Author: Shivan Bhavnani
EXPERTS SOUND THE ALARM
At the beginning of October, Facebook (now Meta) testified at a Senate hearing about how its products harm people’s mental health. The hearing follows the publication of leaked documents by Frances Haugen, former employee, that showed the company’s awareness of the negative impact of Instagram on its users.
Of course, this is not a surprise. Over the last two years, researchers have already documented in multiple studies the strong connection between Instagram & Snapchat use and deterioration of mental health. The buck didn’t stop there. House Republicans are now asking Snap, TikTok, and YouTube for any internal research on how their products affect teens’ mental health.[1]
As awareness grows about mental health worldwide, as a society we are beginning to recognize and address the threats to mental health. And leaders all over the country are sounding the alarm. In May 2021, delegates from the American Academy of Pediatrics, the APA, Mental Health America, NAMI, and other organizations urged the AMA to address mental health through policy and funding changes.
However, not everyone is waking up just yet. According to an article published in STAT News by Susan Hata & Thalia Krakower (internal medicine physicians at Massachusetts General Hospital), “the AMA declined, agreeing only to encourage efforts to increase access for children. The association did not mention the crisis befalling adults or of calling the situation what it is: a medical emergency.”[2]
The American Academy of Pediatrics, The American Academy of Child & Adolescent Psychiatry, and the Children’s Hospital Association took matters into their own hands. In October, a coalition of these organizations declared a national mental health crisis among children.[3]
The coalition represents more than 77,000 physicians and 200 children’s hospitals. In another public recognition of this emergency, the Biden Administration announced an additional $85M in funding for mental health awareness and treatment. The crisis of course extends far beyond the United States. This is a global crisis. According to the Wellcome Global Monitor on Mental Health report published in late October, roughly 19% of the world’s population have been “so anxious or depressed” that they could “not continue [their] regular daily activities.”[4]
The sustained crisis further emphasizes the dire need for mental, behavioral, and brain health innovation worldwide. The crisis coupled with the sustained deluge of capital flowing into the digital health sector led to record-breaking funding for mental, behavioral, and brain health (MBH) startups thus far in 2021.
Shivan Bhavnani
Founder of GIMBHI
REPORT HIGHLIGHTS
- Mental, behavioral, and brain health startups have raised $5.3 billion to date over 200+ startups, exceeding 2020’s total funding volume of $2.6 billion.
- MBH startup funding accounts for ~18% of total digital health funding
- Average deal size has doubled since 2020, to $28M
- There are now 10+ unicorns in the MBH space including Spring Health and Elemy.
- Consolidation continues albeit at a slower pace, with notably the Ginger/Headspace merger
- Other companies expand into the mental health & wellness capabilities, such as Noom, CVS Health, Apple, and Google
- The top two most funded categories are Telehealth (26%) & Medical Device (16%)
FUNDING
The pandemic forced the world to reconcile with the state of healthcare and catalyzed the adoption of technology among health systems and patients alike out of pure necessity. Today, a year and a half later — people remain receptive to digital health, governments maintain somewhat relaxed regulations, and providers, payers (and other healthcare industry stakeholders) seem to have made a commitment to leveraging technology. Funding for digital health startups soared to never-before-seen heights in 2021.
According to Rock Health, digital health funding amounted to $21.3 billion from Q1 to Q3 2021 across 541 deals, well surpassing 2020’s total funding of $14.6 billion.[5] Note that Rock Health only counts deals over $2 million and only deals in the U.S. According to CB Insights, total digital health funding hit almost $40 billion worldwide.
In line with these increases, global mental health funding kept up, reflecting the continued appetite from investors and unrelenting need for mental & brain healthcare services. From Q1 to Q3 2021, according to GIMBHI’s database, funding for MBH startups globally surpassed $4.4 billion, representing a 70% increase from the entire previous year. And the year isn’t over. Roughly, 90% of this funding was for U.S. based startups. Year to date (as of October 30, 2021), total funding for MBH was ~$5.3 billion across 210+ funding rounds. (Please note that we did not include funding for Maven Clinic or Noom in our funding volume figures)
In retrospect, our estimate for funding 2021 in Q1 was laughably low. Even if investment in MBH startups slows, we expect funding to exceed $6+ billion by the end of 2021.
