[NYAPRS Enews] Investors See Opportunity In Startups Treating Serious Mental Illnesses: CHP

[Harvey Rosenthal]

NYAPRS Note: For profit companies financed by venture capital dollars represent a fast moving new trend in serving people with major mental health challenges. They will have a major impact on how people are engaged and served and on the positioning of the nonprofit sector. Stay tuned for more....

Investors See Opportunity In Startups Treating Serious Mental Illnesses
By Maya Kaufman  Crain's Health Pulse  November 2, 2022

A boom in digital health investments has enabled millions of tech-savvy patients to address their mental health with virtual appointments or digital exercises in lieu of spending an hour on a therapist's couch. Now venture capitalists are taking the next step: scoping out solutions to make care just as accessible to patients with the most severe mental illnesses.

An estimated 13 million American adults experienced a serious mental illness in the past year, for a cumulative economic impact of more than $300 billion annually, according to federal data. But only a handful of startups across the country explicitly target serious mental illness-a category that refers to any condition that substantially interferes with someone's life and ability to function. Many of the companies have been around no longer than three years.

Sam Toole, who spearheads health care investments as a principal at Primary Venture Partners, a seed-stage firm that focuses on New York City startups, attributed the relative scarcity of the startups to the difficulty of the problem they aim to solve. Success means building a scalable business model to treat conditions, such as schizophrenia and bipolar disorder, that require a much greater variety and higher quantity of services than low-severity diagnoses.

Primary is an investor in Alma<https://www.crainsnewyork.com/health-care/mental-health-startup-alma-raises-130m-expand-platform>, a local health-tech company that helps therapists manage their practices and partner with insurers, but the firm has yet to invest in a mental health startup that specifically targets serious conditions, Toole said.

That isn't for lack of trying. Toole said he has seen more startups addressing serious mental illnesses pop up in the last couple of years, and he has met several entrepreneurs who have startups in stealth mode, meaning they are in their early stages and have yet to launch publicly.

"This is just really hard to do," he said. "You need to provide in-person care. You need to provide virtual care. You need to be with someone at a lot of moments of crisis."

Plus, he said, the stakes of failure are high.

"If you don't do something well from day one there are real fundamental health risks," he said. "You're really putting a patient's life at risk perhaps."

Among the early examples of startups tackling serious mental illness is Firsthand, which launched last year and whose investors include Google's venture-capital arm, GV.

The Hudson Square-based startup partners with insurers to pair enrollees with "guides," who understand or have personal experience with the challenges they are facing. The guides connect their clients to community resources, find trusted health care providers and help them keep up with medical appointments.

Samir Malik, co-founder and CEO of Firsthand, said he is betting that the evidence-based practice of peer support will be both effective and scalable.

"A lot of folks who are out there struggling, they've lost trust in the system," Malik said. "Someone who has that lived experience can repair that breach in trust."

The startup's health plan partnerships now cover about 55,000 people in Florida, Ohio and Tennessee. A New York footprint is in the works.

"Seven times out of 10," Malik said, "these individuals will say yes to us, even though they've been saying no to so many other resources that the health system is trying to provide."

He declined to disclose the amount of funding that Firsthand has raised to date, but he said the key to attracting investors has been to show how a startup focused on serious mental illness can achieve significant health care cost savings.

"These individuals tend to cost the system so much money because they're unengaged and end up in hospitals and emergency rooms at such a high frequency and aren't really adherent to standard medication routines," he said. "There's a lot of opportunity to do better."

Charlie Health was founded in 2020 and runs virtual intensive outpatient programs for young people and their families. The startup, which has a presence in the city and is based in Montana, provides patients with about 10 hours per week of individual, group and family therapy sessions. Treated conditions include dissociative disorders, mood disorders, substance use disorders, trauma and behavioral issues.

Unlike Firsthand or Charlie Health, some early-stage startups focus on specific conditions within the serious mental illness category. One such newcomer is Arise, a digital health platform based in New York. Designed to treat eating disorders, it launched in July with $4 million in seed funding.

Toole said solutions that address a spectrum of serious mental illnesses, as well as such common co-occurring conditions as substance use disorders, are more likely to be attractive to payers and health systems<http://www.crainsnewyork.com/health-care/health-insurance-costs-rise-employers-weigh-risks-offering-too-little>. He predicted that point solutions that address a specific condition, such as Arise, and mental health startups that provide a specific service, such as psychiatric care, will evolve into that kind of model as they scale.

It's only a matter of time before startups that address serious mental illness are as ubiquitous as the Talkspaces of the world, he said. But he said he does not expect that they will replace traditional providers. Instead, he envisions a climate of startups working in tandem with hospitals and community-based nonprofits that already serve the population, forming a more complete continuum of care<https://www.crainsnewyork.com/health-care/homeless-new-yorkers-serious-mental-illness-keep-falling-through-cracks-despite>.
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