How Digital Health’s Funding Slump Could Impact Behavioral Health

Digital health funding in 2023 is on track to dip to pre-pandemic levels, which could impact the virtual behavioral health industry.

Health tech companies raked in $6.1 billion in the first half of 2023, according to a new report by Rock Health. That’s less than half of 2022’s $15.3 billion total and less than a quarter of the $29.1 billion raised in 2021.

And that slowdown is expected to continue, as digital health startups can expect fewer deals and smaller fundraising rounds this cycle, according to the report.


Still, many behavioral health companies have garnered VC investment in the first half of 2023. For example, behavioral health company Author Health was one of two Series A mega deals with investments of over $100 million in the year’s first half.

Several other digital behavioral health companies have also had successful – and significant – raises.

In April, mental health tech benefits company Spring Health announced a $71 million funding round, bringing the company’s total raise to more than $2.5 billion.


Additionally, hybrid care provider Octave announced a $52 million Series C funding round in June.

However, many companies have been unable to raise. Many startups are trying to figure out how to take on new capital without “severely crunching previously-established valuations” or announcing a down round, according to the report.

Many try to get around this issue by not labeling their funding with a series or round label. About 41% of the funding transactions announced in the first quarter were not labeled.  

Historically, behavioral health has been the top sector for digital health investment. While the new report does not specify how much funding digital behavioral health companies have raised in the first half of the year, investments will likely drop from 2022’s grand total of $2.1 billion in funding. And it’s even less likely to reach the $4.8 billion raised in 2021.

In Rock Health’s Q1 report, researchers cited regulatory factors, including the end of the public health emergency, as a potential headwind for behavioral health startups. Specifically, the Ryan Haight Act measures could be reinstated, barring telehealth companies from prescribing schedule II substances without an in-person visit.

This could mean that companies that virtually prescribe medication-assisted treatment (MAT) for opioid use disorder (OUD) and other behavioral health medications like Adderall and ketamine need to change their model for the headwinds.

The Drug Enforcement Administration (DEA) extended the telehealth flexibility until November, but many unknowns remain.

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