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Mental health issues under the scanner for Healthcare IT-focused venture Capitalists

Published on July 10, 2018 by Sonali Pahwa

Venture capitalists (VCs) are increasing their investments in mental health technology startups focusing on information technology (IT)-based solutions, supported by increasing digitization. While still a relatively small and upcoming sub-segment in the digital health space, it has started to see large deals. According to CB Insights, investment in such deals increased threefold from 2014-17.

Mental health has been a high-prevalence, low-attention health indication for a long time

Mental disorders have been the subject of study globally for ages. The World Health Organization (WHO) estimates that mental, neurological and behavioral disorders affect more than 25% (450 million) of the world’s population at any given time.

As we are still not fully aware of how to treat mental health problems, the sub-segment remains an ignorant one, not because the problems are not being studied globally but because we don’t really know how to help ourselves when faced with such conditions.

According to WHO, for a given health condition, average treatment cost for a patient with a mental health condition is, on average, 33% higher compared to a patient without any mental disorder.

Stress has increased, driven by social, economic and other factors. Nevertheless, the social stigma of mental illness restricts those suffering from it from accessing care. However, with the help of digitization and related tools, we can now deal with both the stigma surrounding and the lack of accessibility to mental healthcare. The healthcare industry therefore needs to collaborate with the latest digitization tools to solve mental health issues.

VCs are funding IT-based mental health solutions

Although a small and young sub-segment of the digital healthcare space, mental health technology is seeing a large number of VC deals, which reached their highest in five years in 2017. VC investments have grown fourfold since 2014, according to CB Insights, fueled by the 2008 US Federal Law (Mental Health Parity and Addiction Equity Act) that requires health insurers to treat mental health issues with similar standards as other health issues.

There is growing awareness of the opportunity costs to companies of untreated mental illness. While current VC investment in this sub-segment is still small compared to that in the overall Healthcare IT segment, it is growing, indicating increasing awareness of the sub-segment and its importance. In addition, mental health startups seem to be delivering, with VCs’ increased confidence in them resulting in later-stage funding.

VC funding is enabling development of accessible and affordable digital platforms

These startups are in turn investing in digital transformation tools techniques like mobile and telemedicine platforms that offer easy access to patients and reduce costs in the mental healthcare sub-segment. These telemedicine platforms provide various counselling sessions and online therapies such as daily motivational text messages, apps to detect anxiety, stress and depression levels, and virtual reality platforms and fitness band trackers. They also make it convenient for patients to address their mental health issues using digital tools and improves access to experts. Thus, digital transformation makes remote access less costly and easier to deploy.

Due diligence is required to assess the platforms developed by experts

With mental health problems increasing and VC funding available for the sector, startups are showing interest in tech development. They are now taking a holistic approach to connecting those suffering from such problems with mental health professionals, using artificial intelligence to identify and cure mental health issues. With the support of VCs and other investments, many tech and telemedicine platforms are being utilized to address a range of activities that would ultimately benefit mental health patients and investors. Based on cognitive behavioral therapy, these technologies are developed with the help of experienced therapists and doctors, and can complement the medical care and counseling of a psychologist.

Some of these integrated and interactive technologies include smartphone applications (such as video therapy with a licensed therapist, chat function, store-and-forward technology, ePrescribe, and electronic health record, or EMR, integration) used by many startups, including Moodpath and Novego, to help detect and manage mental health disorders.

This sub-segment is becoming increasingly attractive for VCs due to its unmet needs. However, they need to do a substantial amount of background work before making growth-oriented investments, as along with the opportunities it affords, this budding sub-segment has unclear targets and development needs.

Acuity Knowledge Partners expertise spans understanding market dynamics via conducting due diligence and industry studies, competitive benchmarking and other studies of strategic interests, and we invite VCs to acquaint themselves with our offerings.

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About the Author

Sonali Pahwa has over four years of experience in business research and analysis in the private equity/venture capital funds practice. She joined Acuity Knowledge Partners in 2014 and is currently a part of one of its largest private equity engagements. Her key focus areas include company screening, industry study, macroeconomic analysis, competitor profiling, product benchmarking and portfolio monitoring. She holds an MBA in Finance and a Bachelor’s in Business Administration.

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