Disclaimer: Flare Capital Partners is an investor in Axuall and Suki
Brief Overview of Behavioral Health Unmet Needs and the Rise of Behavioral Health-Focused Infrastructure-as-a-Service (IaaS) Innovators
Behavioral health has undergone transformative changes in the past few years, accelerated by COVID-19, de-stigmatization, and rising demand for virtual care. Despite advancements in care delivery models and technologies that significantly improve access to behavioral health, the demand for behavioral health services far outstrips the supply. Nearly 20% of US adults reported experiencing a mental illness in 2022, with over half of those adults not receiving treatment. Even among youth in the US, about 15% have reported at least one major depressive episode in the past year, with 60% not receiving any treatment. These numbers are disheartening and only represent cases reported, with the actual prevalence even higher across the US population.
This heightened demand for behavioral healthcare has pushed behavioral health into the forefront, and expanding access to care is imperative to meeting the needs. Constraints already existed for behavioral healthcare have only been exacerbated by the depleted supply of behavioral health labor. The greater number of individuals in need of behavioral healthcare, coupled with the broad sweeping clinical provider labor crisis (with behavioral health providers in particular impacted), have left behavioral health systems inundated and unable to provide care in a timely manner. According to HRSA, there are over 6,400 designated mental healthcare professional shortage areas across the United States, and nearly 8,000 mental health practitioners are needed to remove these designations.
Given the significant unmet needs, mental and behavioral health has ranked as the #1 clinical indication by venture funding between 2018 and Q1 – Q3 2023, according to Rock Health. While the overall mental and behavioral venture funding is unlikely to top 2021’s $4.8B in the near term, we believe the new tech-enabled behavioral health service providers that address more complex behavioral health needs (e.g., Serious Mental Illness, Substance Use Disorder, Post-Traumatic Stress Disorder, Schizophrenia, Eating Disorder) and the needs of a specific population (e.g., Black, Latinx, East & South Asians) will continue to garner investor funding in coming years. As a point of comparison, the category of mental and behavioral health received ~$2.1B in venture financing in 2022. The figure exceeded the amount of digital health funding that went into any other individual clinical indications, including Primary Care, Diabetes, and Cardiovascular. With $12 billion in cumulative venture capital funding between 2018 and 2022, behavioral health has firmly established itself as the definitive flagbearer of the digital health category.
Like the past coming-of-age of a new technology category (e.g., eCommerce), a whole new class of technology platforms and tech-enabled services players will emerge. Be it companies providing technology platforms that will make building the next great company in the category a lot more cost-efficient (e.g., Shopify, Stripe, AWS, and others make setting up a new e-commerce site significantly more cost-efficient and better than first-generation e-commerce companies that have to custom-build all the software) to tech-enabled services companies that will simplify operating processes, we believe digital behavioral health has reached that coming-of-age moment.
In the past two years, we have seen an infrastructure-as-a-service (IaaS) ecosystem built to support telehealth on the medical side. Be it a new generation of electronic medical records or workflow automation platforms, many digital health IaaS players have emerged with the rise of virtual health companies and incumbents looking to upgrade their technology stacks. While some of these emerging digital health IaaS innovators are poised to serve unmet needs across medical and behavioral health, we are encouraged to witness an emerging class of “Behavioral Health-focused IaaS” innovators being backed by venture investors. Given the magnitude of the unmet needs, the sheer size of the behavioral health market, the amount of capital entered, and the unique workflow needs, we believe we are at the beginning of the rise of BH-focused IaaS.”
While this is not meant to be a mutually exclusive and collectively exhaustive list, we observed that BH-focused IaaS companies that address the following unmet needs have received and will continue to secure significant venture capital financing:
- Improve the supply of behavioral health providers by unlocking latent supply, improving staffing efficiency, and accelerating the licensure of to-be providers.
- Increase the efficiency of the existing workforce and improve the quality of care by leveraging Generative AI, LLM, ML, and NLU to automate behavioral care workflow and provide real-time or near-real-time feedback to the care team.
