Why I Worry About Venture-Backed Mental Health & Addiction Startups
And My Ask Of Investors In These Companies
It’s frustrating if you’re a customer of an expense report SaaS startup and the company goes out of business, but it’s potentially devastating if your tele-therapist or addiction counselor suddenly disappears because the platform that employed them ran out of money. This is my most significant concern about the wave of mental wellness startups being funded with venture dollars — what happens to the clients of the ones which fail?
Traditional venture capital models lean into what’s called ‘power laws.’ Basically the idea that you are backing risky new ventures, many of which will stumble along the way, but one or two of the companies you back will be such outsized successes that the investment gains from those will more than offset the others.
Venture capital is a great instrument for high growth companies, or those who are very early in their development but intend to pursue a high growth strategy. If a normal small business must optimize for unit economics and profitability early in its lifecycle, a venture-backed business seeks product-market fit in a big industry and then trades nearterm profit-taking for long-term marketshare, with the idea that profits can be extracted later. I’ll pause for a moment now…
