Healthcare VCs predict more AI transparency investment, private equity M&A, and a quiet year for IPOs in 2026

• After a strong year for healthcare funding, VCs plan to back different kinds of AI startups in 2026.
• Investors expect AI startups focused on decision transparency and cost savings to draw more funding.
• VCs don't anticipate many IPOs next year, but PE firms could bring liquidity through AI buys.

It's been a hot year for healthcare deals — but some investors are predicting a shift in which startups will capture VC attention next year.

2025 saw a welcome surge in healthcare venture funding as investors rushed to back top AI startups. Last December, VCs predicted huge funding rounds for AI scribe startups like Abridge and Ambience Healthcare; indeed, both Abridge and Ambience landed hundreds of millions of dollars in venture funding this year.

Investors also said in December 2024 that they anticipated a race for those startups to expand beyond AI health scribing into other product lines, like medical coding and billing. That pressure intensified in August, when medical records giant Epic announced it was releasing its own AI tools, including for clinical documentation, in competition with its closest startup partner Abridge.

With Epic in the mix and tech giants like OpenAI working on their own healthcare AI plays, VCs told Business Insider that they're expecting different profiles of healthcare startups to grab funding next year as companies focus on cost savings, securing patient and provider trust, and ensuring high-quality data.

"AI has diffused nicely for passive listening in clinical settings, and administrative simplification," said Dan Mendelson, the CEO of Morgan Health, JPMorgan's healthcare investing arm. "AI now needs to show savings to payers by helping consumers make good choices and reducing the burden on clinicians."

Investors are also watching for more healthcare exits in 2026. Two venture-backed digital health companies went public this year: Hinge Health in May, and Omada Health in June. VCs weren't optimistic that 2026 would bring a deluge of new public healthcare companies, but they're looking forward to what many said should be an active year for healthcare M&A.

AI behind the scenes

This year, investment surged for AI startups tackling administrative burdens for large health systems. AI scribe startups Abridge and Ambience Healthcare notched $5.3 billion and $1.25 billion valuations, respectively, while AI-powered medical knowledge platform OpenEvidence hit a $6 billion valuation with its own raise.

Many such startups have expanded into coding and billing to help hospitals capture more revenue from health insurers. But in 2026, insurers could use AI to fight back, said Todd Cozzens, cofounder and managing partner of Transformation Capital.

Cozzens said that many insurers have already partnered with large organizations such as Palantir and Anthropic on custom AI solutions. Next year, he expects those payers to contract with more specialized AI platforms trained on complex clinical data, like providers are already doing.

"It's a zero-sum game in the end, but like with the nuclear weapons arms race, a lot of money is going to be spent here, and doing nothing is no longer an option for either side of the battle," he said.

Several VCs suggested that the next wave of healthcare investment will go toward business models that prioritize higher-quality AI behind the scenes.

Sapphire Ventures partner Cathy Gao predicted a conscious shift away from "black box" AI models in high-stakes industries like healthcare, calling them "uninvestable."

"The next healthcare unicorns will be 'glass box' platforms where the core product is the digital paper trail," she said. "Any engineering team can build an AI that fills out a medical form. The real opportunity is building the governance layer that proves why the AI made that decision."

Liam Donohue, cofounder and managing partner at .406 Ventures, said his firm has also been investing in companies focused on AI decision transparency and data quality.

"One of the obstacles that needs to be hurdled for AI to be more widely used in enterprise settings is absolutely the ability to go back to the source of why some process happened or why a decision was made. And there's a lot of infrastructure being built to do that," he said.

As insurers cut reimbursement rates for key services, investors are also expecting a surge in business models that prioritize lower-cost care settings and eschew point solutions, paired with AI to reduce administrative spend.

Norwest partner Irem Rami said she expects a boost for in-home care models that incorporate AI agents. Mercedes Bent, cofounder and partner at Premise VC, is watching healthcare startups that aim to support patients across a chosen specialty, like women's health tech that assists patients from fertility tracking through conception.

The return of tech-enabled health services

Tech startups that actually provide healthcare have somewhat fallen out of favor with VCs in recent years. The costs of employing providers or running brick-and-mortar clinics can make it tough for those businesses to deliver venture-style returns.

But in 2026, according to 7wireVentures partner Alyssa Jaffee, "tech-enabled services is coming back, baby."

After 2021's venture boom and the subsequent funding drought, some tech-enabled services companies struggled to maintain their growth or hit their next milestone on slim margins, especially at earlier stages, Jaffee said.

But many startups that have made it to the other side have stronger businesses as a result, including durable relationships with key customers like health plans, she said.

She also pointed to Hinge Health and Omada Health's successful IPOs; both companies are tech-enabled service providers that sell to employers and health plans.

"We have a number of those companies in our portfolio that have really hit their stride. It's just a meatier business, and I think we're going to get a lot of interest from later-stage investors coming in to support those kinds of companies," Jaffee said.

Northzone partner Wendy Xiao said that she's now seeing some employers try out a few different tech-enabled services solutions in a given category, such as GLP-1 management, and test them against one another.

Contracting with multiple companies could be a tough sell for employers who are already seeing their healthcare costs skyrocket. But Xiao said many of these startups are paid a portion of the money they save employers — a model that dramatically lowers employers' financial exposure.

Cautious IPO candidates

There are a few healthcare companies that could be eyeing the exits next year. Virta Health has publicly said it expects to be IPO-ready in 2026. And Business Insider previously reported that two private-equity-backed healthtech companies, Zelis Healthcare and Ensemble Health, have been in talks with bankers about potential IPOs.

Still, no reports have emerged of venture-backed healthcare startups filing their S-1s. By this time last year, Hinge Health and Omada Health were already deep into their IPO preparations.

While Xiao thinks a handful of healthtech startups are waiting for their debuts, she's not confident they'll take the plunge before the second half of 2026.

"I think they'll probably go out in a similar timeframe of, if not late next year, then the year after. There seems to be a lot of momentum pent up around IPO readiness at the organizational level over the past few years. I think a lot of these companies are in pretty good shape in terms of that, and they're just waiting for one of the larger ones to go out," Xiao said.

Michael Greeley, the cofounder and general partner at Flare Capital Partners, agreed that the new year is unlikely to bring a steady stream of new healthcare IPOs. But he's anticipating more M&A activity as interest rates come down and private equity buyers look for healthcare AI acquisitions in the VC world.

"A lot of us are still sitting on a lot of unrealized gains, and the obsession is going to be heightened around liquidity," Greeley said. "We're seeing a lot more interest from the big buyout funds in our sector, who are going down market to buy AI assets to wrap around their legacy platform companies."

2025 saw a few such deals. New Mountain Capital, in particular, made several AI acquisitions this year as the PE firm rolled startups onto its existing healthcare bets. Greeley also pointed to firms such as Bain Capital, TPG, Silver Lake, and KKR as potential buyers in 2026.

Donohue is similarly optimistic that 2026 will bring a flurry of exit activity as more companies mull going public, selling, or merging with a competitor. In particular, he expects strategic buyers, such as health plans, to become more active in the second half of 2026.

"I actually think it'll be a good exit year. I'm seeing lots of signs of life, both within our portfolio and more broadly. There's a lot of activity percolating that you just haven't seen for the last several years," he said.