Photo Credit: Emma Simpson on Unsplash

In Sickness and In (Digital) Health: Digital Behavioral Health in a Post-Pandemic World

By Marc Cho, Jackie Carmel, Brynn Chavez

In a cinematic retelling of the panicked early days of the COVID-19 pandemic, future audiences may gawk at a world of overnight travel bans, a run on toilet paper, and an NBA Finals played in front of cardboard cutouts of fans. Less foreign to young cinemagoers might be the sight of our protagonist, moving the entirety of his or her professional and personal life to a video conferencing program: a board meeting, a first date, an appointment with their therapist.

A May 2021 McKinsey survey suggests that our newly-adopted digital behaviors, in particular the use of digital health and wellness tools, are sticky: over half of respondents said they plan to continue using teletherapy services post-pandemic, and just under 80% said they planned to continue using wellness apps. Both activities saw some of the highest user base growth rates (40%+) from their pre-pandemic baseline, behind only remote learning and on par with videoconferencing for work and using TikTok. It is no coincidence that solutions for behavioral health saw spectacular growth, even beyond that of telehealth at-large; the fact that COVID has exacerbated behavioral health conditions globally is well-understood. Still, the numbers are staggering: in January 2021, 41% of US adults reported symptoms of anxiety and/or depressive disorder, a four-fold increase from 2019.

Distinct types of company compose the digital behavioral health landscape: (a) clinical platforms that connect patients with therapists and formal care, (b) non-clinical “wellness” platforms for activities like meditation and mindfulness, and (c) telehealth / digital therapeutics generalists that offer behavioral health capabilities like teletherapy or addiction treatment. Companies not marked with a flag are US-based.

Stretching urgently to meet this demand is a growing industry of digital behavioral health solutions, ranging from light-touch meditation apps to intensive teletherapy and addiction treatment programs. First movers like Calm, Talkspace, and Lyra Health have demonstrated that multi-billion dollar companies can be built on a behavioral health-exclusive value proposition, whether through access to true clinical care (e.g., therapy, specialist referrals, prescription medication) or through non-clinical “wellness” solutions (e.g., meditation, sleep tracking). Additionally, generalist telehealth incumbents like Amwell and Doctor on Demand — better known for providing digital primary and urgent care services — are increasingly adding or promoting access to behavioral health services. These various flavors of digital behavioral health companies are discovering audiences increasingly hungry for their services, and investors willing to empty their pockets at a record clip.

Even as the digital behavioral health space shatters fundraising records and crowns a new class of unicorns, nascent and incumbent players alike are (or will soon) facing pressure to demonstrate both clinical efficacy and financial returns in the form of exits — both of which remain largely elusive to-date. In line with the decade-long maturation of the broader digital health space, there is reason to believe we will soon see tangible financial and empirical results.

Growing adoption leads to increased funding

Therapy, like much of healthcare, shifted hastily to various digital formats at the start of the pandemic — first by necessity, then reinforced by both policy change and patient preference. From the start of the pandemic, clinicians and healthtech entrepreneurs alike have wondered: how real is this tidal wave of new telehealth patients, and are they here to stay?

While it may be years, or even decades, before telehealth adoption reaches the same heights as Spring 2020, continued traction and overwhelmingly positive consumer sentiment suggest that patient and provider exposure to virtual care (many for the first time) will have a profound impact on the trajectory of telehealth adoption (a similar principle applies to non-clinical wellness platforms). Several measures — including claims data, consumer preference surveys (slide 22 in link), and data from telehealth-focused Endeavor Entrepreneurs — indicate that teletherapy may be stickier and more popular with patients than telehealth more broadly.

Source: Cigna

Still, stakeholders in the industry, from therapists to entrepreneurs, are priming themselves for a world in which demand for face-to-face behavioral care is pent-up, not gone. Endeavor-backed Sondermind began as a platform to connect patients with in-person therapists, but quickly adapted to roll out a teletherapy offering on March 18th — months ahead of schedule and right at the start of the pandemic. The company has since seen inbound demand for teletherapy services rise and fall with the level of perceived infection risk, peaking at 81% of demand in May and December 2020 (the other 19% requested in-person only), and falling to a pandemic-era low of 70% in March 2021. “Teletherapy is here to stay, but the evidence is increasingly strong that patients are eager to return to in-person sessions,” asserted Sondermind Co-founder and CEO Mark Frank. “Developing a hybrid model — not just face-to-face nor just virtual — will be fundamental to continuing to provide patients with the services they want.”

