In a stark illustration of inequity in mental health care, two 15-year-olds, Marcus and Janette, face vastly different experiences. Marcus, who is enrolled in Medicaid, grapples with unaddressed loneliness, while Janette, covered by her parents' employer plan, receives therapy shortly after struggling with anxiety that kept her from school for a week. While Janette's care is immediate, Marcus must wait months for availability at a community clinic.
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This disparity illustrates a broader health and economic issue, though the underlying reasons for this inequity often go unexamined. The companies aiming to provide mental health solutions to youth like Marcus typically sell their services to school systems, Medicaid agencies, and managed care plans, which operate on procurement cycles of 12 to 15 months. This timing conflicts with the investment expectations of capital sources that often seek returns within five to seven years, contributing to the challenges these services face.
As a psychologist and impact investor at Hopelab, I have witnessed how this structural mismatch inhibits promising mental health models from benefiting the youth who need them most. A case in point is Hazel Health, which has achieved notable success by integrating clinicians into schools, raising over $110 million from prominent investors. However, following the withdrawal of federal pandemic relief funding, Hazel lost significant contracts, leading to staff reductions and a pivot toward securing insurance reimbursements.
While billing insurers promises long-term funding reliability, the process is slow and complex, requiring licensure and client credentialing across different states. This reliance on venture capital can cause companies to scale quickly without having a stable revenue foundation, undermining sustainable growth.
To change this pattern, investment assessments need to focus on revenue stability rather than just expansion metrics. Key questions should include the proportion of revenue from recurring sources versus temporary funding, the renewal rates of contracts without grant support, and the timeline and costs associated with establishing new operations in different states.
Ultimately, a company with solid revenue streams from a smaller number of schools is more valuable than one with a larger number funded by uncertain, temporary sources. Ensuring the viability of mental health companies is crucial for the well-being of youth, as unsuccessful ventures can diminish access to care and erode trust in public health programs.
To align financial structures with the complexities of the youth mental health market, alternative investment mechanisms are suggested. These could include structured equity that adjusts returns based on contract revenues or program-related investments that mitigate initial costs for new Medicaid endeavors.
Realistic expectations for returns, such as 2.5x growth over a decade, should replace the unrealistic pursuit of high returns in a short timeframe that stifles mission-driven efforts.
Investors need to understand the intricacies of the youth mental health landscape to foster supportive financial environments. This can enhance the potential for meaningful impact and ensure that more youth, like Marcus and Janette, receive the care they require as they mature.
Nathaan Demers is a principal investor at Hopelab.