For mental health startups, happiness is in niches

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Last April, Alex and I reported CB Insights data showing that venture investment into mental health startups had dropped sharply in Q1 2022 compared to the preceding quarter. But in the last couple of weeks, I have heard about several venture-backed deals into the subsector of health tech. They got me curious: In which areas of mental health are VC firms still willing to invest? Let’s explore. — Anna

Mood swings

The more the pandemic seemed to subside, the less venture capital investors seemed willing to commit to companies and sectors that had initially benefited from strong tailwinds when most of the world started staying at home. On public markets, the pandemic trade is over, with former darlings like Peloton and Zoom experiencing whiplash. Similarly, we saw a net decline in private investment into telehealth and mental health startups.

Market corrections after a period of hype are part of the investing game. But it would be hard to argue that mental health needs have decreased. According to the World Health Organization, incidents of anxiety and depression increased by 25% in the first year of COVID-19. Just because we are now hopefully leaving the worst of the pandemic behind us doesn’t mean everyone is suddenly feeling better — which is why a few recent funding rounds in the mental health space raised my attention.

Of course, a few mental health–related deals are anecdata. And since we are talking mostly about early-stage deals, this doesn’t mean that the investment decline has been reversed. In aggregate, we will only have more clarity once Q2 numbers are available. But what’s interesting is that these startups hint at some novel approaches to mental health in which VCs are still willing to invest. Or, dare I say, show us where their mind is at.

No longer underserved?

VCs might have no headspace left for the next Headspace. The broad-ranging mental health-focused platform and its most direct competitor, Calm, seem to have captured most of the mainstream market for bite-sized mindfulness. But there are still gaps in the mental health market to address — at least, some startups think so.