Sondermind Co-founder and CEO, Mark Frank. Sondermind grew its revenue more than 400% last year and raised a $27M Series B in April 2020. Photo credit: Blackstone Entrepreneurs Network

Both clinical and non-clinical digital behavioral health companies are also gaining traction by positioning (or repositioning) themselves as workplace solutions. Long stigmatized as a matter of the home and not the workplace, employee well-being is more recently being recognized as a lever to boost a company’s bottom line: fewer employee insurance claims, reduced absenteeism, and increased employee retention all amount to meaningful reduction of overhead. Capitalizing on this is Betterfly, an Endeavor-backed Chilean insurtech and corporate wellness platform that rewards employees for healthy lifestyle habits. Employers purchase access for their employees, who receive life insurance coverage that grows in value (i.e., increased payouts) with physical activity and continued use of the app, as well as a suite of partner-enabled benefits, such as nutritionist consultations and access to meditation and wellness apps. Buoyed by the pandemic, Betterfly closed a $17.5M Series A in December 2020.

Increased adoption and evidence of staying power, as well as a rapidly-expanding addressable market are driving a surge in digital behavioral health funding. According to Pitchbook and Rock Health, US-based digital health companies raised $14.1B in venture funding in 2020, of which digital health startups focused on behavioral health raised a record $2.4B. Furthermore, deal count (67) and average deal size ($36M) for digital behavioral health in 2020 were 1.5x and 1.2x greater, respectively, than their prior peak in 2018.

Digital behavioral health, now composing nearly one out of every five dollars of VC funding in digital health, is establishing itself as a key pillar of the broader ecosystem. US funding soared to a new high of $2.4B in 2020, and as of the end of Q1, is on pace to more than double that figure in 2021.

This deluge of capital has made landfall primarily in the US and Europe. In emerging markets, behavioral health — often perceived to be the quintessential “first world problem” — is still gathering its footing as a viable market opportunity. Still: while traditional first-follower markets have yet to produce a breakout “Talkspace of Mexico’’ or “Calm of Indonesia,” emergent startups at the Seed and Series A stages, like Brazil’s Zenklub and Singapore’s Intellect, have seen their growth accelerate substantially throughout the pandemic. On the other hand, established telehealth “superapps’’ like Indonesia’s Halodoc have also begun to add behavioral health and teletherapy capabilities, and US-based giants like Calm and Headspace have begun their (predictable) march abroad by offering their services in Spanish, Portuguese, and Korean, among other languages. We can be certain that latent demand for behavioral health resources exists in every corner of the world — the question is who will unearth it.

The consumerization of behavioral health

An early legacy of the mainstreaming of behavioral health solutions is both the expansion of access to mental health resources and the elevation of mental health dialogue in our everyday lives and pop culture — occasionally to comical (or to some, irritating) effect. Talkspace famously counts Michael Phelps as a celebrity advocate, and as a result of its aggressive direct-to-consumer marketing, has genuine claim to expanding the market — 60% of its two million users are first-time therapy-goers. In the US, where over half of all counties in the country lack even a single psychiatrist, teletherapy platforms and meditation apps alike represent a groundbreaking expansion of access. Behavioral health is in vogue, and with it have come permission structures to take even the smallest steps forward, even in the unlikeliest of places.

Accompanying the meteoric rise is the backlash — the novelty of digital behavioral health platforms have led experts and users alike to raise a wide range of questions, from the potential pitfalls of the “dating app-ification” of the therapist matching experience, to whether or not young startups are equipped to hold such sensitive patient information. This line of questioning — expected and fair in an industry undergoing change at breakneck speed — is likely to linger.

