‘Not Every Business Survives’: 2024 Behavioral Health Venture Outlook

After an explosion of investment in 2021, behavioral health startups have faced a slowdown in venture capital funding over the last year.

Despite past challenges, many venture investors continue to see significant opportunities in the behavioral health sector, anticipating substantial changes as innovative payment models and maturing companies help this market evolve. The long-awaited consolidation of digital behavioral health companies is one of those inevitable forces expected to finally happen in 2024.

Additionally, there are several areas of behavioral health that investors say have been under-invested and could be ripe for innovation, such as the youth market.


Read on for the top trends venture investors will be watching in 2024 and beyond.

Investing in youth behavioral health

The pediatric behavioral health crisis has continued to sweep across the country in the wake of the COVID-19 pandemic. But investment in this space is still modest compared to other parts of the industry.

“There’s been a lot more energy around mental health in general, particularly since the pandemic, and a lot more funding,” Kelsey Noonan, program strategy and investment lead at Pivotal Ventures, told Behavioral Health Business. “But a lot of that has been going to adult mental health and not necessarily to youth mental health. We know that young people have the greatest burden of need. Rates of anxiety, suicidality and depression have been going up for the better part of 20 years.”


Founded by Melinda Gates, Pivotal Ventures invests in organizations that accelerate social progress in the U.S. One of the company’s main focuses is on mental health for young people.

The demand for services remains high. Nearly half of all adolescents had a mental health disorder at some point in their lives, according to the National Institute on Mental Health.

Many investors are looking for more than just a company with solutions for youth; they are looking to invest in startups that co-design their products with the end user, in this case, children and teens.

“So often, solutions don’t take what [youth] need into account,” Noon said. “If you design a service that’s specifically for adults, offering clinical care only during the day, that means a kid would have to miss school to be able to go, and so actually listening and co-designing with young people is, I think, the thing that investors and organizations often get wrong.”

While much of the focus in pediatric mental health investment is concentrated on the lower-acuity side of care, there could be an opportunity for investment in more serious conditions. 

“If you want to treat [serious mental illness], you have to catch it in the teenage years when it starts to manifest,” Jon Gordon, a general partner at HC9 Ventures, told BHB. “Ideally, we can intervene sooner.”

HC9 Ventures is an investment firm focused on Seed and Series A investments. Its portfolio includes behavioral health companies Forge Health and PsychHub.

Many serious mental illnesses (SMI) can begin in the teen years. For example, the average age of onset for bipolar disorder is 25, but the condition can occur in teens, according to the National Alliance for Mental Health.

Gordon compared early intervention for SMI to monitoring a patient with heart failure. If a doctor sees that a patient’s weight is climbing, they can intervene with medications to stop the heart failure episode that puts the person in the hospital. He said there needs to be something equivalent to that for the SMI population.

Consolidation: Some will win, some will lose

Consolidation is inevitable with the flurry of investment dollars pouring into the behavioral health space since the COVID-19 pandemic. However, high-interest rates and a shaky economy delayed consolidation in 2023.

“The other reason you haven’t seen consolidation is that sort of Cambrian explosion we had over the past few years,” Gordon said. “I like to call it the foie gras method of investing: stuff a bunch of food down the goose’s throat and you’re hoping you’ll get some big tasty in the end.”

However, this method may not pay off in the long run. Some businesses will need to reconsider their valuations to be meaningfully considered for an acquisition.

“I think the territory that we’re getting to in 2024 is that certain targets won’t have as many options because their cash runway has been dwindling,” Candace Richardson, an investor at General Catalyst, told BHB. “They might have to take a cut relative to what their last round said they were valued at. But it’ll still be the best option for them on the table.”

General Catalyst is a venture capital firm with several behavioral health investments, including Eleanor Health, Elemy, Rippl and SonderMind.

Still, some behavioral health startups may not survive at all, and investors may start to take these companies off life support in 2024.

“Not every business survives. And right now, there’s so much capital in these businesses. Our peers are trying to keep the businesses alive, even ones that shouldn’t be kept alive,” Gordon said. “No one’s taking that hard look at their portfolio going, ‘Okay, what should be merged into something else?'”

One of the primary reasons that the digital behavioral health industry, in particular, could be prime for consolidation is that their customers, the payers and employers, are inundated with point solutions.

“I want to root for all of the companies and all these entrepreneurs, but there are way too many companies being created in this sector, and the word scale will not happen for 99.9% of them,” Richard Lungen, a partner at HC9, told BHB. “The modality of care, the type of care, the age of care, the reason for care needs to come under a single platform because the people who are covering these benefits whether that be health plans, employers, Medicare, Medicaid, they can’t manage [all of the point solutions].”

When it comes to consolidation, there could be several avenues for behavioral health startups in 2024. While larger companies acquiring smaller ones may be the leading source of M&A this year, according to investors, there could also be a lot of payer activity.

“I think a lot of [payers] have quite a bit of dry powder. And we’ve seen a history of acquiring different care delivery assets, whether in the physical or behavioral health space, because of vertical integration,” Richardson said.

“In theory, and I think in practice, it has proven to better allow them to control costs and provide a better membership experience. That said, across most of the major payers, there’s been a lot of turnover on the leadership team. I’m curious to see how that will affect M&A strategies going forward because usually it takes some time for the dust to settle and new folks to get settled in.”

2024 will be too soon for value-based care to dominate

Talk of value-based care contracting has been buzzing around the behavioral health industry for years, and many expect to see substantial gains in this area over the next year.

Still, there is a lot of work that needs to be done on the payer and provider side before risk-based contracting can take off.

“Payers want … to get to a point where they’re putting more of the risk off onto the providers for higher-acuity behavioral health conditions,” Richardson said. “But so far, we haven’t been in a place where the payers are ready to do that, and providers are ready to do that. It goes back to getting the data and running the analysis to really underwrite that risk.”

It may be a little bit too early for behavioral health startups to take the plunge into risk-based contracting, considering the health care ecosystem is still largely reliant on fee-for-service reimbursement.

“The key is can you build a business with a sustainable reimbursement model because we’re still in a fee-for-service world,” Gordon said. “Behavioral health is still too squishy to move to value-based care in a big way. But then again, physical health is really not value-based either. So let’s not beat ourselves up too much.”

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