- Develop objective measurements and analytics of quality and outcome using novel markers (e.g., voice biomarkers, digital sensors) that are free from the patient’s subjective inputs.
- Enable self-managed care modalities (e.g., group therapy, digital therapeutics) that greatly expand access to behavioral health care by patients who are free from the constraints of provider availability.
Behavioral Health-focused IaaS and Digital Behavioral Health Technology-in-a-Box:
While novel BH-focused IaaS companies will emerge and receive significant venture funding in the coming years, a vibrant IaaS ecosystem with BH-focused and non-BH-focused platforms has formed in the last decade to offer aspiring new tech-enabled BH service providers turnkey solutions that could accelerate time-to-market and address the quadruple aim. In the following sections, we would like to feature a number of existing BH-focused IaaS categories, discuss specific unmet needs, and highlight a few potential white spaces.
It is not an exhaustive representation of BH tech categories or companies; categories are not mutually exclusive; companies featured may have solutions across categories, including companies that may or may not sell/partner with other BH companies.
Electronic Health Record (EHR):
Let us start with the Electronic Health Record, the centerpiece of all technology platforms for any clinical care delivery organization. It was not uncommon to see BH providers either build a custom-built EHR or try to use an EHR designed for non-BH specialties. Given that BH providers have specific workflows and additional documentation requirements (e.g., there are additional documentation requirements for substance abuse patients, digital-first BH providers would like to send CBT exercises to patients via EHR/portal), we have seen the rise of two categories of new EHRs to address the needs of digital BH services providers. First, we have seen a rise in mental and behavioral health EHRs that have emerged to address unmet workflow and data capture needs. Investor-backed EHRs, such as Osmind (raised a $40M Series B round in 2022), Alleva (received a $12M Series A round in 2022), Qualifacts (backed by Warburg Pincus and Martis Capital), Valant (backed by Gemspring Capital and Sixth Street), and others, are gaining investor and commercial tractions. Other BH condition-specific EHRs, such as SpectrumAi (raised a $20M Series A round in 2023), have emerged to address unmet workflow and data capture needs. Second, we have also seen Modern/API-first EHRs, such as Canvas Medical (raised a $24M Series B round in 2022) and Elation Health (secured $50M in Series D financing in 2022), starting to expand into BH and serve as the base that R&D team at novel BH innovators can build upon. These two new categories of EHRs have profoundly changed how digital BH entrepreneurs need to get started.
Practice Management, Credentialing, and Licensure Platforms:
Despite the overwhelming demand for BH services and the BH provider shortage across the United States, our existing healthcare system does not make BH providers’ life easier. According to a University of Massachusetts’ evaluation of “The Challenges of Private Practices” in 2015, 1 in 5 therapists seriously considered leaving private practice in the last twelve months. One of the biggest challenges facing private practice providers is the complexity of managing an independent practice and keeping up with various practice management tasks (e.g., patient recruitment, marketing, intake & scheduling management, billing/RCM, financing, employee benefits management). Additionally, our convoluted provider credentialing practices that vary from state to state further limit the supply of BH providers. Furthermore, we have a long and expensive therapist licensure process (e.g., pre-licensed therapists are often on their own when it comes to finding and paying for clinical supervision hours), which leads to therapists in training dropping out before they become fully licensed professionals. While these challenges are particularly acute for independent providers, new digital BH providers face similar challenges early on. In recent years, we have seen the rise of BH-focused practice management platforms, such as Grow Therapy (announced a $75M Series B financing in 2022) and Sondermind (raised a $150M Series C round in 2021), that bring full-suite of technology and services (including payer contracting services) to BH providers. Other companies, such as CertifyOS, Axuall, and Medallion could significantly shorten the provider credentialing processes and ensure they are licensed across states and in-network with payers. Platforms like Motivo Health (which secured a $14M Series A funding in 2022) could provide clinical supervision-as-a-service for companies with new therapists and therapists in training who require clinical supervision. The emergence of these practice management, credentialing, and clinical licensure solutions significantly lowers the operation complexity and startup cost of standing up new tech-enabled behavioral health service providers.
