Mapping out the Mental Health startup ecosystem

Edouard Gaussen
Jul 13, 2018 · 9 min read
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The problem

Today, 1 in 5 people have a diagnosable mental illness, and 1 in 20 people have difficulty leading their everyday life due to mental illness. However before even talking about the prevalence of the issue — and I believe this post does a fantastic job — one must realize how ineffective the current infrastructure is. Here are some of the most mind-blowing findings:

  • Inadequate drug prescription: In the US, 80% of psychotropic drugs are prescribed by primary care physicians (PCPs) rather than psychiatrists. In the UK, 75% of GPs have prescribed medication even though they felt psychological therapies would be more effective.
  • Shortage of therapists: There is a 26% appointment rate in the US, with 25 days on average to book an appointment. It is estimated that 75% of people with mental health problems in England may not get access to the treatment they need.
  • Cost: Mental health costs the US $201bn and the UK £105bn every year, this excludes loss of productivity in the workplace and comorbidities. A session with a psychotherapist costs $80-$120 on average, 45% of untreated individuals cites cost as a barrier, and serious mental illness is more prevalent among adults who are uninsured and those who are poor.
  • Workplace discrimination: Today, almost two out of three people who have received hospital treatment for a mental health condition say they have experienced discrimination at work or when trying to get employment.

Enters technology

Founders and investors got down to work and the amount of venture capital money deployed in mental health tech deals is projected to almost triple in 2018 compared to last year (2018F: $793m, up from $322m in 2017). Apple pegged self-care as one of its top four breakout trends for 2017, saying “never before have we seen such a surge in apps focused specifically on mental health, mindfulness and stress reduction.”

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Mapping out the space

The landscape at the top of this article is non-exhaustive and illustrates the most capitalised or promising companies. We categorized all companies into 6 buckets. (It’s important to note that this is not a perfect way of segmenting companies, as some startups may fit into 2 or 3 categories above).

  • Top companies: Headspace, Calm, Akili, Cureapp, Happify
  • Percentage of companies: 33%
  • Average funding amount/startup: $5.8m
  • Key business models: Freemium or SaaS
  • Framework for analysis: Is the content proprietary or from third parties? If the latter, is it scraped or purchased? If the former how much time does it take to push new content? And how much does it cost to produce the content? Are there any therapists in the loop to provide support throughout the user journey? Are any distribution channels used for acquisition (enterprise, practices, insurers, airlines, etc)?
  • Top companies: Lyra, Ableto, Talkspace, Ginger, IESO
  • Percentage of companies: 16%
  • Average funding amount/startup: $6.7m
  • Key business models: SaaS
  • Framework for analysis: What interface is used to communicate with patients (text, video, phone call)? Does the company use in house or 3rd party therapists? Is content being created to help patients train on their own between consultations?
  • Top companies: Quartet Health, Valant, Mindstrong, CMHC Systems, Inflexxion
  • Percentage of companies: 15%
  • Average funding amount/startup: $5.7m
  • Key business models: Enterprise sales
  • Framework for analysis: Is the company selling to the public system or private clinics? How long are the sales cycles? What are the regulatory hurdles? If so what are the steps to be compliant? What KPIs prove the increased efficiency of the product for the end user?
  • Top companies: Thrive Global, Huddle, WeConnect, Webpsychology, Circles
  • Percentage of companies: 13%
  • Average funding amount/startup: $1.8m
  • Key business models: Freemium
  • Framework for analysis: These companies often offer free products with no short term monetization, what is the business model in the long term?
  • Top companies: YBrain, Pivot, Rendever, Find Me, Neuroflow
  • Percentage of companies: 12%
  • Average funding amount/startup: $1.1m
  • Key business models: SaaS
  • Framework for analysis: Is the company giving away the hardware to try and upsell on the software? VR content: what KPIs demonstrate the increased efficiency of that approach vs more standard mobile-based CCBT? Is the content proprietary or is it made by 3rd parties?
  • Top companies: Neurotrack, Mequilibrium, Cognoa, Woebot, Shine
  • Percentage of companies: 11%
  • Average funding amount/startup: $3.8m
  • Key business models: SaaS
  • Framework for analysis: What data sources are being used to train the algorithms? What is the level of dependency with 3rd party data providers?
  • Monetization: Two business models have proven to be sustainable in the four categories. Telepsychiatry with companies like Talkspace reaching over 1m users, and meditation focused CCBT with Calm, Headspace, and other “self care” apps gaining significant traction.
  • Geo distribution: 68% of the total pool of startups that we analysed are based in the US, with no other country represented in the top 10 most funded companies. There were only 25 companies in total that were identified between the UK, France and Germany, with only 2 companies having raised more than $5m in Europe (IESO and Big Health in the UK)
  • Regulation: Headspace recently announced that they will start a series of clinical trials to launch FDA-approved meditation apps. This could be a strategic move that other CCBT apps will follow in order to give users the ability to legitimately claim their subscription fees as treatment to their health insurers (users currently pay out of pocket for self care apps)
  • Lack of exits: While some natural acquirers come to mind both in the medical industry and FAMGA focusing increasingly on digital health (Pillpack to Amazon, Senosis to Google, Gliimpse to Apple), no mental health tech company so far has generated significant realized returns to VC investors. The space is however nascent, and the value of the data created by the underlying products has no parallel in the digital health industry.

Building a thesis as a non-medtech/biotech fund

The goal of this deep dive is of course to not only come down with a framework to analyze future dealflow in the space, but most importantly to understand the trends and build conviction on where the next unicorns will be built.

  • Prevention/Mental Wellness: Spearheaded by meditation apps, the trend towards the democratization of mental wellness is well underway. There is a category of companies within CCBT that do a great job at creating a brand/lifestyle around their product, nailing digital marketing and building gamification features. Celebrities are helping to break the stigma (Prince William/Harry, Lady Gaga, etc) and we are seeing a strong trend around millenials’ pro-activeness in treating their mental wellness/fitness.
  • Targeting a specific condition: 42% of startups that we analyzed are focused specifically on a single condition. Whether in behavioral (addiction, stress/anxiety, depression) or mental disorders (Alzheimer, Schizophrenia, Bipolar Disorder), the market for each condition is ultimately large enough if you account for direct (specific therapy, medication) and indirect (estimated loss in productivity, crime, associated physical illness) costs. For instance, addiction accounts for $740bn in aggregate value while affecting 47m people in the US alone. Taking this targeted approach allows you to: create more efficient products, lower your CAC as you get more targeted with marketing, and build a more engaged community of users with the exact same issue.

Conclusion

While this remains a challenging space, we are confident that we are entering the golden age of Mental Health tech. VCs are waking up to the fact that this is an enormous market, and that the stigma around mental health is decreasing globally by the day, driven by millenials. The trend around the future of work has gotten employers increasingly willing to invest in their employees wellbeing, as data from the WHO shows that investing in your employees mental wellness yields a fourfold increase in productivity.

Venture Beyond

White Star Capital

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