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last april, Alex and I reported CB Insights data showing that venture investment in mental health startups fell sharply in the first quarter of 2022 compared to the previous quarter. But in recent weeks, I’ve been hearing about several venture-backed deals in the health technology subsector. They made me curious: What areas of mental health are VC firms still willing to invest in? Let’s investigate. † Anna
The more the pandemic seemed to ease, the less venture capital investors seemed willing to commit to companies and sectors that had initially benefited from the strong tailwind as most of the world began to stay home. In the public markets, the pandemic trade is over, with former darlings like Peloton and Zoom experiencing whiplash. Similarly, we saw a net decline in private investment in telehealth and mental health start-ups.
Market corrections after a period of hype are part of the investment game. But it would be hard to argue that mental health needs have declined. According to the World Health Organization, cases of anxiety and depression have increased by 25% in the first year of COVID-19. Just because we now hopefully put the worst of the pandemic behind us doesn’t mean everyone is suddenly feeling better — which is why a few recent funding rounds in mental health have caught my attention.
Of course, a few deals related to mental health are anecdotal. And since we’re mainly talking about early-stage deals, that doesn’t mean the investment decline has reversed. All in all, we won’t have more clarity until Q2 figures are available. But what’s interesting is that these startups point to some new approaches to mental health that VCs are still willing to invest in. Or, dare I say, show us where their minds are.
No longer understaffed?
VCs may run out of free space for the next header space. The broad mental health platform and its closest competitor, Calm, appear to have captured most of the mainstream bite-sized mindfulness market. But there are still gaps in the mental health market that need to be addressed — at least, some startups think so.