The Categories — Defined

Based on my lived experience with the problem set, talking to others who struggle with addiction, and mental illness, and spending time with hundreds of founders in the space, I came up with the following “categories” for most startups in the space (sorted by size based on number of startups in each segment):

Mental Wellness Applications (172 startups) — Apps for sleep, meditation, and breathing, educational tools, and games that train you to have better mental health. B2B Tools and Sourcing (134 startups) — Provider search engines, provider tools and back office resources, and B2B/corporate mental health programs and services such as EAP. Measurement and Testing (119 startups) — Assessments, passive and active tracking or measurement of mood or other subjective parameters, mood journaling, screening or triage tools, and remote monitoring. Telehealth (114 startups) — Remote engagement, treatment, or interaction with a clinician. Some telehealth companies appear to be measurement tools or meditation apps, but they are classified here if telehealth is their goal. Non-Tech and Other (68 startups) — Medications, psychedelics, brick and mortar treatment centers and clinics, and just about anything that isn’t primarily a technology-based business (even though some do use technology within their businesses). Digital Therapeutics (62 startups) — A resource that is used in conjunction with medication or behavioral interventions (or in place of either). You can think of digital therapeutics in this industry as a sort of “digital medicine.” Peer to Peer (48 startups) — Fighting isolation, bringing people together to be vulnerable with each other, and creating connection for the purpose of well-being. We believe that the largest number of consumers will receive the most help via peer-to-peer solutions in the long run.

My list excludes treatment centers, individual clinics or small groups of clinics not intending to scale, rehab centers, individual practices, and locally focused solutions that don’t appear to be scalable. Also of note, four startups in our database remained un-categorized at the time of writing.

The largest category by number of startups, is the Mental Wellness Applications category followed closely by three categories of similar size: B2B Tools and Sourcing, Measurement and Testing, and the Telehealth categories. Next I wanted to find out how funding aligned with these “concentrations.”

So I decided to follow the money. Here is how the funding breaks down by the categories mentioned above. It’s not what I expected to say the least.

There are some stark contrasts between where founders are focused and where investors are focused. Wellness applications make up the bulk of the startups in the space, but Digital Therapeutics have received the lion’s share of funding to date. This is partially driven by the capital-intensive nature of going through FDA approvals versus building an app. Measurement and Testing is another area where we see very little funding to date, but we see a lot of founders building tools and features. These tools and features are absolutely necessary, but often investors see these as “nice to have” features that should be part of a larger platform, therefore, less funding is available unless these features are part of a product road-map that leads to a platform opportunity. As humans, we have been measuring our physical health for an incredibly long time, but we have never (outside of a few subjective surveys) objectively measured emotional wellness. That is changing now.

The Future of This Data-Set + Your Feedback

This is a first draft (of the database), or a starting point when it comes to mapping the space. I will continually update the database behind this list. The detailed database will be kept private to protect the startups who would prefer to stay in stealth mode.

I am publishing a list of startup names, location and website only (in order to keep any sensitive information private) for the 700+ startups in this google spreadsheet. My intent is for this to be an open-source resource for the mental health startup ecosystem. You can find the list here.

If you would like to ensure your startup is included on this list, then please fill out this brief google form.

As with all first drafts, I welcome feedback, critiques, comments, and input from anyone with an interest in mental health technology and startups. I hope that with the help of our peers in the industry we can continue to build this into a resource that benefits all industry stakeholders.

This is meant to be a resource for founders, investors, and those observing from a distance, with the goal of helping quantify our industry and encouraging people to join us in this space.

I’m not the first person to try to map this space. Ed Gaussen, former VC at White Star Capital and founder of mental health startup Mantra, did it in 2018, and you can find that work here. That blog post and my conversations with Ed largely drove the decision to pursue making my own data set (Ed also gave this post a quick review before I published it).

So What? How Much Funding Is There?

Mental health startup funding has increased steadily in recent years. I believe that funding is a “dependent variable” tied to broader industry dynamics resulting from a decrease in stigma, increased public dialogue about mental health, and the immense demand for mental health solutions that is being released into the market as stigma decreases.

To give you a sense of how funding has trended lately, the chart below shows how many funding rounds have been completed in recent years. This data is from Rock Health’s Q3 2019 report. Nobody has better data or research reports on funding in the behavioral health space than Rock Health. If you want to dive deep into this data, we recommend you go to their research site here.

