Mental Health Startup Funding Holds Steady As Therapy Demand Grows

Therapy is a growth market.

That, at least, was the trend following the onset of the COVID-19 pandemic. Total annual U.S. mental health spending, estimated at around $280 billion in 2020, rose sharply in subsequent years across age groups, boosted in part by the rise of telehealth platforms.

These days, more than one-fifth of American adults receive mental health treatment in a given year, per a recent federal government estimate. Much of that comes in the form of one-on-one therapy.

Founders and investors in the space have taken notice. Funding to mental health-focused startups surged beginning in 2020, with large rounds going to companies developing telehealth offerings, AI-enabled platforms and services targeted to specific groups, such as teenagers or the elderly.

Yes, investment in mental health startups has tapered off since the 2021 peak. Nonetheless, we’re still seeing steady deal flow and big rounds getting done, as evidenced in the chart below:

Startups focus on covered care

One unifying theme for the largest investments this year is an emphasis on providing mental health care that is covered by insurance.

This was a core talking point for New York-based Talkiatry, a psychiatric care startup that in mid June picked up $130 million in the largest mental health financing this year. The round consisted of a combination of Series C equity financing led by Andreessen Horowitz and debt financing from Banc of California.

In its funding announcement, Talkiatry noted that it works in-network with providers that extend coverage to a majority of privately insured Americans. The startup, as its name implies, also focuses on connecting patients with psychiatrists who are able to both provide therapy and prescribe medications when needed.

New York-based Grow Therapy, which landed $88 million in a Sequoia Capital-led Series C this spring, also pitches itself as a provider of covered mental health care. The startup offers an online platform to match people with therapists who work with their insurance plans.

Meanwhile, Brightside Health, which closed on a $33 million Series C in March, markets its mental health offering as “affordable help, with or without insurance.” The San Francisco-based company provides online therapy for anxiety and depression, works with most major insurers, and also offers fixed monthly pricing for those who self-pay.

The right match

Investors are also backing good-sized rounds for startups honing screening tools and targeted services to match people with therapists best-suited to their needs.

Among these is San Francisco-based Two Chairs, which offers a platform run with its proprietary algorithm to help match the  right therapist with a patient. The company closed this spring on a $72 million Series C round that was a mix of debt and equity.

Boston-based InStride Health, which secured $30 million in Series B funding in March, is more narrowly focused. The 3-year-old company offers outpatient care for pediatric anxiety, considered the most common mental health disorder among kids and teens.

Backpack Healthcare closed a $14 million Series A in May and is also focused on pediatric mental health. The startup has a particular focus on extending mental health care to children and families covered by Medicaid, who have previously faced limited options.

What not to do

While recently funded startups hope to set an example of the right approach to mental health care, they can turn to predecessors for a lesson on how to do it wrong.

For this, they can look to Done, a seed-backed telemedicine startup whose CEO and clinical president were arrested last month for an alleged fraud scheme involving the drug Adderall.

Founded in 2019, Done describes itself as an online platform specializing in psychiatric care for ADHD, or attention deficit hyperactivity disorder. Per the U.S. Department of Justice, the company “exploited the COVID-19 pandemic to develop and carry out a $100 million scheme to defraud taxpayers and provide easy access to Adderall and other stimulants for no legitimate medical purpose.” (Done has said it disagrees with the charges.)

A couple years earlier, another funded startup, Cerebral, came under investigation over charges that it prescribed Adderall and Ritalin for ADHD without properly screening patients. The company was also recently fined $7 million over its privacy practices. Cerebral raised over $460 million in 2020 and 2021 from SoftBank and others, but has not secured fresh financing since.

Therapy demand still drives deals

Even with a mixed track record in mental health investing, venture backers still see opportunity in the space as demand for therapy and treatment remains strong, with continued high levels of unmet needs.

For now, focus areas of the most recently funded startups, which include extending covered care and targeting underserved populations, look like a sensible approach. We’ll stay tuned to see how effectively they continue to scale.

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Illustration: Dom Guzman