It’s a more difficult fundraising climate for health tech companies today than it was a couple of years ago when virtual care boomed during the Covid-19 pandemic. Mental health companies in particular saw a rise in popularity, with mental health tech startups raising $5.5 billion globally in 2021. So what are investors looking for now from mental health startups?
One investor wants to see a stronger focus on high acuity care, noting that a majority of healthcare costs are driven by high acuity conditions.
“I get it, it’s much easier to start with low acuity,” said Alyssa Jaffee, partner at 7wireVentures, during a recent interview at the Behavioral Health Tech 2023 conference in Phoenix. “But to me, that’s less interesting. You just can’t move the needle nearly as much as you can as you move up the acuity stream.”
She added that it can be more difficult to move up to high acuity conditions after starting with low acuity versus the other way around. Low acuity conditions can include areas like stress or anxiety, whereas high acuity conditions may be conditions like autism or depression. One example of a mental health startup 7wireVentures has invested in is NOCD, which specializes in obsessive-compulsive disorder.
Another investor is less focused on acuity and more focused on demographics. Kelsey Noonan, program strategy and investment lead at Melinda French Gates’ Pivotal Ventures, manages a portfolio focused on adolescent mental health and therefore wants companies that are specifically designed for youth.
“There is a lot of attention towards adult mental health and this assumption that you can kind of put an emoji on [a solution] and retrofit it to young people,” Noonan said in an interview at the conference. “There hasn’t been as much attention and designing of services specifically for young people.”
Companies building solutions for adolescents should actually work with kids and co-design with them to understand what their needs are, she added. Pivotal supports Headstream, an accelerator for early stage startups that often co-design with kids.
“Young people are really good at sniffing out what adults think they need versus what is really authentic to them. … A lot of what young people look for in technologies and startups is the ability to connect with folks like them to see lived experience that models their own,” Noonan said.
For example, startups need to offer solutions that can help kids gain support where they are, such as schools. Noonan also wants to see companies that can scale “beyond their first place of impact and be able to replicate that model in other states and in other settings.”
For startups struggling to raise funds, Jaffee noted that it’s important to find the right investor as not every investor is the best fit for each startup.
“Matching is a big component of this, finding the right people and the right investors that believe in you,” she said. “I love investing in tech-enabled services. … Not everybody wants that type of company. Not everybody wants to take on that risk. Not everybody wants to think about unit economics in a certain way. For companies like that, I think there’s a real opportunity to say, ‘How do you find the right fund that has the capital that recognizes how good of a business you’ve built?’”
Noonan, meanwhile, recommends communicating qualitative data to investors as well as quantitative data to show the company’s true impact in the mental health space.
“When I talk to families who have found the right innovation for them, the feeling that they usually communicate is relief of, ‘Finally, I have the thing that I know will help me or my kid,’” she said.
Photo: SIphotography, Getty Images
