‘We’re Certainly Not Slowing Down’: General Catalyst’s Pedal-to-the-Metal Approach to Behavioral Health Investment

Venture capital firms the past few years have pumped billions of dollars into behavioral health companies, recognizing the vast need for their services and untapped opportunities to consolidate a fragmented market.

Among the most active VC investors has been General Catalyst, which boasts a portfolio of more than a dozen behavioral health-focused companies, from Eleanor Health and Elemy, to Rippl and SonderMind. Managing Partner Holly Maloney has helped spearhead the firm’s behavioral health efforts.

“Behavioral health, in particular, has been a really strong focus area for us,” Maloney told Behavioral Health Business. “And for myself, in particular.”

In addition to Eleanor, Elemy, Rippl and SonderMind, other examples of General Catalyst’s behavioral health investments include Circulo, Equip Health and Osmind. The firm’s strategy, Maloney explained, has been to back businesses that “think about things holistically” and support whole-person care, as opposed to operating with a very siloed approach.

That’s partly why it has its fingers in everything from autism treatment to eating disorder recovery.

“Everything is centered around our health assurance investment thesis, which is focused on making our system more personalized, proactive, at a lower cost and creating greater accessibility for marginalized communities,” said Maloney, who co-leads the 10-person health care investment team at General Catalyst.

Along with its own portfolio, General Catalyst has 15 partnerships with health systems, where it serves as their strategic innovation arm. That growing list includes Banner Health, Intermountain Healthcare and Universal Health Services Inc. (NYSE: UHS), the latter of which operates a network of over 330 behavioral health facilities.

While many firms have only targeted the behavioral health space since the COVID-19 pandemic, the Cambridge, Massachusetts-based General Catalyst has been exploring it since 2018, when the firm had its first mental health summit, Maloney said.

“This was … well before COVID, when the massive light was shown on the crisis that’s in our country,” she said.

Building ‘an ecosystem of companies’

Mental health startups especially have seen high levels of venture capital interest since the middle of 2020.

Through the first full three quarters of 2022, there were at least 225 funding deals in mental health last year, according to the latest quarterly data from CB Insights. The year prior saw at least 349 funding deals.

Combined over 2021 and 2022, mental health investment totaled more than $7.5 billion.

General Catalyst has been a part of some of the biggest individual fundraising rounds during that stretch. In April, addiction treatment and mental health provider Eleanor Health announced a $50 million Series C. A month later, Osmind – a company building a community and care platform for people with treatment-resistant mental health disorders – announced a $40 million Series B.

“We’re just really focused on developing and investing in an ecosystem of companies that is going to together break down those silos that have existed between mental and physical health for a really long time,” Maloney said.

Broadly, there are five pillars to General Catalyst’s health care investment strategy.

As Maloney previously noted, the firm aims to support up-and-coming companies that break down silos and expand access to care. Patient-therapist match platform SonderMind is a good reflection of that concept.

“It’s really hard to get connected into care – never mind in real time, but arguably ever,” Maloney continued. “[We’re] focused on companies that are really focused on creating that access layer. That led to early investments in businesses like SonderMind, companies that were insurance-enabling therapists, so that they could think about a much wider patient population and really bring that near real-time connection into care.”

On top of those two pillars, General Catalyst looks to invest in companies focused on outcomes and risk-taking models.

Population-specific business models and workforce support are likewise key focuses for the firm. Rippl – a technology-enabled startup that launched with the mission of better serving older adults with mental health conditions, including dementia – is an example of those two pillars.

Founded by the former Starbucks Corp. (Nasdaq: SBUX) executive Kris Engskov, Rippl came out of stealth mode in September, armed with $32 million in seed funding.

“It’s no news to anyone that we have this massive workforce crisis, and so we’re really focused on companies that are looking to meaningfully expand that workforce,” Maloney said. “For many years, [Engskov] was in the C-suite of Starbucks, which may not sound like a natural progression, but he then ran a long-term care facility. I think of Starbucks as one of the first workforce-transformation companies, because they fundamentally rethought what it meant to be a barista. How do you recruit talent? How do you train and educate?”

Higher-acuity care to define 2023

While recent years have seen an influx of VC going into the behavioral health space, some are forecasting 2023 to be more tepid due to the overall state of the U.S. economy. That may translate into fewer funding deals, but it could also simply mean smaller funding rounds and more conservative investments.

In anticipation of having to stretch their cash reserves, many VC-backed companies have already started cutting costs by trimming their staff.

Even a few of the behavioral health startups in General Catalyst’s portfolio have been impacted by this trend. In fact, SonderMind, Eleanor and Elemy all made cuts toward the end of last year, BHB previously reported.

“Given the current economic conditions, we made the decision to accelerate our path towards profitability, in order to ensure we can remain independent and continue delivering high quality, technology-assisted mental health care,” SonderMind CEO and co-founder Mark Frank told BHB in an email.

Maloney doesn’t expect a major pullback with behavioral health in 2023, however, at least not when it comes to General Catalyst and its long-term vision.

“You may have fewer super-broad, horizontal firms coming in and plopping in giant checks,” she told BHB. “But we’re just about to start investing out of our dedicated health care fund. And I have a pretty high degree of confidence that … a lot of that is going to go toward mental health. We’re certainly not slowing down.”

As far as trends that will define behavioral health investment in 2023, Maloney sees a heightened focus on higher-acuity care.

So far, a lot of the investment activity has revolved around highly scalable, lower-acuity models that are more understood. That’ll soon change, she believes.

“We now really need to figure out how we are going to engage and care for the areas of the population where the outcomes are incredibly poor and the cost is really, really high,” Maloney said. “I think that’s going to be a consistent narrative heading into next year.”