For Russ Glass, CEO of the newly formed Headspace Health, scaling up the business he leads comes with a strategic and moral imperative — the question now is how and where Headspace Health should make its moves.
Glass formerly led San Francisco-based on-demand virtual behavioral health Ginger.io Inc. which merged with Santa Monica, California-based Headspace Inc. to create the $3 billion Headspace Health. The merger closed on Oct. 14.
“It was obvious to me that being able to reach more people more quickly was an important part of our strategic objective,” Glass said in an interview with Behavioral Health Business about the merger.
The combined company reaches 100 million people across 190 countries. It also has deals with about 2,700 enterprise and health plan partners, which puts it in a prime position to scale even faster.
And that’s critical to Glass, who pursued the Headspace Health deal to grow faster, in order to meet a growing need for mental health services and to destigmatize mental health conditions.
This is a vital mission in a world where the mental health of millions appears to be heading in the wrong direction. The American Psychological Association finds that the American suicide rate increased 30% from 2006 to 2016 while the Centers for Disease Control and Prevention finds that suicide rates for young people ages 10 to 24 have increased about 60% from 2007 to 2018.
That’s all data from before the pandemic, which is still grinding on for millions of people. Not to mention the increased political polarization and strife in the U.S., as Glass points out, on top of a shortage of mental health providers.
To reverse this appalling trend, getting people to use affordable preventative behavioral and mental health services at scale gives society an opportunity to get ahead of the issue, Glass said.
“We’ve got to solve this problem through a combination of efforts,” he said. “Let’s get more efficient in the care we provide … Let’s pull the cost out of care. But we also have to think longer-term and upstream to have populations that can take care of themselves — that you can manage the ups and downs that we all face in life that lead to mental health needs.”
How revenue will change for Headspace Health
According to Glass, about 95% of the company’s revenue comes from three major verticals — its direct-to-consumer (d2c) business; its enterprise business (selling to large employers); and deals with health plans.
Within that 95%, Glass said that about 60% of Headspace Health’s revenue comes from within the d2c business. The remaining 40% comes from its enterprise business and through its deals with health plans. Glass categorizes these two verticals as business-to-business (b2b).
“We expect that b2b will one day be greater than 50% of the business. But we are committed to growing both aggressively,” Glass said. “But b2b, given that its growth rate is so significant right now, will probably overtake [the d2c business] at some point in the not too distant future.”
While growth and scale drove the merger, Glass acknowledged that bringing the two companies together will lead to duplicative roles among its workforce. Glass was also keen to point out that the Ginger-Headspace merger is not a cost-synergies deal: The company won’t be looking to remove employees, but rather move employees in any overlapping roles into new ones. Even with overlap, the growth of the combined company may require people to stay in their roles.
An example of this would be moving a CFO into a chief accounting officer position.
“If we start thinking about going public, we’re gonna need a lot of finance support,” Glass said.
And Headspace Health may need to hire more people in areas like marketing, he added.
Promising areas for new growth
From one perspective, the Ginger-Headspace tie-up accomplishes a lot of either company’s expansion goals.
“One of the reasons to bring these two companies together is to create the most accessible and comprehensive mental health platform on the market,” Glass said. “We think we’ve done that.”
In July, Ginger announced that it would roll out Ginger for Teens, which provides its full spectrum of services to those ages 13 to 17. Still, Glass said that Headspace Health could entertain the possibility of expanding into pediatrics, for kids ages under 13.
He also sees opportunities to expand deeper into treating substance use disorder (SUD). The company already has offerings that help mild to moderate SUD. Headspace Health would have to figure out how to get into a space that would allow it to administer controlled substances like suboxone.
But for the deepest of needs in the SUD space, ones that require inpatient treatment, Headspace Health will need to partner with traditional, bricks-and-mortar treatment facilities. The company will always focus on digital products, Glass said.
Still, that doesn’t preclude the possibility that Headspace Health makes moves in the SUD space with digital behavioral health companies.
“Our plan is to grow both organically and inorganically through M&A over time,” Glass said. “So I think it’s highly likely that one day we acquire a company — or two or three — that fit into the strategic matrix for us so that people can get the support they need in as scalable and cost-effective way as possible.
“Headspace Health, the overall company, the brand we’re building, we hope will be an umbrella for a lot of different products, and opportunities for those in their mental health journey,” he said.
In leading Ginger, Glass showed his skill in capturing the imagination of investors. In its Series A through D funding rounds, Ginger landed $111.5 million in venture capital funding. In March it announced a $100 million Series E funding round led by funds of private equity titan Blackstone, which is also one of its largest shareholders.
Conventional wisdom would imply that a company like Headspace Health might entertain an IPO to recapitalize or otherwise raise more capital. But Glass maintains that the company won’t have to go the IPO route so long as his company can still gain interest among private capital markets.
Glass sees a trend of companies taking on increasingly large levels of private financing rounds rather than tapping public markets. Glass cited the additional expense, regulatory burden and cyclical fuss of being a publicly traded company as key reasons why companies might avoid an IPO.
Glass didn’t discount the possibility of an IPO outright. The principle dictating how the company finances its continued growth hinges on how it accomplishes its mission of improving the mental health of people at scale.
“For a company like ours that has a significant mission to reach large amounts of consumers, to help as many people around the world as possible, public offerings can be very accretive to your mission,” Glass said. “In as much as we believe that being public will help us reach more people and get them access to mental health care earlier and destigmatize getting access to mental health care, then going public will be something that we will be very compelled to do.
“But it’ll be a mission-driven decision, not a financing decision.”