Why Behavioral Health Startups with Solid Value Propositions Could Thrive in a ‘Bear’ Market

Nearly every financial portfolio is showing signs of a bear market. Yet the possible downturn could be a ripe setting for mental health startups with a solid value proposition.

The larger economic climate has begun to impact the behavioral health sector, with venture investment in digital mental health startups on the decline. However, this financial situation also provides mental health startups with an opportunity to carve out their value proposition and focus on outcomes from the get-go.

Additionally, a bear market has historically also made mental health services in high demand.


Mental health care needs tend to increase during a recession. In fact, research found that the risk of anxiety and depression increased by 22% during the Great Recession.

“We saw in the 2008 financial crisis, just staggering increases in anxiety and depression,” Margaret Malone, a principal at Flare Capital Partners, told Behavioral Health Business.“I think specific to behavioral health, the needs are not going away despite the atmospherics around what’s going on in the public markets.”

Flare Capital Partners is a Boston-based venture capital firm whose behavioral health investments include Oui Health and BeMe Health.


Even before the market took a volatile turn, rates of anxiety and depression were increasing with the pandemic. The Kaiser Family Foundation reported that during the COVID-19 pandemic, 4 in 10 adults in the U.S. had symptoms of anxiety or depression.

“On a macro level, when we look at what’s happening in the world, [there’s] a second pandemic, if you will, of mental health,” Amanda D’Ambra, CEO and co-founder of virtual eating disorder treatment company Arise, told BHB. “That’s not going away. The rates are still incredibly high.”

D’Ambra’s New York-based startup Arise recently announced a $4 million seed funding round to help launch its beta program this year.

Investors cooling on behavioral health startups

Still, investment in behavioral health startups is slowing. Digital mental health startups saw unprecedented venture funding over the last few years, with investment reaching an all time high of $5.1 billion in 2021. But that hasn’t necessarily meant better use of investment, according to BBG Ventures Managing Partner Nisha Dua.

BBG Ventures is a New York-based VC firm that invests in early stage companies, with a focus on female founders. Its behavioral health investments include Arise and Real.

“I think the last few years have seen many people doing a little with a lot,” Dua told BHB.

Venture capital funding in the sector is now cooling. Rock Health reported that digital mental health companies raised $1.3 billion in the first half of 2022. Moreover, the bulk ($1 billion) was raised in the first quarter of the year.

This slow down in funding isn’t necessarily a bad thing for all founders.

“I think the best founders emerge when they are being scrappy, and when they have very little to make something big of,” Dua said. “I think that is the market that we are entering into now.”

The lower investment and valuations could also be key in helping companies exercise more discipline

“They have to be much more thoughtful about capital efficiency, particularly as it relates to technology costs, but operations costs and headcount in general,” Dua said.

Despite the challenging market, payers and employers will still be looking to work with point solutions, Flare Capital Partners’ Malone said. However, emerging mental health companies will also have pressure to prove their value-proposition early on.

“Those buyers will probably become more selective and look for those clinical outcomes,” Malone said. “And there will have to be more of an emphasis on the hard ROI story for those buyers. Because obviously budgets may shift around quite a bit.”

While important in any market, outcomes are crucial when trying to get money from investors and clients with tighter purse strings. But a more outcomes-driven market could also mean better results for patients.

“As we think about what the next stage is for us in terms of future fundraise, we are very attuned to what outcomes and milestones we really want to demonstrate,” D’Ambra said. “I think that makes a lot of sense, especially when we’re talking about companies that are building meaningful care delivery for real people. I think that it aligns the incentives actually quite well towards care. That is really going to make a difference for folks.”

A bear market also forces companies to hammer out their business model from the get-go.

“I think it’s actually a pro that companies are going to spend more time thinking about their core business fundamentals: your margin profile, ability to recruit and retain psychiatrists, psychologists, therapists on the platform, which I think is going to be really challenging,” Malone said.

A leap of faith for new founders

While health care has traditionally been somewhat of a bear-proof market, there are still a lot of uncertainties about starting a company in the current economic climate.

“What has been interesting about this particular point in time is how quickly the market dynamics shifted and also how mixed the effects on the economy are right now (employment and consumer spending are still favorable while interest rates and the stock market are unfavorable),” Stephanie Greer, Akin Mental Health co-founder and CEO, wrote in an email to BHB. “For us, this has added a layer of uncertainty more than any specific impact on our business.”

Founded in 2022, Akin is a San Francisco,-based startup focused on providing support for family members of individuals with serious mental illness.

This uncertainty is especially true for companies that do not have venture capital or private equity money to rely on.

“I don’t have another exit. I haven’t made a million dollars, where I have this incredible cushion to just rely on,” Nicholas Neral, founder of Haley, told BHB. “And so starting a company in a bear market, bootstrapping it for a while, you have to trust that it’s either going to work, or you might be looking for a job in six months in a bear market.”

Florida-based Haley is a mental health navigation service dedicated to connecting patients to mental health services that meet their needs.

Neral said, for him, it’s important to differentiate his company from other startups in this difficult market. One way he is trying to do this is by launching a behavioral health navigation service, instead of a telehealth provider company.

“I think we’re trying to differentiate by not being a competitor to any one company. We’re just trying to connect you with whatever is the right resource for you,” Neral.

While interest rates are rising and inflation remains a concern, new economic indicators suggest the U.S. may actually avoid a full-blown recession, which could also offer a lift to early-stage behavioral health companies.

U.S. employers added 528,000 jobs in July, the Bureau of Labor Statistics reported on Friday. That surprisingly impressive update means total employment levels have fully recovered to pre-pandemic levels, similar to February 2020.

Propose-build products will always win out

There are still a number of areas where innovation is desperately needed, according to BBG’s Dua.

“I don’t think the [investment] is a reflection on mental health as an opportunity. I think that investors across the board have been getting their bearings,” Dua said.

There are still many underfunded and in-demand sectors in behavioral health, she explained, including adolescent and geriatric behavioral health services.

“Mental health of teens is still not cracked,” Dua said. “I think teens will always be a challenging market to crack because teens of their very nature want to develop their own solutions to things, and that’s why they’re the harbinger of what is new and what is yet and best to come. But I will say that teens and young adults are one of the biggest opportunities.”

But regardless of the behavioral health subsector a startup is looking to address, Malone said that purpose-built solutions will always win out in the end.

“One of the great opportunities today is to really think about those needs and how to design a solution that is perfectly tailored for that population, and then how it evolves over time,” Malone said.

Companies featured in this article:

, , , ,