Maturing behavioral health startups often look at three paths for scaling: de novo growth, M&A, or new partnerships.

Each pathway to growth has its pros and cons. For example, acquisitions may bring new capabilities, clinicians, and a client base to the table. However, merging new companies means integrating new systems and work cultures.

“[M&A] is really hard to get right. I think it’s a good way of growing, especially if you’re able… to really integrate that business and find a way for it to be truly additive,” Julia Bernstein, chief operations officer at Brightside Health, said at Behavioral Health Business’ INNOVATE event in December. “But it’s not the only way to scale.”

San Francisco-based Brightside offers virtual treatment for people with mild to severe mental health conditions and covers almost 150 million lives.

Conversely, organic growth can be slow and entering new markets can be tricky. But it doesn’t come with all of the integration costs and challenges.

Meanwhile, partnerships can be helpful to grow a customer base but don’t necessarily give a company a larger market share.

Why buy? 

In March of 2024, Brightside completed its first acquisition with the purchase of Lion Rock Recovery, a virtual addiction treatment provider. The acquisition added a virtual intensive outpatient program (IOP) to Brightside’s arsenal.

“It’s allowed us to get into a new suite of services with the intensive outpatient and the focus on alcohol use disorder,” Berstein said. “It’s given us a ton of expertise, and it set us up to really expand IOP as part of the services we offer going into 2025. That being said, acquisitions are really hard.”

Bernstein recommends proceeding cautiously and only making an acquisition because it makes sense, not because it looks good for a PR headline.

When it makes sense, it comes down to understanding your organization’s strategy and differentiating, she said.

“For us, it’s really about the services, capacity, and capabilities that we think we need to succeed and continue to drive growth,” Bernstein said. “We look at any acquisition through the lens of: Is this on our roadmap? Is this something where we want to buy the capability or the service line, or do we want to build it, or do we want to partner? Given that we’re all kind of living on VC cash, the bar in this environment has to be pretty high to choose to buy.”

Organic growth models 

However, M&A is not the right choice for every startup looking to grow. Virtual behavioral health company Two Chairs has taken a 100% organic approach to growth.

“​​There are very specific types of acquisitions that add complementary capabilities that can make a lot of sense,” Alex Katz, CEO of Two Chairs, said at INNOVATE. “But look where this industry is today and where it’s headed; it’s all about quality, value, and cost. You have to look for acquisition targets that have really distinguished themselves clinically. I’m skeptical of the roll-up model. It’s just tacking on lots of different provider groups that do very similar things. I think we have to be honest, the median quality of care in our industry is not very good. So if all you’re doing is aggregating a lot of folks below median quality or at median quality, you’re not doing very much to fundamentally change the industry and push it forward.”

Two Chairs is a San Francisco-based hybrid mental health startup. In April the company closed a $72 million round in a Series C equity and debt funding round, bringing the company’s total raise to $103 million.

Katz noted that all of Two Chair’s therapists are W2 employees who are largely full-time. The organization has also invested heavily in training providers in measurement-based care and evidence-based practices.

Organically growing allows the organization to maintain its quality measures, he said.

“Our whole thesis is, if we’re going to change the ways in this country, we’ve got to hire people, on a W2, largely full-time. We’ve got to train them,” Katz said. “We’ve got to performance-manage them, we’ve got to coach them. We’ve got to give them the right tools.”

The power of partnerships 

And many behavioral health organizations have grown substantially through an organic expansion strategy. For example, behavioral health urgent care provider Connections Behavioral Health grew organically by 40% in the last year, according to Matt Miller, chief growth and development officer at Connections Health Solutions.

While Connections wants to continue on an organic growth trajectory, it’s not entirely ruling out M&A.

“We’re not necessarily considering acquisition unless it’s an adjacency that really kind of falls into the continuum of crisis services,” Miller said. “We’re not going to go too far off the core of what we do. But partnerships is something we’re certainly interested in, especially as we can get into some value-based arrangements through a partnership.”

Connections Health Solutions is a behavioral health urgent care provider. The company has locations in Arizona, Montana and Virginia. It recently landed $28 million in Series B funding. 

Partnering could offer an opportunity to help build a client base and refer patients to services in the continuum.

“Our organizations had a conversation earlier this week about the partnership because IOP programs like that are a natural step down after a person is discharged from the crisis,” Miller said. “So we’re going to look at community-based partnerships as well as national partnerships that really serve as referral sources for both in and out, to help us from an overall partnership perspective, and to ultimately, you know, what we’d like to do is move into more of those value-based arrangements. We can show a total cost of care, savings for the individual and for the plan.”

Building the right relationships with health partners can also help cut down on customer acquisition costs.

​​” What we have found is, as we have built the right care collaboration relationships with health systems and primary care providers, care assets that health plans own, etc, the patient referrals follow,” Katz said.