Provider Staffing and Workforce Augmentation:
Given the aforementioned BH provider shortage and challenges, a new class of tech-enabled provider staffing and workforce augmentation companies emerged in recent years to help providers with BH needs meet their patient population’s demands. Virtual Health staffing and provider network management platforms (e.g., OpenLoop, SteadyMD, Wheel) that initially gained traction by providing flexible clinical workforce solutions for telemedicine companies. As demand for tele-behavioral health services grew, many platforms began offering flexible BH specialist service lines. For entrepreneurs building novel tech-enabled BH service providers or existing virtual health companies wanting to include tele-behavioral health in their care model, these staffing and provider network management platforms offering fractional and full-time BH provider staffing could significantly shorten time-to-market and lower start-up costs. In addition to these more generalist platforms, BH-focused workforce augmentation platforms (e.g., Hyka) have been started recently to help unlock latent supply and connect companies with BH provider staffing needs with BH clinics or individual providers with excessive capacity. Additionally, other tele-behavioral and telepsychiatry companies (e.g., Concert Health, Mindoula, Array Behavioral Care) that serve as network extenders and help enable collaborative care for provider practices, health systems, and hospitals could also be partners for emerging BH innovators that try to provide a comprehensive set of BH services for patients across the full-risk continuum.
Workforce Automation and Enhancement & Outcome Measurement:
In addition to augmenting the workforce, it is imperative for a BH provider to continuously improve clinician effectiveness and optimize client-therapist therapy time as a way to improve treatment outcomes and broaden access. Similar to challenges faced by other specialties, BH providers are plagued with heavy administrative burdens (e.g., compliance, case management, clinical documentation) before, during, and after sessions. This increased administrative burden often leads to provider burnout, exacerbating the already strained provider workforce. Perhaps even more detrimental, these administrative tasks often interrupt the sacred client-therapist time. With the movement toward VBC, providers will likely see increased demand for capturing additional measurements. To combat these challenges, several workforce automation companies have emerged. With the advancement in Generative AI and Large Language Models (LLM) in recent years, we have seen the emergence of BH automation platforms, like Eleos Health (raised a $40M Series B round in late 2023 and brought its total lifetime funding to $68M), that focus on leveraging BH-specific LLMs to create a nondisruptive way to turn conversations between therapists and patients into automated documentation. Other Generative AI clinical documentation vendors that have raised significant capital in 2024 (e.g., Abridge raised a $150M Series C, Ambience Healthcare raised $70M Series B) have directly or indirectly indicated that behavioral health/psychiatry is a specialty of focus. In addition to reducing administrative burden, these automation platforms (e.g., Ellipsis Health, Eleos Health) have shown promises of analyzing semantic and acoustic aspects of the speech, detecting patients’ depression, anxiety, and stress levels real-time, and providing real-time or near-real-time feedback to the clinicians to help improve patient outcomes. An early RCT trial done by Eleos has shown promise of better outcomes in AI-platform-assisted BH intervention for patients with depressive or anxiety disorder when compared to the treatment-as-usual group.
Patient Outreach, Engagement & Outcome Measurement and Monitoring
Unlike other healthcare disciplines, well-established biomarkers used to diagnose a disease or an event (e.g., Cardiac Troponin, Creatinine kinase, CK-MB, and Myoglobin can be used to diagnose a heart attack), mental health disorder diagnosis is less straightforward. According to the Cleveland Clinic’s website, there aren’t any medical tests that can diagnose mental illnesses. One of the most commonly used screening tools, PHQ-9, used by providers to identify patients with depression, was developed by a pharmaceutical marketer. Over the years, digital diagnostic companies using biomarkers have emerged. Instead of having to wait to be seen by a provider for a diagnosis, patients and providers can potentially use AI tools (e.g., AI-driven PROs) and digital diagnostics, such as voice analysis technology, eye movement detection, and other wearable technology to diagnose, triage, and track behavioral health conditions. Companies like Kintsugi (raised $20M Series A in 2022), Sonde Health (raised $19.25M Series B in 2022), and HealthRhythms (built based on the research done by Dr. Ellen Frank from UPMC and Behavioral Health Sensing Technology from Dr. Tanzeem Choudhury’s lab from Cornell Tech), are blazing the trail in creating novel digital biomarkers for screening and monitoring.
