As nearly every financial portfolio shows signs of a bear market, it’s easy to focus on the challenges ahead. For mental health startups, these behavioral health startup challenges can feel especially daunting. Yet, for companies with a solid, outcome-driven value proposition, this economic downturn could be an unexpectedly fertile period. While venture investment in digital mental health startups is cooling off, the changing financial landscape is prompting companies to sharpen their focus on efficiency, clinical outcomes, and real-world impact — which could ultimately benefit patients and the industry as a whole.
The Growing Need for Mental Health Services During Economic Downturns
Economic recessions and bear markets have historically been accompanied by an increased demand for mental health care. Data from the Great Recession reveal that the risk of anxiety and depression increased by 22%, signaling a significant surge in behavioral health needs during financial hardship. Margaret Malone, principal at Flare Capital Partners, explains, “We saw in the 2008 financial crisis, just staggering increases in anxiety and depression. I think specific to behavioral health, the needs are not going away despite the atmospherics around what’s going on in the public markets.”
The mental health landscape had already been under strain before this market downturn. The COVID-19 pandemic amplified anxiety and depression, with the Kaiser Family Foundation reporting that 40% of U.S. adults experienced symptoms of anxiety or depression during the pandemic. Amanda D’Ambra, CEO and co-founder of Arise—a virtual eating disorder treatment startup—describes this ongoing mental health crisis as a “second pandemic.” According to D’Ambra, “That’s not going away. The rates are still incredibly high.” Her company recently secured $4 million in seed funding to expand access to care, illustrating continued investor interest despite the market slowdown.
Navigating Behavioral Health Startup Challenges Amid Cooling Investments
The behavioral health startup sector saw an unprecedented surge in venture capital funding in recent years, peaking at $5.1 billion in 2021. However, this influx of capital did not always correlate with optimal use or meaningful outcomes. Nisha Dua, Managing Partner at BBG Ventures, commented that “many people [were] doing a little with a lot” during the boom.
Funding has since cooled dramatically. Rock Health data indicate digital mental health startups raised $1.3 billion in the first half of 2022, with the lion’s share coming in Q1. This slowdown brings several behavioral health startup challenges — primarily the need to do more with less and the pressure to deliver demonstrable outcomes faster. Dua sees this as an opportunity for the sector to recalibrate. “The best founders emerge when they are being scrappy, and when they have very little to make something big of,” she said. This new environment forces startups to become more capital-efficient, carefully managing technology expenses, operational costs, and headcount.
Outcomes and Return on Investment Are Now Critical
Even as venture capital slows, payers and employers remain eager to partner with mental health companies that deliver measurable results. Malone points out that buyers will become more selective and expect clinical outcomes that justify expenditures. “There will have to be more of an emphasis on the hard ROI story for those buyers, because obviously budgets may shift around quite a bit,” she said.
This increased scrutiny intensifies behavioral health startup challenges, requiring them to clearly demonstrate their value proposition earlier than ever. While this dynamic raises the bar, it also aligns incentives to prioritize quality care and measurable patient improvement. D’Ambra echoes this sentiment, noting that focusing on outcomes “makes a lot of sense, especially when we’re talking about companies that are building meaningful care delivery for real people.” She adds, “I think that it aligns the incentives actually quite well toward care. That is really going to make a difference for folks.”
Strengthening Business Fundamentals in the Face of Behavioral Health Startup Challenges
The pressure cooker environment of a bear market compels startups to rethink their business fundamentals. Malone explains, “It’s actually a pro that companies are going to spend more time thinking about their core business fundamentals: your margin profile, ability to recruit and retain psychiatrists, psychologists, therapists on the platform, which I think is going to be really challenging.”
Addressing these foundational elements early is one of the key behavioral health startup challenges—but also a necessary step for sustainable growth. This focus on margins, staffing, and operational scalability ensures that companies are not just chasing growth for growth’s sake but building models that can endure and thrive over time.
Launching Startups in a Bear Market: A Test of Resolve
Starting a mental health company during a period of economic uncertainty is a leap of faith and adds to the list of behavioral health startup challenges. Stephanie Greer, CEO and co-founder of San Francisco-based Akin Mental Health, points out the unusual economic paradox of 2025: “Employment and consumer spending are still favorable while interest rates and the stock market are unfavorable.” This mix adds complexity and uncertainty for founders but hasn’t yet hampered Akin’s growth, which focuses on supporting family members of individuals with serious mental illness.
Nicholas Neral, founder of Florida-based mental health navigation service Haley, faces a more bootstrapped reality. “I don’t have another exit. I haven’t made a million dollars, where I have this incredible cushion to just rely on,” he said. For Neral, building a company during a bear market means being scrappy and differentiating Haley by not competing directly with telehealth providers, but instead focusing on connecting people with the right resources.
Resilience, Innovation, and Behavioral Health Startup Challenges Ahead
Recent data suggest the U.S. economy might sidestep a full-blown recession, a positive sign for early-stage behavioral health companies. The Bureau of Labor Statistics reported a robust addition of 528,000 jobs in July 2025, returning employment levels to pre-pandemic figures. This momentum could help stabilize mental health startups navigating tight capital markets.
BBG Ventures’ Dua notes that while investment may be recalibrating, mental health remains a massive opportunity. Certain areas, like adolescent and geriatric behavioral health, remain dramatically underserved. “Mental health of teens is still not cracked,” Dua said. Teens present a unique challenge but also a tremendous opportunity given their appetite for novel solutions and emerging technologies.
The Long-Term Winners: Purpose-Built, Patient-Centered Solutions
No matter the subsector, Malone is confident that startups which develop purpose-built, patient-centered solutions will ultimately win. “One of the great opportunities today is to really think about those needs and how to design a solution that is perfectly tailored for that population, and then how it evolves over time,” she said.
Overcoming behavioral health startup challenges means not only chasing broad market trends but focusing on real patient needs and outcomes. In the end, those who can demonstrate sustained clinical effectiveness and operational efficiency will emerge as leaders in the next wave of behavioral health innovation.
Conclusion: How Behavioral Health Startup Challenges Can Forge Stronger Companies
While a bear market introduces undeniable behavioral health startup challenges, it also encourages mental health startups to become more disciplined, outcomes-focused, and patient-centered. As the demand for behavioral health services grows amid economic uncertainty, startups that can prove their value early, optimize costs, and design purpose-built solutions will not only survive—they will thrive. This period of market recalibration may ultimately lead to better care models, stronger businesses, and, most importantly, improved mental health outcomes for millions of people.
