WHAT IS REALLY GOING ON WITH MENTAL HEALTH INNOVATION IN ISRAEL?

On October 7th Hamas terrorists launched a unilateral attack on Israel, brutally killing thousands of civilians, including infants and children, taking 240 hostages, and injuring thousands more.

Since then, I have been working with HealthIL on trying to address mental health concerns at the national level, to help every demographic group cope with the long-term trauma that will undoubtedly affect all Israeli civilians - of every religion - for many years to come.

This post is a result of these efforts, and is intended to give insights about the Mental Health startup ecosystem in Israel, including opportunities and challenges for both founders and investors.

May we all see better days.

Introduction

For many years, mental health was an overlooked and underrepresented aspect of healthcare. More recently, and particularly since Corona, mental wellbeing has emerged as crucial aspect of healthcare, on par with physical wellbeing.

Significant progress has been made in recent years, with well-established companies like Lyra Health , Meru Health , Spring Health , Wysa , Modern Health and many more actively filling in the gaps of mental healthcare and integrating with broader healthcare systems.

But challenges still remain regarding mental health, and there are a number of important aspects and trends with global relevance:

• Disparities in care are wide: there is a large and growing gap in access to mental health services between demographic groups
• Increasing public awareness and demand: The stigma around mental health has decreased significantly in recent years, and there is an increasing interest in including mental health services as part of the larger basket of healthcare, from both national providers and employers.
• Employers, particularly in the US, are recognizing the importance of mental health on their workforce, and their bottom lines, and are putting more emphasis on mental health services
• Digital products and services have an incredible opportunity to increase access to care and assist with all aspects of care, from screening and prevention through therapy and treatment.
• Most importantly – mental health issues are growing rapidly across all age groups, and certain demographic groups, like children, minorities, or those with substance abuse, are reaching near-crisis levels.

This post will highlight some key insights about the mental health startup ecosystem in Israel, and how founders, and investors, can best maximize opportunities.

TL;DR highlights:

• First wave of Israeli startups in mental health happened before Corona, and new startup formation has remained active since, especially when compared to other sectors.
• Mental health is one of the few sectors in Israeli health-tech that continues to receive investments, even in early stages.
• Investor appetite skews toward solutions that incorporate both patient-facing care options as well as a strong understanding of back-end infrastructure and integration to workflows, processes, systems, and clinician usability.
• Israeli startups are noticeably less advanced than incumbents in the US or UK, and most startups focus on self-care and treatment, but without consideration of infrastructural needs of healthcare systems.
• The Israeli healthcare system has not been as supportive of mental health as other areas of care, which has created a gap between innovation and implementation, and the proliferation of more wellness oriented startups that do not integrate with the healthcare system.
• This means that for Israeli mental health startups to succeed founders (and investors) need to put an emphasis on both unique technological approaches as well as a deep understanding of how healthcare systems outside of Israel operate and what it takes to integrate with clinical workflows, processes, and economic considerations.
• We should see increased startup activity coming from Israel in the mental health space, driven by interest at the national level, a strong foundation for innovation in healthcare, and the clear need for new solutions as a result of the events on October 7th.

Defining the Space

There is significant confusion about how to define “mental health”, as can be seen in various reports and industry surveys. For example, there is a frequent tendency to include neurodegenerative and neurodivergent products and services into mental health.

For the purposes of this summary, we aim to isolate only software driven products and services that directly address the spectrum of mental health for the neurotypical population.

Therefore, neurodivergent and neurodegenerative conditions like ADHD, Autism, and Alzheimer’s are not included in this review, but will be considered separately at a later date.

This review also does not include drugs or molecules, but it does cover the entire spectrum of mental health, including “lighter” aspects of mental health care like mindfulness through more “traditional” clinical aspects of care like PTSD.

In addition, we do not include “Israel related” startups that are frequently included in other reports, like BetterHelp or Twill by Dario as they do not have activity in Israel.

Startup Deep-Dive: Insights

Based on the narrower definition of the mental health above, 63 startups have been formed since 2011. Of those, one third (21) are inactive. Contrary to some articles, activity in the mental health space began a few years prior to Corona, with the formation of 30 new startups between 2018 – 2020. Even though startup formation has declined since, there is still noticeable recent activity, with five new startup formations per year, on average, in 2021 – 2023.

