The behavioral health industry has undergone significant transformation over the last few years, driven by a growing recognition of mental health needs, the rise of digital health solutions, and substantial investment influxes. Since 2020, investors have poured $10.6 billion into mental health and wellness (MHW) companies, reflecting the sector’s enormous potential. Yet, as the market matures, several trends have emerged that are reshaping how investors, entrepreneurs, and stakeholders approach the space.
These trends include an increase in the number of serial entrepreneurs entering the industry, a rise in non-traditional investors such as corporate venture arms, and a steadying of valuations after the frenzied highs of 2021 and 2022. Understanding these shifts is crucial for those navigating the evolving mental health ecosystem, especially as 2024 progresses at a faster pace than previous years in terms of deal value.
The Surge in Investment and a Settling Market
While the investment landscape has cooled compared to the peak years of 2021 and 2022, where the mental health sector witnessed massive deal sizes and volumes, there remains a clear and sustained interest in mental health companies. According to a report from Deloitte, mental health companies have attracted over $10.6 billion in investment since 2020, with the sector continuing to evolve despite a decline in the total number of deals.
In 2024, the sector has already outpaced 2023 with a total deal value of $1.3 billion—indicating that investors are still bullish on mental health, albeit with a more selective approach. However, the nature of these investments has changed. The sheer number of deals has declined, but those that are happening tend to involve larger sums of money. The median expansion-stage deal value in 2024 stood at $15.7 million, a significant rise from $7.8 million in 2023.
This shift highlights a key trend: investors are now more discerning, focusing on a smaller group of companies that have the potential to scale effectively. The market is entering a phase of stabilization after a period of rapid, sometimes unsustainable, growth. As the mental health industry matures, these more selective investment strategies reflect a desire for quality over quantity.
The Rise of Non-Traditional Investors
In the past, venture capital (VC) firms were the dominant players in the mental health investment space. However, a noticeable shift has taken place, with non-traditional investors entering the arena. These include corporate venture arms, global sovereign wealth funds, and even hedge funds, which have increasingly recognized the immense potential in mental health services.
As Heather Gates, audit and assurance private growth leader at Deloitte & Touche, explains, mental health is a “global issue” that lends itself well to a venture model expecting outpaced returns. These non-traditional investors bring not only capital but also strategic value in the form of industry expertise, networks, and the ability to scale rapidly.
For instance, CVS Health Ventures led a $40 million Series D extension round for autism therapy provider Cortica and a $25 million round for virtual mental health startup Array. Optum Ventures also participated in a deal with PTSD-focused startup Nema Health. These investments underscore the growing involvement of health care giants and non-traditional investors in mental health, signaling that the sector is now attracting a more diverse range of backers.
According to Deloitte’s report, non-traditional investors participated in more than 30 deals in the first three quarters of 2024. This new wave of investors—who account for nearly 60% of all investments in the mental health space—has played a pivotal role in the sector’s growth. It shows that mental health is increasingly being recognized as a key pillar of overall health care, and non-traditional investors are keen to capitalize on this shift.
Serial Entrepreneurs and Pattern Recognition
As the behavioral health sector matures, one notable trend is the rise of serial entrepreneurs. These are individuals who have already founded one or more successful startups and are now venturing into the mental health space. According to Deloitte’s findings, 24% of founders closing expansion-stage deals in 2024 had previously founded at least one other startup. This is a notable increase from just 17% in 2022.
The presence of serial entrepreneurs in the mental health space is a significant development. Their experience in raising capital, scaling businesses, and navigating the complexities of startup growth provides valuable benefits to investors. In essence, the industry is seeing an influx of seasoned entrepreneurs who are more likely to succeed due to their prior experience and ability to de-risk investments.
Gates explains that this trend reflects investors’ desire for “pattern recognition.” By backing serial entrepreneurs, investors can mitigate the risks of entering a relatively young and evolving market. These founders bring with them proven track records and valuable lessons learned from previous ventures, making them more likely to attract funding. As mental health continues to evolve, the expertise of these entrepreneurs is helping to create a stronger, more sustainable foundation for the sector.
Valuations Settling, But Demand for Mental Health Remains High
While the number of deals has slowed, the valuations of mental health companies are still on the rise. The median pre-money valuation for the smaller group of companies that successfully raised funds in 2024 has increased significantly compared to previous years. This trend highlights two things: first, that there is continued investor confidence in the mental health market, and second, that companies in the sector are becoming more selective about who they partner with and how they scale.
Rising demand for mental health services is the primary driver of value in the expansion-stage mental health and wellness companies. The COVID-19 pandemic underscored the importance of mental health, and despite the cooling of deal activity, the demand for accessible, affordable mental health services remains as strong as ever. This is especially true as more employers and health care organizations acknowledge the link between mental health and overall well-being, which has only further propelled the demand for innovative mental health solutions.
However, as Gates points out, investors are now applying higher standards for capital than they did during the pandemic-era boom. The deal volume may have dropped, but the companies that are raising capital in 2024 have demonstrated solid growth and resilience. This more discerning approach signals the maturation of the sector and a shift towards long-term sustainability rather than short-term gains.
The State of Exits in the Mental Health Sector
Despite the continued growth and demand for mental health services, exits from expansion-stage companies remain relatively few. According to Deloitte’s report, only eight startups exited during the first three quarters of 2024, compared to 30 exits in 2021. This decrease in exits could be indicative of several factors, including longer timelines for scaling, uncertainty in the public markets, or the fact that many companies are still refining their business models before seeking an exit.
However, this lull in exits may soon end. Gates predicts that 2025 will see a significant uptick in mergers and acquisitions (M&A) and initial public offerings (IPOs) in the mental health sector. The uncertainty that plagued the IPO market in recent years, particularly in the wake of the pandemic and political volatility, is beginning to subside. As a result, more mental health companies could be gearing up for public offerings or acquisitions as market conditions stabilize.
The Road Ahead: Maturation and Consolidation
As the mental health industry matures, it is becoming clear that the market is entering a new phase of growth. The influx of serial entrepreneurs, the rise of non-traditional investors, and the stabilization of valuations all point to an industry that is ready to evolve beyond the rapid growth phases of the past few years.
This maturation is likely to result in greater consolidation within the industry. Smaller players who have not yet achieved scale may be acquired by larger entities, while others will continue to innovate and expand within their niche. The rise of non-traditional investors will also likely lead to strategic partnerships that enable mental health companies to tap into new resources and scale their operations more effectively.
For entrepreneurs, investors, and other stakeholders in the mental health space, the next few years present both challenges and opportunities. Those who can navigate the evolving market conditions, embrace innovation, and focus on sustainable growth will be well-positioned for success. And as the sector matures, it is likely that mental health services will become an even more integral part of the overall health care landscape, ensuring that mental health remains a priority for years to come.
In conclusion, the behavioral health industry is undergoing a period of transition. While investments and valuations have settled, the sector continues to show immense promise. With serial entrepreneurs leading the charge, non-traditional investors entering the fray, and rising demand for mental health services, the future of the industry looks bright. The next wave of growth is coming, and those who are prepared for it will be the ones to shape the future of mental health care.
