This is an exclusive BHB+ story
While brand-name venture firms have been a mainstay of digital behavioral health investing for nearly two decades, new players have started moving in.
More non-traditional investors, including the venture arm of health systems or payers, hedge funds, and even private equity, have dipped their toes into the startup ecosystem.
Many of these funds have already made a significant impact on the industry. For example, CVS Ventures is a serial investor in the behavioral health industry. Its startup bets include autism provider Cortica, virtual mental health company Array Behavioral Health and substance use disorder provider Workit.
Strategic investments in promising startups allow healthcare providers and major insurers to gain early access to innovative technologies and solutions that could ultimately enhance care delivery and outcomes for their patients and members.
“I think every time we’ve ever dealt with either the health system or a payer as a potential investor… what we look for are synergies around what are we really trying to move the needle on?” Robert Capobianco, chief commercial officer at NeuroFlow, told Behavioral Health Business. “Not just to check the box function. One of our top questions is what are the meaningful actions you’re actually doing for integrating behavioral health?”
NeuroFlow is a digital behavioral health company focused on better integrating behavioral and physical health service workflows. It also tracks care quality and risk management. The Pennsylvania-based company has raised more than $50 million in funding. Its investors include Magellan Health, SEMCAP and Concord Health Partners.
“Our investment strategy prioritizes identifying companies whose solutions align with the needs of our members,” Laura Gomez Cadena, an investor at Healthworx, told BHB. “We believe that the companies we bring into our portfolio should address key healthcare challenges and help advance the broader healthcare ecosystem. Some of the companies we invest in have existing partnerships with CareFirst, and many develop them as part of our work. In both cases, we seek solutions that can positively impact the quality of care and outcomes for our members.”
Healthworx is BlueCross BlueShield’s innovation and investment arm. Its portfolio includes evoledMD, Culina Health and Zipari.
Healthworx Ventures typically invests in companies that are solving issues that impact their members.
For example, CareFirst sees autism care as a critical issue for the large organization and therefore invested in Positive Development, a family-centered, play-based autism care company. In June of 2024, Healthworx led Positive Development’s $10 million funding round.
Investor mindset
Heather Gates, managing director of Deloitte & Touche’s Emerging Growth Company (EGC) business, explained that corporate venture arms typically operate on one of two investment theses: either they invest in adjacent organizations that could potentially be acquired or whose technology could be integrated internally, or they function as ‘financial investors’ similar to traditional venture capital firms.
Investment from a corporate venture arm can be a blessing and a curse for startups. On one hand, it can give a startup a clear exit path. For example, in 2020, UnitedHealth Group’s Optum purchased digital mental health provider AbleTo. This came roughly a year after Optum Ventures announced an investment in the company.
While corporate investment arms in some ways compete with traditional investors, there can be advantages for traditional investors that team up with non-traditional investors on a funding round.
“There is more competition but there is also diversification of risk, so there’s more people to do syndicate investing with when you have these corporate [venture arms],” Gates said. “It also helps ensure, if it’s a [successful] company, [the corporate venture] is going to come in and be the acquirer. So then the VCs say, ‘Well, they have skin in the game. We should get some exit, assuming this thing executes.'”
An exit pathway isn’t the only advantage for startups that partner with health systems or payers. Backing from an industry insider can give startups access to a pool of experts in the field and insights about the most pressing issues.
“There are many advantages associated with being connected to a payer. One notable benefit is our unique access to a vast network of subject-matter experts who directly engage with our members every day,” Gomez Cadena said. “This gives us a front-row view of the opportunities and challenges facing the healthcare ecosystem, and invaluable insights into what is most needed. Access to our stakeholders – health plan experts, our members, and the employers we work with, helps us better understand the real-world needs of members and allows us to stay ahead of trends by identifying innovative solutions that can improve both the quality and accessibility of care.”
However, Gates said that, in some cases, being connected to large corporations could limit the potential pool of customers.
For example, if a startup is backed by CVS ventures, other potential customers, such as Walgreens, might see it as a competitor.
The other potential drawback to having a corporate buyer waiting in the wings is that companies and other investors could miss out on an IPO opportunity.
“IPOs garner, on average, 20% higher value exit. So traditional VCs always push when it makes sense for the IPO because they get a 20% premium or more. And so having that corporate in there, they might not maximize their exit value as a VC shareholder,” Gates said. “Now, when IPOs aren’t happening, that’s okay. Maybe just getting an exit is a good thing.”
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