Indeed, investment in psychedelic medicine and supporting technologies, neurotechnology, and pediatric/adolescent mental health solutions have increased as well in 2021. Nevertheless, despite these massive jumps in funding volume, funding for MBH startups has simply kept up with the ever-accelerating pace of digital health funding. MBH share of total digital health funding remains constant at ~18–19%.
Interestingly, deal count has dropped conspicuously, despite the 70% increase in funding volume. The MBH technology industry is maturing and emboldened by attractive exits in the space, investors are doubling down on their bets. Driven by large late stage deals, the average deal size in 2021 of ~$28M is double the 2020 average deal size of $14M. There were 60+ deals that were $20M+ in 2021 versus 37 for the entire year of 2020.
VALUATIONS
This table above shows selected transactions and valuations (recent raises are highlighted). Late-stage large financing rounds imply higher valuations for these companies. Many MBH startups have raised capital at $1B+ post-money valuations since the end of Q2, including BetterUp, Spring Health, SonderMind, and Elemy (formerly Sprout).
CONSOLIDATION
Funding is just the beginning. As digital health companies raise more funding and achieve higher valuations, they need to grow into those valuations. And more mature companies are pursuing mergers & acquisitions as means to growth. In the MBH startup ecosystem, we’ve seen a slew of M&A transactions over the last quarter including the impossible-to-miss merger between Headspace & Ginger to create Headspace Health.
Headspace Health, announced the deal in August, and recently officially closed the merger. Headspace was a meditation app and Ginger was a provider of on-demand mental healthcare. The deal values the combined entity, Headspace Health, at $3 billion.
The combined entity will now be able to offer patients/customers services across the entire continuum of care from mental wellness to real mental & behavioral healthcare. It seems like the value here comes from the expansion of services versus reduction in expenses due to cost synergies. Both companies previously pursued the strategy of selling to employers, so Headspace Health will continue in that direction. According to an article published in Behavioral Health Business, roughly 60% of Headspace Health’s revenue comes from the direct-to-consumer business. 40% comes from its enterprise business. The CEO, Russ Glass, expects that the enterprise business will overtake the direct-to-consumer business and contribute more than 50% of revenues in the future. He expects that Headspace Health will acquire companies in the near future, given their interest in the pediatric/adolescent space and the SUD space.[6]
While Headspace Health is an example of pursuing growth through expansion of services, a few companies have made acquisitions primarily to refine and optimize their existing offerings. On October 18, SonderMind, which operates a platform to connect patients with therapists, announced its acquisition of Qntfy, a predictive analytics platform. With Qntfy, SonderMind will be able to use patient’s biometric data to generate potential treatment options, taking a more personalized approach to mental healthcare. This would allow patients to get more effective care at lower costs. See the table below on recent M&A transactions:
BIG TECH & HEALTHTECH PLAYERS ENTER MENTAL HEALTH
Over the last few months, other companies have entered the mental health technology space.
Earlier this year, Noom announced a $540 million funding round. With this new funding, the company has expanded its services aspiring to be a diversified digital health company. Noom launched Noom Mood, which a mental wellness app addressing stress. With a surplus of cash and a loyal customer base for weight loss, we are excited to see how Noom’s entrance in the space will play out.
CVS Health announced that it would be rolling out clinics in its drugstores. This new expansion into providing healthcare will include mental health counseling.
In September, the WSJ announced that Apple is working on technology to help diagnose depression and cognitive decline using sensor data from Apple devices. Apple has partnered with Biogen to conduct a multi-year observational study. In August 2020, Apple and UCLA announced a study to study objective factors that affect depression and anxiety.[7] Apple’s expedition into the world of health tracking and digital biomarkers is notable given the number of digital therapeutics and digital biomarker startups pursuing depression and cognitive decline.
