Investors poured $1.5 billion into the market in 2020, but technology alone won’t solve long standing problems like low reimbursement rates and provider shortages.
The Covid-19 pandemic and collective psychological fallout finally mainstreamed mental health.
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Intrepid investors started dabbling in mental healthcare over the past few years as part of a broader digital health funding boom, but many remained wary. Celebrity endorsements, like Olympic swimmer Michael Phelps’ campaign with virtual therapy startup Talkspace, started to chip away at the long standing stigma, while mindfulness apps like Calm offered meditation sessions at the click of a button. But it was the Covid-19 pandemic and collective psychological fallout that finally mainstreamed mental health.
In 2019, around 11% of U.S. adults reported experiencing symptoms of anxiety or depression, which skyrocketed to 42% by December 2020. By year-end, venture investors poured a record-setting $1.5 billion into mental health-related startups. “When the pandemic hit, there was a two-week pause,” says Lisa Suennen, a longtime healthcare investor who leads the venture fund at the law firm and consultancy Manatt, Phelps & Phillips. “And then everything went crazy.”
Crazy indeed. There are now seven mental health unicorns in the U.S., up from two a year ago, buoyed by the flurry of digital health IPOs, SPAC deals and M&A activity. In 2020, mental health startup funding was 5.5 times the $275 million investors ponied up four years earlier, according to data from CB Insights. There were 124 deals last year, compared to 69 deals in 2016.
There’s no slowdown in sight, with funding in the first quarter of 2021 topping $795 million as startups continue to jockey for post-pandemic market dominance. “I hope that the interest in mental health is now persistent,” Suennen says. The funding surge “feels very fad-like right now, which concerns me,” as do the ballooning valuations. “Some of these valuations are beyond appropriate given the underlying fundamentals,” Suennen says. “And that’s not unique to mental health, that’s digital health across the board right now.”
The highwater mark was set pre-pandemic when the telepsychiatry and specialty pharmacy company Genoa Health sold to UnitedHealth Group for $2.5 billion in 2018. The next mental health startup to reach a billion dollar valuation was Calm in 2019. Lyra hit unicorn status in 2020 in a pandemic-fueled funding round, and Modern Health, BetterUp and Ginger joined the club in 2021. In January, Talkspace announced plans to go public in a SPAC deal valuing the company at $1.4 billion; the deal is expected to close later this year. In April, KKR acquired a majority interest in the mental health electronic records software company Therapy Brands for an undisclosed amount. LifeStance Health Group, an outpatient mental health provider backed by investment firm TPG Capital, announced plans this month to go public at an estimated more than $6 billion valuation.
Bob Kocher, a partner at Venrock, is betting on Lyra Health, the company he co-founded in 2015 alongside former Facebook CFO David Ebersman, to take off. “The only thing that is under-treated in American healthcare is mental health care,” says Kocher, adding that historically mental health businesses haven’t been profitable. Burlingame, California-based Lyra, valued at $2.3 billion in a January funding round, is specifically targeting large employers with customers including Morgan Stanley, eBay and Genentech.
Despite federal laws requiring mental health to be reimbursed at the same rates as physical illness, many people with insurance still face hurdles, from long wait times to denial of claims battles. Around one in four Americans don’t have access to in-network therapists, according to the National Alliance on Mental Illness. Many mental health providers choose to operate out of insurance networks, since the reimbursement rates are so low. Given the spotty coverage, Kocher and Ebersman hypothesized that employers would be willing to pay for a separate mental health benefit, especially since depression is one of the leading causes of disability worldwide. “This is the only company I’ve ever worked with, where we don’t have to do marketing,” says Kocher. “That speaks to how hard access has been for most people for most of their life.”
Before the pandemic, it was already estimated that less than half of adults and children living with mental health conditions in the U.S. went without any treatment. That’s due to a combination of stigma, cost and access issues, coupled with a growing shortage of mental health providers. In 2016, more than half of the counties in the U.S. didn’t have a single psychiatrist.
The startups take different approaches to connecting users with mental health services. Some, like San Francisco, Calif.-based Calm, valued at $2 billion, don’t have a medical component. Calm started out as a direct-to-consumer mindfulness app with guided meditations and soothing soundtracks. The company, which now has an enterprise division that sells to businesses, claims to help users reduce stress and sleep better.
The mental health platform companies help connect users directly with therapists and other providers. Lyra and San Francisco-based Modern Health can only be accessed through an employer arrangement, while New York-based Talkspace and Mountain View, Calif.-based BetterHelp have websites where anyone can fill out a questionnaire and schedule an appointment. (Neither company can help people who are in a life-threatening mental health crisis and instead link to resources like the National Suicide Prevention Line.) Several VC-backed companies also employ “mental health coaches.” These people can’t diagnose or treat clinical conditions but are supposed to help users who are dealing with stressors in their jobs or relationships before they spiral.
You can’t just put a tool in an inequitable system and expect it to solve all of those inequities.
While there is widespread agreement that improving access to mental health services is sorely needed, the explosion of funding and sky high valuations means consumers and clinicians are left to sort through hundreds of options without a good sense of which will work and which are just hype. Many of these startups partner with research institutions to publish studies, but no one has performed a head-to-head comparison of the market. There’s also concern that the hyper focus on technology and virtual care is like putting lipstick on a pig. Low-income or rural communities without sufficient broadband access are still at a loss, and there will continue to be a nationwide shortage of providers and issues with reimbursement. “You can’t just put a tool in an inequitable system and expect it to solve all of those inequities,” says Nicole Martinez-Martin, an assistant professor at the Stanford Center for Biomedical Ethics who studies mental health apps.
There’s also the question of what might be lost if the majority of mental health visits shift online. Jessi Gold, a psychiatrist and assistant professor at Washington University in St. Louis, has been conducting virtual appointments but prefers to see patients in person. She says there’s a misconception that just because mental health providers don’t conduct physical exams that all they need is to see a patient’s face on a screen in order to be effective. “There’s a lot more to emotions and connecting with people, reading people and diagnosing people than just looking at their face,” says Gold, who is also a Forbes contributor.
Gold recognizes that the U.S. mental healthcare system is broken and is all for getting vulnerable patients the help they need. But venture capital-backed technology startups alone won’t solve the complicated morass of weak insurance coverage, crazy administrative hoops for patients in distress and clinicians burned out from carrying the weight of America’s pain. “I understand from both a business perspective and a needs perspective why [startups] are interested in mental health right now,” she says, “but the potential to really prey on that need, or worse, the patients, terrifies me.”
If you or someone you know is thinking about suicide, please call the National Suicide Prevention Lifeline at 800-273-TALK (8255) or text the Crisis Text Line at 741-741.