It is also worthwhile to highlight that AI-native technology platforms have the potential to go beyond patient engagement and monitoring. Companies like Woebot Health and others are developing digitized Cognitive Behavioral Therapy (CBT). While Woebot Health (raised $90M in Series B in 2021) is a rules-based conversational AI platform with evidence-based Cognitive Behavioral Therapy (CBT), Interpersonal Psychotherapy (IPT), and Dialectical Behavior Therapy (DBT) content, we foresee the emergence of Generative AI BH platforms in the coming years to augment clinical teams and provide around the clock patient engagement and monitoring.
Lastly, it is important to remember that engaging the broad healthcare ecosystem and patient support system is imperative to establishing successful ongoing patient engagement. The importance and involvement of family and caregivers are extremely critical from an outreach and ongoing care delivery standpoint. A number of caregiver support solutions have emerged over the years on the employer’s side. We foresee the emergence of caregiver companion solutions tailored to BH’s needs.
Looking ahead
Despite the tremendous amount of progress we have made as a nation, the overall decline in mental health is one of the most urgent crises we face. In a KFF/CNN survey from 2022, an overwhelming majority of the public (90%) think there is a mental health crisis in the U.S. today. A White House Office-issued brief from 2022 states that half of the women and a third of men have reported worsening mental health since the beginning of the pandemic. In addition to the profound economic impact in the near term, the effects of mental health disorders can have generational economic and social ramifications. The problem is even more pronounced in sub-populations. The American Academy of Pediatrics published a report in December 2023 that highlighted that the unmet needs for mental health services are even worse for children who are racial and ethnic minorities. Addressing our mental health crisis is an essential part of addressing our national health equity gaps.
Continued investments in behavioral health companies must continue, and digital health will play an essential role in addressing this urgent unmet need. In addition to mental and behavioral services companies continuing to receive substantial investor backing, we foresee that BH-focused IaaS companies will receive a disproportional share of venture investment. While no amount of funding in the near term will be able to close the gap and overcome this national crisis, we do hope that increased investments in both tech-enabled services and technology-enablement companies in the mental and behavioral health space will continue to help make a meaningful difference at the national, local and individual level.
Special Thanks to Flare Capital Partners colleagues, Ben Hall (SVP of Product and Technology at Author Health), Danish Munir (Founding Partner at GreyMatter Capital), Dr. Katherine Hobbs (CEO at Author Health), Dr. Nicoletta Tessler (CEO & Co-founder at BeMe Health) for thought partnership.
About the Authors
Ian Chiang is a Partner at Flare Capital Partners, leveraging his extensive experience as a healthcare consultant, mobile health entrepreneur, and health tech/services operator. He previously worked at McKinsey & Company and held senior roles at Cigna and CareAllies. Fluent in English and Mandarin, Ian holds an MBA from Harvard Business School and a BS in Bioengineering from Cornell University. He actively contributes to the healthcare innovation ecosystem through various board memberships and strategic advisory roles.
Alexa Morse is a Health Strategy Manager at Accenture, specializing in growth and innovation strategy projects for healthcare payers and providers. With a passion for improving access to care and enhancing patient and provider experiences, she also co-founded Bonne Fire ATL, a community-focused initiative. Alexa holds an MBA from Georgia Tech, an MPH from Emory University, and a BS in Health Sciences from Furman University.