As the behavioral health industry matures, a few trends have emerged: more serial entrepreneurs, an uptick in non-traditional investors, and valuations finally settling in.

Investors have poured $10.6 billion into expansion-stage mental health and wellness (MHW) companies since 2020, according to a new report from Deloitte. While deal sizes and volumes have declined since their peak in 2021 and 2022, there is still a significant demand for services and opportunities for expansion. And 2024 is already outpacing 2023 in terms of deal value, with a total deal value of $1.3 billion.

Non-traditional investors, including venture arms of health care companies, have taken note. Non-traditional investors have participated in more than 30 deals in the first three quarters of 2024, according to Deloitte. Almost 60% of all investments in mental health came from investors who were not traditional VCs.

“Mental health is a global issue,” Heather Gates, audit and assurance private growth leader at Deloitte & Touche, told Behavioral Health Business. I think, as a result of that, it lends itself well to a venture model that expects outpaced returns and also lends itself to, I’ll say, non-traditional VCs. So think about the venture capital arm of a corporation that provides hospital services or what have you. We’re seeing those folks invest. We’re seeing global sovereign wealth funds and hedge funds [participate].”

For example, CVS Health Ventures led autism therapy provider Cortica’s $40 million Series D extension round and virtual mental health startup Array’s $25 million round. Additionally, Optum Ventures has invested in PTSD-focused startup Nema Health.

While there is an uptick in non-traditional investors, overall, the number of active investors in the mental health industry has declined every year since 2021.

“The most active firms in the industry include top-tier VC firms that capture companies within vast portfolios, as well as several smaller firms, including one with an explicit interest in mental health and addiction companies,” according to the report.

The mental health industry has attracted a growing number of serial entrepreneurs.

In fact, 24% of founders closing expansion-stage deals in 2024 had already founded at least one other startup. That’s up from 17% in 2022. This could help the budding industry mature as leaders gain experience raising capital, building companies, and scaling them.

“What it indicates to me, and I’ve seen this before when you have new cutting-edge trends, it’s really about the investors wanting to de-risk their investments,” Gates said. “And when you have serial entrepreneurs in place, there’s pattern recognition. They’ve raised money before, they’ve built companies, they’ve scaled. And experience is really wanted when you’re entering new frontiers.”

Fewer deals, greater valuation

The deal count is down from last year–68 in 2024 compared to 90 in 2023 and 105 in 2022. While investors are cautious to write the mega checks they did in 2021, the median expansion-stage deal value in mental health has increased substantially from last year. In 2024, the average size was $15.7 million, up from $7.8 million in 2023. 

“Rising demand for mental health services is the primary driver of value for expansion-stage MHW companies, though investors maintain higher standards for capital compared with the flurry of activity seen in recent years,” authors of the report said. “A declining deal count indicates a more exclusive club of VC- or PE-backed companies attracting necessary capital to operate at critical later stages of development. Despite macroeconomic shocks and other challenges, some companies demonstrated growth that impressed investors. As a result, the overall median pre-money valuation increased significantly for the smaller group of companies that successfully raised funds this year.”

And there are still 11 active unicorns in mental health, including three new unicorns since 2023.

Exit strategies

Still, exits from expansion-stage mental health companies remain few and far between. The report found only eight startups exited during the first three quarters of 2024–compared to 30 in 2021.

But the lull may be ending soon.

“I think 2025 is going to be a lot more active, both on the M &A and the IPO front. A lot of things that were keeping the IPO market closed were really uncertainty about where the US was heading from an election perspective,” Gates said. “And all of the policies that the next President will put in place have great implications for companies, how they project the future, how they do planning, where they do manufacturing. So now that there’s an indicator and an idea, we’ve got less volatility that will produce more IPOs. And absolutely, we’re seeing a big uptick in M&A activity.”