The Explosion of Mental Health Startups in 2021: Will it Continue?
LinkedIn just released their annual Top 50 startup companies to follow on September 28, 2022. As I perused through the list, I couldn’t help but notice the number of digital health startups, especially those focused on mental health, that made it on the list. These include: Cerebral, Medable, Inc, Plume, Lyra Health, Spring Health, Hinge Health, Carrot Fertility, Equip, Alma, and Woebot Health.
Mental Health Startup Facts & Trends
As my curiosity increased, I quickly scanned through some of the facts when it came to mental health startups.
In 2021, $5.5 billion in funding for mental health startups were distributed across 324 deals. This marks a 139% increase from 2020 where funding was $2.3 billion across 258 deals per CBInsight.com
Majority of the funding went to companies based in the United States ($4.5 billion).
Increase in “mega-round” funding (i.e. $100 million +) in 2021 (n=15) vs. 2020 (n=4). Notable ones include BetterUp & Cerebral, both at $300 million, Elemy.com.mx at $219 million, and Workit Health at $118 million.
Mental health is the top-funded therapeutic focus so far in 2021 with $3.1 billion raised per Rock Health.
Conversely, funding in 2022 has decreased. Digital health funding fell in Q1 2022 by 36% (vs. Q4 2021), but even more drastically for mental health focused companies by 60% in the same time period. Average number of deals (n=76), average deal size, and early stage rounds dropped to 66% of deal share in 2022.
As I reflected on these stats, coupled with my personal experiences, the trends make sense to me.
From a value proposition perspective, digital solutions focused on mental health made sense. I personally used Headspace, a company focused on meditation, extensively during the start of the 2020 pandemic. In fact, I think it was one of the key factors in keeping me level headed during one of the most difficult times I, along with the world, faced.
From a logistical perspective, the pandemic also expedited the adoption and embracement of telehealth services. I think the conditions that were present at the time made investments into digital health, especially those that focused on mental health, an easy decision to make.
From an economic perspective, interest rates were at all time lows, growth stocks were flourishing, and it seemed to be no better time to take larger than normal risks.
I'm a Skeptic
However, I have to admit, I am also skeptical of digital health companies and question whether this trend, with mental health companies in particular, will last. Especially given the trends we’re seeing in the first half of 2022. Without going into any hard facts, my position of skepticism revolve around the following points:
Digital health companies, in my opinion, are tech first. Strategy, solutions, and perspectives are shaped from that mindset with the patients, and consequently, clinicians’ ideas and prioritization on patients come second. To be fair, I’m sure I’m also biased to some extent here since I’m a pharmacist.
Healthcare is extremely difficult. Perhaps the same could be said about other industries, but it’d also be naive to think healthcare regulations in the United States aren't one of the most, if not the most, complex to sort through. My bias is that companies that focus on tech first are tunnel-visioned into missing some of the more ethical issues surrounding healthcare. Take for example the debacle with Cerebral overprescribing stimulant drugs to their ADHD patients.
Application of AI in healthcare is overhyped. I’m a huge critic of individuals and organizations that think the promise of AI will save healthcare. Anecdotally, it’d seem as though most tech-first companies jump to an AI solution (or use it for marketing) rather than intentionally thinking about the actual healthcare problem that should be solved. It makes me think of my biostatistics training from pharmacy school: yes, it’s statistically significant, but is it clinically significant?
Future trends
Hopefully my criticisms aren’t too hot of a take or unfounded as I wanted to be transparent as to how and why I feel the way I do. With that, and somewhat converse to my hot takes, let me share some positive thoughts from others on what the next few years may hold for digital health startups.
Increase in demand for wearables. Deloitte predicts that 320 million consumer health and wearable wellness devices will ship in 2022 and that by 2024, that will increase to 440 million units.
Increase in telehealth services. Although demand for telehealth has slowed since the early pandemic days, it is still higher than pre-pandemic levels.
Increase in mental health needs. Mental health care tends to increase during a recession and research has shown that risk and anxiety of depression increased by 22% during the great recession with similar increases during the financial crisis of 2008. Amanda D'Ambra, CEO and co-founder of Arise, was quoted in BHB, “On a macro level, when we look at what’s happening in the world, there’s a second pandemic, if you will, of mental health”.
Increase in mental health mobile application usage. Deloitte predicts that global spending on mobile mental health apps will reach close to $500 million in 2022 (20% average growth rate which is conservative considering the 32% from previous year), up from $203 million to $269 million in the first 10 months of 2019 to the same period in 2020.
Concluding thoughts
Despite being a strong skeptic of digital health companies, I do think there is a large opportunity for growth. Granted, I also think the pandemic made the funding and rise of mental health startups more of an anomaly given the black swan of COVID-19. Further, some of the articles I’ve reviewed suggest the many untapped areas of mental health which include certain demographics like teens, but also more severe mental health illnesses like OCD and eating disorders. The if, and it’s a big if, is whether these mental health startups will focus on prioritizing the right things (i.e. patients) and also be able to demonstrate actual value (i.e. patient outcomes) to attract consistent funding from payors like Centers for Medicare & Medicaid Services.