Could the gen AI bubble burst? 5 VCs predict 2025 trends

Investors, entrepreneurs and digital health enthusiasts can breathe a sigh of relief. 

Digital health funding has normalized after a steady decrease in 2022 and 2023. Funding for venture-backed digital health companies remained constant throughout 2024, according to research firm Rock Health. Funding totaled $8.2 billion through the first three quarters of the year, which puts it on pace to match 2023 totals. Interest in artificial intelligence has helped re-energize venture capital funding in digital health.

Related: Why UPMC, Vanderbilt joined Aegis digital consortium

Companies such as reproductive health platform Flo Health, diabetes care startup Glooko, women’s health and family care startup Maven along with mental health-focused startups Spring Health and Headway all received $100 million-plus funding rounds in the second half of 2024. Investor firms like General Catalyst and Redesign Health replenished their funds ensuring they could continue investing in digital health companies for the foreseeable future. 

Still, there will be challenges as investors find a way to exit their portfolio companies, either through an initial public offering or a merger/acquisition. Companies that don’t find an exit could struggle to stay alive, some investors say. 

Here are five predictions from venture capital investors on what they expect to see in 2025. Responses have been edited for length and clarity. 

Keith Figlioli, managing partner at LRVHealth

“We’re going to see some real failures in the generative AI space. There's going to be a handful of companies that really get [ahead] because they did a great job isolating use cases in areas with high return on investment and have overall durability. There's going to be a tremendous amount of these companies that are going to be struggling. I can't tell you how many generative AI companies that help with claims denials in revenue cycle have come across our desk. How many of those companies can get traction? Some may get traction but not all 20 or 30 will.” 

Halle Tecco, angel investor and founder of Rock Health

“We have a new administration. We have a new understanding of the frustrations Americans face in healthcare. I've been talking about it for some time. There’s a consumer awakening. We're starting to see employees sue their employers for mismanaging their health plan and health spending. I’ve been telling people there’s something bubbling up here. People are at their wits' end with our healthcare system. The costs continue to rise at a rate that is greater than inflation. It is becoming an even bigger crisis than ever before. I hope we can have a reset where we look around at the companies that we’re backing, the companies that we’re starting, and really focus our efforts on those that address some of these core problems of healthcare in cost, quality and access.”

Chris Male, co-founder and managing partner of the Autism Impact Fund

“I’m excited to see some of the innovations in healthcare really take off and start to show improved outcomes. I’m excited to see the capabilities in action and not just talk about it anymore. The industry has been looking for this technology, especially in the autism space where you don't have precision diagnostics or outcomes measurements. You will be able to see some of that technology come to life.”

Elizabeth Bailey,  co-founder and managing partner at Foreground Capital 

“I think that some companies are going to be forced to look for a buyer earlier [than they would have liked]. I am excited about this kind of consolidation where you have synergistic companies that are much stronger together. We’re going to have companies that recognize that they're stronger together vs. trying to go at it alone. It’s going to be a very different path for a lot of these companies. My advice to a lot of these entrepreneurs is,  'You know your original plan? You need to let that go if you don't want your company to go under.’ ” 

Sam Toole, partner at Primary Venture Partners 

“I think employers will continue to wake up. I think they have point-solutioned [digital health vendors that focus on one treatment area] up the wazoo. The [return on investment] for these solutions is soft. Utilization is low. It’s a part of the market that’s ripe for disruption and the focal point for some of the biggest healthcare companies over the last decade. But it’s recently become out of favor. That’s one space where we’re spending an increasing amount of time trying to find interesting opportunities.”