounds, compared with 9% a year ago. Founders are accepting higher headline valuations in exchange for downside protection for investors.

Bridge rounds and extensions made up 22% of all deals, slightly down from the peak of 27% in Q1. Most were insider-led and priced flat. We expect this share to keep falling as companies that could not raise new capital complete sales or wind down.

08

Exits and M&A

There were 41 acquisitions of digital health companies in the quarter, the highest total since 2022. Most were small and undisclosed, and many were effectively soft landings for companies that had run out of runway.

Strategic buyers dominated. EHR vendors, revenue cycle outsourcers and large physician groups accounted for 26 of the 41 deals. Private equity buyers were more selective, concentrating on profitable companies with more than $30 million in recurring revenue.

The IPO window remains mostly shut. No US digital health company listed in Q3, but at least three late-stage companies have hired banks, and two have publicly reported annual revenue above $200 million. Bankers we spoke to expect one filing in the first half of 2027 if public healthcare multiples hold.

“Every board I sit on has the same conversation: is our best outcome a strategic sale now, or another two years of growth and a shot at the public market? For most, the honest answer is the sale.”

09

Where the money is based

Capital stayed concentrated in three metro areas, but the share going elsewhere grew for the third straight quarter.

Nashville continued to stand out for its density of companies selling to provider organizations, helped by its concentration of health-system and physician-group headquarters. Salt Lake City and Denver together raised more than Chicago for the second quarter running.

10

What to watch in Q4

• Whether the 2027 prior authorization deadline pulls payer-side spending forward.
• A first IPO filing from at least one of the three late-stage AI documentation companies.
• Continued consolidation in virtual care, where down rounds are now one in four.
• The December vote on the hospital-at-home waiver and its effect on care-at-home funding.
• How many 2021-vintage companies complete recapitalizations or sales before year end.

Our base case for Q4 is total funding between $2.8 billion and $3.3 billion, with deal count roughly flat. A large IPO filing or a permanent hospital-at-home waiver would push funding toward the top of that range.