It is important to classify startups correctly in accordance with the provision of care. For the purposes of the summary, we classify startups according to two key parameters:

• Diagnostic vs. Treatment vs. Infrastructure
• Self-Care vs. Managed Care

Diagnostic refers to startups that deal with the assessment of the mental health of the user. This can include assessment of the type of condition (anxiety, grief, stress, depression, etc..) and/or severity of the condition.

Treatment refers to startups that some form of treatment for the condition. This can include treatment that does not require clinical validation through those that require rigorous clinical review.

Infrastructure refers to startups whose core product offering is designed to address workflow, processes, integration, or clinical usability aspects of mental health care. This can include startups that offer clinical automation, clinician management and administration, integration with healthcare systems, or any additional back-end features.

Some startups address multiple parameters, like diagnostics along with the infrastructure platform.

Self-Care refers to startups who offer care products and services that users can interact with on their own, without the need for clinician intervention

Managed Care refers to startups that require clinician intervention and oversight during usage.

Over two thirds (42) of the startups that have been created since 2011 deal with treatment only. One startup offers solutions for all three aspects: diagnosis, treatment, and infrastructure.

Self-Care is significantly more prevalent than managed care, and correlates strongly to “lighter” aspects of care. Two thirds of the startups that have been formed since 2011 are in this category.

Self-Care and Treatment go hand in hand, and there is a noticeable shift into these two categories in recent years. During the peak years of 2018 – 2020, just over half of new startups formations were dedicated to self-care and treatment. Since 2021 all but one startup has been dedicated to self-care and treatment.

Almost all of the startups that have failed are those who built self-care treatment solutions as standalone offerings, without considering any infrastructural aspects that would be relevant to deeper integration with healthcare systems. In addition, many of these startups build solutions by digitization of common mental health protocols, which creates little differentiation or defensibility. This is also one of the reasons why there is less implementation in Israel and should serve as cautionary tale to those startups who are still active, and investors who are exploring the space.

Funding Deep-Dive: Insights

The 63 startups in the analysis have raised $248M in disclosed funding. Over 55% of the startups in the mental health space remain unfunded – either purposefully bootstrapped or unable to garner interest from investors. In addition, almost 90% of all startups are “early-stage”, defined as Pre-A.

One company is public, having listed very early in the life of the company. Since listing, the company has raised $230M in post-IPO equity and debt financing, but is currently valued at $29.1M market cap. The funding for this company will not be considered with the analysis.

One company has reached the C round, and is responsible for nearly 30% of all private financing.

At the highest level, there is a notable skew toward startups that have built out strong infrastructure components as part of their value proposition.

Startups that have an infrastructure component represent 24% of all startups, but have garnered 57% of all funding.

Even without the one outlier startup who has reached the C round, there is still a notable skew in in favor of startups who have built out appropriate infrastructures – (23% of startups accounting for 40% of all funding).

Without the one outlier startup, the average total funding for a startup with an infrastructure component is over twice the average total funding for a startup without an infrastructure component ($5M as opposed to $2.25M)

There is also a notable skew regarding managed care as compared to self-care.

Startups focused on managed care represent 13% of all startups, but have garnered 46% of all funding.

This outcome becomes even more pronounced when excluding the one outlier startup that has reached the C round – where managed care startups now account for 64% of all funding.

Together, we can see that funding is flowing to startups who are building managed care solutions with an infrastructure component.

This makes logical sense, as startups focused on managed care require significantly more financial support in order to build out clinical validation or back-end integration and platforms. Clinical validation and infrastructure also creates significant defensibility and a stronger value proposition.

Startups who are only building out infrastructure, without any care component, are the least valued by investors.

Investor Deep-Dive: Insights

82 unique investing entities have disclosed funding for mental health. Interesting, especially when compared to other sectors like Femtech, crowdfunding has not played a major role in supporting Israeli mental health startups, indicating interest from traditional and institutional investing entities.