Another notable industry move was Google’s hire of Megan Jones Bell. Bell is former Headspace chief strategy and science officer, and Google hired her to lead its push into the mental health space as clinical director of consumer and mental health.[8]
FUNDING BY CATEGORY
As usual, telehealth remains to be the most well-funded category within MBH startups. With the growth of neurotechnology companies such as Synchron, Neuralink, Kernel, BlackRock Neurotechnology, the medical device category has garnered more funding over the last few months. This 16% share is certainly driven by Neuralink’s $205 million Series C funding, announced in July.
Looking forward to rest of 2021, we see:
· The continued growth and development within the digital therapeutics space characterized by more partnerships with pharma/biotech companies. In late October, BehaVR signed an agreement with Japanese pharma Sumitomo Dainippon to develop and commercialize prescription digital therapeutics for anxiety disorders.
· More emphasis on employee solutions within mental wellness as a result of the Great Resignation.
· More group therapy-focused startups launching
· Continued funding of population-specific mental health solutions
· Widespread recognition of children’s and teen’s mental health issues driving more innovation and capital invested into the development of the pediatric / adolescent mental health industry.
· Mental health startups expanding to offer treatment for substance use disorder. According to Behavioral Health Business, Headspace Health sees the SUD treatment space as an expansion opportunity.[9]
EXTRA
Picking Brains: GIMBHI’s mini-video series
The GIMBHI team launched a mini-video series called Picking Brains! Click here to watch. So far, we’ve had Shay Houser (Co-Founder & CEO of YouTurn), Smit Patel (of Xcenda), and Johnny Crowder (Founder of CopeNotes) join. Reach out to us if you’d like to nominate anyone!
GIMBHI’s Public Company Tracker
We’ve launched our public company tracker. Currently, we are tracking share price, category according to GIMBHI taxonomy, market cap, historical returns, and beta of publicly-traded mental, behavioral, and brain health companies. It’s a work in progress so let us know if you’d like to see any other information or if we missed any companies. Access the tracker here!
Newsletters
If you’re interested in mental wellbeing in any sense, do subscribe to Rich Goddard’s Monday State of Mind here: https://www.richgoddard.co/monday-state-of-mind
If you’re interested in psychedelics, Psilocybin Alpha created by Josh Hardman has excellent coverage of the industry: https://psilocybinalpha.com/
Subscribe to our research & market intelligence, and join our network. Feel free to reach out with any questions, comments, or ideas. Reach out to our founder, Shivan Bhavnani, at shiv@gimbhi.com.
meetup.com/Mental-Health-Startups-Investors
[1] https://www.cnbc.com/2021/10/25/house-republicans-demand-internal-research-from-snap-tiktok-youtube.html
[2] https://www.statnews.com/2021/10/06/ama-declare-national-mental-health-emergency/
[3] https://www.npr.org/2021/10/20/1047624943/pediatricians-call-mental-health-crisis-among-kids-a-national-emergency
[4] https://cms.wellcome.org/sites/default/files/2021-10/wellcome-global-monitor-mental-health.pdf
[5] https://rockhealth.com/insights/q3-2021-digital-health-funding-to-20b-and-beyond/
[6] https://bhbusiness.com/2021/10/26/headspace-health-ceo-talks-the-future-more-acquisitions-and-ipo-possibility/
[7] https://www.pymnts.com/healthcare/2021/apple-takes-bigger-bite-into-healthcare-tracking/
[8] https://www.pymnts.com/personnel/2021/google-hires-headspace-exec-megan-jones-bell-for-mental-health-focus/
[9] https://bhbusiness.com/2021/10/26/headspace-health-ceo-talks-the-future-more-acquisitions-and-ipo-possibility/
