Investments in telemedicine startups have declined 80% in the last two years, dropping from $2.2 billion in the first quarter of 2021 to $433 million this year, according to data from PitchBook.
The digital health market has faced headwinds from inflation and high interest rates. But the biggest challenge for telemedicine companies has been overcoming consequences of an influx of funding at the start of the pandemic, which created a saturated market and made it difficult for emerging firms to stand out, said Aaron DeGagne, health care analyst at PitchBook.
“It’s been kind of rough across the board,” DeGagne said. “But teletherapy and behavioral health, that has held up better than other areas of telemedicine.”
DeGagne said some of the biggest deals in telemedicine have been in behavioral health, noting that Midtown-based digital mental health firm Spring Health raised $71 million in April, bringing the company’s total valuation to $2.5 billion.
The demand for even more specialized care—including behavioral health services for children and teens—has created more opportunities for startups aiming to improve access. Local firms that have recently launched say they’ve aimed to develop solutions that combine telemedicine models with in-person care—specifically for kids and teens who may not always respond to virtual models.
“Virtual is just not enough for kids,” said Sahil Choudhry, founder and chief executive of Handspring Health, a Jersey City-based youth mental health startup that raised $6.2 million in seed financing in May 2022. Young kids who communicate through body language, youth with high-acuity mental health needs and children who lack access to the technology and environment needed for teletherapy are often left out in virtual-only care models, he said.
Handspring Health has developed a hybrid care model—combining teletherapy with in-person clinics that will launch in 2024. The company currently operates in New Jersey, Florida, Connecticut, Pennsylvania and North Carolina, and will open clinics in some major cities in those states, Choudhry said. Handspring plans to launch in New York in the coming months, he added.
Choudhry said that Handspring directly employs and trains early-career therapists in evidence-based models like cognitive behavioral therapy, adding clinicians to the workforce. The company currently has 10 clinicians and is adding two to three providers each month, he said.
Flatiron-based Summer Health, a pediatric telemedicine firm, also raised $7.5 million in seed funding last July in a funding round led by Sequoia Capital and Lux Capital. The startup offers 24/7 text services for parents who have medical questions about their kids. While many of those questions pertain to physical health, mental health has become a growing concern, said Ellen DaSilva, chief executive and founder of Summer Health.
DaSilva said that Summer Health’s technology addresses a shortage of pediatric providers by creating a supply of on-demand clinicians, eliminating the need for phone calls to set appointments and long wait times—often the standard in pediatric mental health care. Referrals to a mental health provider through the company may not result in a three-month wait for an appointment, she said.
“We’re not trying to digitize the doctor’s office,” DaSilva said. “We’re trying to give parents round-the-clock access to pediatricians.”
Although demand for youth mental health services has sparked investor interest in companies addressing behavioral health needs, that demand alone does not solidify funding opportunities, Choudhry said. He said that companies who show that they secure contracts from insurers, collect data showing they can cut costs and recruit and retain clinicians will continue to be successful.