The mental health space also receives more interest from Israeli investing entities than other sectors, including in early stages. There were 49 distinct investors in early-stage mental health (defined as Pre-A), of which half (24) were Israeli entities. In addition, a few Israeli investing entities participated in multiple rounds and with two or more companies.

In general, as compared to other sectors, support for early-stage investment from Israeli entities remains strong, indicating interest in the space, and interest in supporting new Israeli startups in mental health.

Israeli Health System: Insights

Mental health care in Israel is dispersed across multiple provider settings, including welfare and social services. This has created gaps in care continuum and siloed data. Regulation to support mental health care in Israel has also lagged when compared to other sectors. For example, only in November of 2023 did the Ministry of Health allow data on mental health to be included into the wider EMRs of the four main HMOs in Israel.

Challenges remain pertaining to integrating patient information over all possible care settings, and there are also clear gaps across demographics, particularly children and the Arab-Israeli population. Reimbursement pathways and financial incentive structures also need to be updated to allow mental health solutions to become integrated into the Israeli healthcare system. Finally, Israel, like many other countries, suffers from a clear shortage of mental health professionals across all care settings.

All of these issues have been immediately exacerbated following October 7th.

The Health Ministry does not have information regarding all those who received mental-health aid since the outbreak of the war, nor do we know when collation of information on this issue will be completed, or what it will include... The Health Ministry also has no estimate as to the scope of expected future needs.

On the positive side, there is significant interest across all stakeholders in Israel to improve mental health care at the national level, partially driven by recent traumatic events that have occurred. This has spurred action and interest, and was part of the driving force behind the Ministry of Health’s recent regulatory change regarding data.

In addition, Israel has three unique benefits that will contribute to increased innovation in mental health. First, Israel has a significant concentration of technical talent, and the ability to build technical solutions for healthcare challenges at high quality and in a relatively shorter time frame. Second, the innovative infrastructure of the Israeli healthcare system gives startups access to research, development, and pilot sites across multiple care settings. Finally, there is significant governmental support of innovation in healthcare, including dedicated pilot tracks and financial support from the Israel Innovation Authority. Specific to mental health, several Israeli healthcare organizations have issued Open Calls for startups as an initial step to spur activity and involvement of the healthcare system.

Therefore, we expect that the that mental health sector will see increased startup activity in Israel, driven by interest at the national level, a strong foundation for innovation in healthcare, and the clear need for new solutions as a result of the recent conflict.

Summary: The potential of Israel in addressing Mental Health

There is clear potential for mental health startups emerging from Israel, and the Israeli healthcare system is an excellent alpha-site for testing new innovations, especially considering the renewed interest and national support for addressing mental health.

But simple digitization of standard protocols like PHQ-9 or GAD-7 is not enough for successful innovation and viability. Startups should explore ways to create unique tech-driven solutions for diagnostics, self-care, or managed care, but with a dedicated emphasis on building out the infrastructure for integration, clinical usage, workflow, processes, or other back-end considerations.

Behavidence and Eleos Health are two examples of emerging Israeli startups that balance between innovative technological approaches to mental health coupled with an understanding of the infrastructure needs of healthcare systems.

Kintsugi , Psyomics , and NeuroFlow are examples of international startups that have successfully balanced between technology and infrastructure to create solutions that have been widely deployed in healthcare systems in the US and the UK.

While investor support for mental health is strong, particularly when compared to other sectors, investors should seek out startups that look beyond digitization of off-the-shelf analog protocols. As stated, common standards like PHQ-9, GAD-7, or known CBT protocols for self-care can be good starting points for innovative solutions, but are rarely enough to justify defensible investments.

Investors should also help guide founders toward addressing the future needs of mental health, like demographic gaps in care or increasing accessibility.

It is also important to note that the mental health space is filled with incumbents who are well funded and well entrenched with healthcare systems, and founders and investors should be mindful of creating unique value propositions that are based on both technological innovation and a deep understanding how solutions can work alongside healthcare systems.

If there is any light at the end of the tunnel to the horrific attack by Hamas terrorists, it is that necessity is the mother of innovation, and the national trauma that has befallen Israel could be a catalyst for the next wave of mental health solutions from Israel.