Venture capital interest in digital health may have cooled from its pandemic-era peak, but within this tempered landscape, virtual SUD treatment is proving to be a rare bright spot. According to Pitchbook’s Q4 2023 digital health report, virtual substance use disorder (SUD) care represents a market opportunity of well over $10 billion, driven by rising clinical need, technological advancements, and evolving payer dynamics.
Even as broader investment in telemedicine technologies remains subdued, a growing number of venture capitalists are seeing renewed potential in digital addiction care—particularly platforms that blend clinical rigor with virtual convenience. The numbers back up the optimism: several high-profile funding rounds closed in 2023, despite overall headwinds in the digital health sector.
Aaron DeGagne, a senior healthcare analyst at Pitchbook, emphasized this point in an interview with Addiction Treatment Business, noting the subtle yet meaningful momentum gathering behind virtual addiction care.
“I expect we will see several VC deals in the virtual SUD space as the subsector emerges as a key market opportunity in specialty telehealth even as telemedicine funding remains muted broadly,” DeGagne said.
And just days after the report was released, that trend began to materialize: Pelago announced a $58 million capital raise to enhance its clinical capabilities and support product development—a move that affirms Pitchbook’s prediction and underscores investor confidence in this niche but fast-growing segment.
The Growth Arc of Virtual SUD Treatment
While the idea of virtual care for addiction was once novel, the evolution of virtual SUD treatment over the past decade has mirrored larger shifts in digital health. The market began to take shape in earnest following the U.S. Food and Drug Administration’s (FDA) historic approval of Pear Therapeutics’ reSET platform in 2017. The tool was designed to deliver evidence-based digital cognitive behavioral therapy (CBT) for individuals with general substance use disorders.
This initial approval was followed by reSET-O for opioid use disorder and reSET-A for alcohol use disorder. The FDA greenlighting of these digital therapeutics was heralded as a turning point in addiction care, offering scalable, technology-driven options that could integrate into clinical workflows or reach patients in hard-to-serve regions.
But for all its innovation, Pear’s trajectory proved cautionary. After going public via SPAC, the company’s stock plummeted from a peak of $10 to just $0.22, culminating in bankruptcy in April 2023. In May, Pear’s remaining technology assets—including the three digital therapeutics—were sold for just $6 million to a mix of digital health providers, including PursueCare, which acquired the rights to reSET, reSET-O, and reSET-A.
The fall of Pear sent shockwaves through the digital therapeutics market, sparking concern about the sustainability of payer reimbursement models and casting doubt on the viability of FDA-cleared standalone digital health products. Despite this, DeGagne and others remain optimistic about the larger picture.
“While virtual SUD is not/cannot be a full replacement for all aspects of in-person and drug-based SUD care, there is a clear opportunity for virtual SUD digital therapeutics that can expand the market,” DeGagne noted.
Post-Pear Investment Activity Points to a Maturing Market
Pear’s collapse did not spell the end of innovation in digital addiction care. If anything, it marked a transition to a more mature phase of market development—one where sustainable business models, payer alignment, and hybrid clinical integration are top priorities for both operators and investors.
Several high-profile deals in 2023 suggest that capital is still flowing into the virtual SUD treatment space:
- Pelago raised $58 million to expand its services beyond smoking cessation to alcohol and opioid use disorder.
- Affect Therapeutics secured $18 million in July 2023.
- Kyros closed a $10.5 million Series A.
- NorthStar Care completed a $6 million seed round.
These deals indicate that investors are no longer simply chasing shiny technologies—they’re backing clinically credible, outcome-driven platforms with real-world effectiveness and a path to reimbursement.
From Novelty to Necessity: The Role of Hybrid Models
One of the biggest shifts in the virtual addiction care ecosystem has been the widespread embrace of hybrid models. Where early virtual SUD startups often positioned themselves as digital-only alternatives to traditional treatment, today’s leading companies are looking to complement—not replace—in-person services.