When I overlaid this data on the chart below that shows how many startups were created in each year, you can see how funding has tracked versus total startups created. Funding really started to pick up in 2013 and 2014 which lagged the uptick in new startup formation which picked up in 2011 and 2012. Of the 717 startups, over half of them were created in the last five years.

This data makes it look like there is a drop off in startups created recently, but there’s a bias in this data for companies that show up in databases because of prior funding rounds. Keep in mind, there are countless startups entering incubators, germinating in the minds of great founders, and coming together in places we cannot detect, no matter how many relationships we have in the industry. Many of those will make themselves known once they announce a funding or major partnership (likely a year or two after the initial company formation in many cases). Also, we were unable to identify the origin year of 50 of the startups in the database.

Prior to 2006, there were a total of 34 startups in this space, with the earliest one we could find having come to market in 1987. Prior to 2007, there were never more than four startups founded in this space in any one year, with most years having zero to two startups formed.

Our primary conclusion from this data is that there is a healthy early stage market forming in this industry, and in a few years, there will be a very robust set of later stage investment opportunities in this space as well. We cover historical funding in the space farther down below. When I adjust for the lack of visibility we have into the market, plus the trends in the data, I think it’s safe to say that around 100 new mental health startups are forming per year right now, and I suspect that to go up, as funding increases and stigma decreases.

An anecdote here — I signed up to go through YCombinator’s free ‘Startup School’ program during the summer of 2019. My conclusion from that experience is that there are more founders approaching the mental health than ever before. Many of those startups did not make it onto the list for 2019 because they are just ideas that haven’t even formed into companies yet. Out of respect for their privacy, I’ve not included them for now. Just note that the 2019 number on this chart is significantly understated.

Where Should We Invest?

The market is substantial and flourishing. Funding has increased in recent years, so this begs the question, “Where do we invest?”

Investing in the mental health tech space isn’t just about looking for a contrarian silver lining in all of the data. In our opinion, it’s about framing the customer/patient landscape in a way that makes it clear which customers or patients need the most help and will see the greatest value proposition in the solutions we are building. One way to frame this is around what makes a high “lifetime value” (LTV) customer or patient in the mental health space.

We have been using this framework to think about the mental health tech landscape in terms of a spectrum of “customer types.”

This is literally a screen shot from my pitch deck, page 10 :)

Everyone exists somewhere on this acuity range of “ill” and “well” whether we like it, or admit it. You can also consider that we are all either proactive or reactive about our mental well-being and, for the most part, there is a strong correlation between wellness and pro-activity.

Some people live on the right side of this chart. They are highly engaged and very proactive about meditating, breathing exercises, therapy, and leveraging other resources to improve their emotional well-being. Those people are early adopters of the meditation apps. But, try convincing someone who is living in addiction, and ignoring the obvious signs of mental illness to download a meditation app. It’s probably not going to happen.

On the other hand, the far-left side is where you find negative consequences of ignoring mental well-being. These outcomes include death, jail, rehab, or some other sort of loss of freedom due to mental illness or addiction. Think about it this way — the day before I went to rehab, I wasn’t using Calm or Headspace. I’d never heard of them at that point, and it’s likely that many people who were or are in my situation also have not heard of any of these resources.

The goal of a tool, product, or company in this industry should be to move people from wherever they are today, toward the right. For some, that means marginal incremental gains, while for others that means lifesaving, life altering changes to their emotional and mental wellness.

People who live on the left side of the spectrum are or are about to be, very expensive for their insurance companies, employers, families, and others. The greatest value proposition in the space is stopping someone from sliding to the left and getting them to proactively turn around and move toward the right side. Whoever can do that (meaning companies, or startups) will have the highest LTV opportunity in the space. This is where I intend to invest.

Mental Health M&A + Capital Markets

So, if we invest, will we ever make any money back? Have there been exits in this space? How much capital has been deployed into mental health startups? How can early-stage investors get more comfortable with monetization opportunities?

To answer these investor questions, we have summarized a handful of the most recent later stage or larger funding rounds in the mental health tech space in the table below.

Early stage companies have proven an ability to raise significant later stage rounds in this space as there is quite a bit of investor demand within larger funds to put money to work in social impact opportunities. As you can see below, there is plenty of liquidity available for companies as they progress in this industry.