Some experts have asked about the potential opportunity costs of someone genuinely ill — who, oftentimes, may not even know it — using an easily-accessible wellness app as a perceived substitute for real care. While non-clinical wellness products are unlikely to be the solution for particularly vulnerable populations, specialized clinical platforms are reshaping what it looks like to seek and receive care for those same groups. Workit Health is an Ann Arbor, Michigan-based substance abuse therapy platform that offers virtual one-on-one counseling, peer groups, and access to FDA-approved, prescription-based treatments. “When dealing with an issue as serious as addiction, it’s critical that patients have access to clinical care,” said Robin McIntosh, Endeavor Entrepreneur and the Co-founder / Co-CEO of Workit Health. “Medication allows our patients to first stabilize physically and begin feeling like themselves again, which then translates to improved engagement in therapeutic interventions. Being entirely digital allows us to reach traditionally difficult to access populations and address their co-occurring conditions like hepatitis C all in a single virtual visit.”

Workit Health Co-founders, Robin McIntosh (left) and Lisa McLaughlin (right). Workit has seen demand for its services triple since the beginning of the pandemic, and raised a $12M Series B in December 2020. Photo Credit: Julia O Test

Exits and opportunities

Although the digital behavioral health space is flush with cash and attention, major exits are still scarce. To date, M&A is the most popular exit outcome, although these deals generally take one of two forms: top-tier behavioral health startups acquiring smaller players to develop specific capabilities (e.g., Modern Health acquiring Kip, Ginger acquiring LiveBetter), or non-behavioral health-exclusive generalists making plays to enter or build out their capabilities in the space (e.g., Teladoc merges with Livongo, Amwell acquires Aligned Telehealth). Public market exits for behavioral health-exclusive platforms remain almost non-existent: Talkspace’s planned $1.4B SPAC debut is the first major shoe to drop. Even as deal sizes swell and the first generation of behavioral health startups age, we expect that this will not yet open the floodgates this year as freely-available private capital enables longer runways and higher valuations.

Prospects for both growth and liquidity in the sector remain strong, and the lack of major public exits to-date can be understood as a combination of the aforementioned abundance of private capital, the tempering of SPAC-mania (a particularly popular exit path in digital health), and simply the relative youth and size of the sub-sector. Rock Health, which has kept a steady pulse on digital health funding for the last decade, reminds us that it was only two years ago in which the digital health ecosystem at-large emerged from a multi-year “IPO drought.” US-based digital behavioral health venture funding in 2020 totaled to $2.4B and is on pace to surpass $5B in 2021; in comparison, all US-based digital health (including non-behavioral health) venture funding totaled to $2.1B in 2013 and $4.1B in 2014 (with five IPOs in 2014; total funding has since climbed to $14.1B in 2020 with six IPOs and two SPACs, plus ten additional SPACs announced in Q1 2021 alone). While there are obvious macroeconomic and private market distinctions between 2021 and 2014, the point remains: there is plenty of time for investors to reap returns.

Where do we go from here?

Much has been done in recent years to bring attention to — and destigmatize — behavioral health, particularly in the US. COVID accelerated the transition to digital behavioral health and investors have poured money into the space. Whether the increasing shift to digital will continue post pandemic — and at what level — will likely depend on the pace of continued technological advances and the efficacy of this delivery method. As with anything else, there are pros and cons to digital behavioral health, and no one size fits all. Often the biggest hurdle in establishing a new habit is trying something for the first time— and, thanks in large part to the pandemic, many people have done just that. That said, we can likely all agree with Fred Wilson’s sentiment in his recent newsletter around the future of healthcare: “I hope the last fifteen months is the proof point that change is possible and that we can keep innovating and improving the experience without a crisis forcing it on us.”

Endeavor-supported companies are in bold.

Endeavor is the leading global community of, by, and for high-impact entrepreneurs. Founded in 1997, Endeavor is a non-profit organization that selects, supports, and co-invests in top founders based in 40+ emerging and growth markets across Latin America, Europe, Asia, Middle East, as well as in underserved markets in the U.S. and Canada. Learn more: endeavor.org. Follow us @endeavor_global.

Marc Cho, based out of New York City, leads Endeavor’s worldwide Healthcare portfolio. Reach him on LinkedIn here.

Jackie Carmel is Managing Director of Endeavor Catalyst. Reach her on LinkedIn here.

Brynn Chavez is an intern at Endeavor and a senior at Santa Clara University studying Marketing.

Endeavor is the leading global community of, by, and for high-impact entrepreneurs. We dream big, scale up, and pay it forward.