This shift is being driven by both clinical necessity and payer demand. For many patients, a hybrid model that incorporates digital tools alongside outpatient or residential treatment offers the flexibility and continuity of care needed to prevent relapse. Moreover, virtual tools can fill gaps in rural or underserved areas, where physical treatment infrastructure is limited.
The Pitchbook report suggested that large, multi-state in-person addiction treatment providers may increasingly look to acquire digital platforms to extend their reach. Notable potential acquirers include:
- Caron Treatment Centers
- Acadia Healthcare
- BayMark Health Services
- Groups Recover Together
On the other side of the equation, digital-first behavioral health platforms like Headspace and Boulder Care could also explore acquisitions or partnerships to diversify their offerings and enter the high-demand addiction treatment space.
The Headspace Factor: Strategic Expansion Into SUD
One company to watch closely is Headspace, which has already signaled an intent to explore new markets within mental and behavioral health. At the 2024 J.P. Morgan Healthcare Conference, Headspace executives identified virtual SUD treatment as a potential growth area, fueling speculation about possible partnerships or acquisitions in the near future.
“I expect to see at least a few partnerships between virtual SUD platforms and established telehealth providers, with the Bicycle Health/Talkspace partnership an early example of this,” DeGagne noted.
Indeed, Bicycle Health, which specializes in virtual medication-assisted treatment (MAT) for opioid use disorder, and Talkspace, a virtual mental health company, announced a partnership that integrates addiction care with broader behavioral health services. This type of alignment could become increasingly common as digital health companies look to broaden their impact and improve outcomes through integrated care.
FDA Scrutiny, Payer Coverage, and Market Viability
While the virtual addiction care market is expanding, it remains subject to intense regulatory and financial scrutiny. Following Pear’s bankruptcy, FDA clearance may no longer serve as a golden ticket for startups hoping to win investor confidence. Instead, companies must show that their tools can be reimbursed by insurers, integrated into clinical practice, and scaled effectively.
The most successful virtual SUD treatment models are likely to be those that focus on payer reimbursement—whether through commercial plans, Medicaid, or Medicare—rather than direct-to-consumer models that struggle with acquisition costs and inconsistent patient engagement.
Platforms that prioritize outcomes, cost savings, and long-term patient retention will have the greatest chance of breaking through. DynamiCare, for example, has received FDA clearance for two digital therapeutics—one for alcohol use disorder and another for smoking cessation during pregnancy—and has positioned itself as a credible, clinically integrated platform.
Yet even FDA clearance does not guarantee market success. Startups must also navigate licensing issues across states, shifting reimbursement landscapes, and increasing competition from both traditional providers and tech giants entering the behavioral health arena.
A Ten Billion Dollar Market Waiting To Be Reshaped
At more than $10 billion, the virtual SUD care market is more than just a niche opportunity—it’s a foundational pillar of the future of behavioral health. With substance use disorder rates rising and traditional treatment access still limited in many areas, digital innovation has a vital role to play in reshaping how care is delivered.
Despite the cautionary tale of Pear and the general cooling of the digital health market, there is a growing consensus that virtual SUD treatment is an area ripe for both impact and investment. By focusing on hybrid models, clinically validated tools, and sustainable reimbursement strategies, companies in this space have a chance to not only attract funding but to change lives.
Conclusion: The Strategic Future of Virtual SUD Care
While telehealth as a whole may be experiencing a period of recalibration, virtual SUD treatment is bucking the trend. With growing demand, emerging clinical validation, and shifting models that blend in-person and digital care, this sector is evolving into one of the most attractive opportunities in digital health today.
Whether through strategic M&A, public-private partnerships, or venture capital investment, the sector is poised for growth—provided that players can align innovation with sustainability. As funding slowly returns to more focused and results-driven segments of the healthcare market, virtual SUD treatment stands at the intersection of technology, empathy, and evidence-based care.
