Mental health startups saw record funding in Q1. Here are other sectors attracting investment amid COVID-19

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COVID-19 dampened technology investment with digital health deals and dollars sliding in the first quarter of 2020, but there are sectors that saw funding boosts. (SmartPhotoLab/Shutterstock)

Equity funding for mental health startups reached a record high in the first quarter of 2020.

These startups raised a record $576 million in funding—surpassing the prior quarterly record by over 60%—across 44 deals in the first quarter, according to market research firm CB Insights.

Employer-focused startups took center stage, closing several $20 million-plus rounds. Lyra Health, which offers a mental health platform based on evidence-based treatments, scored a $75 million funding round in March, and Modern Health, which offers a suite of mental health solutions comprised of digital programs, virtual coaching and clinical therapy, landed $31 million in January.

Behavioral health companies are making strategic moves to grow, such as exploring M&A, CB Insights noted in its "State Of Healthcare Q1'20 Report."

As one example, in March, startup Ginger acquired the technology assets of mental health app LiveBetter.

Mental health startups also are exploring new payment models. New York City-based Quartet is partnering with Blue Cross and Blue Shield of North Carolina to roll out a value-based payment model for mental health care.

Digital health companies applying virtual reality to treat mental health conditions also picked up early-stage investments in the first quarter.

RELATED: Digital behavioral health, women's health seeing strong growth in venture capital funding: report

U.K.-based Oxford VR landed a $13 million series A funding round led by Optum Ventures. The company offers a clinically validated virtual reality platform to treat mental health patients and plans to use the funding to expand in the U.S. France-based C2Care offers a virtual reality platform for mental health professionals and raised seed funding.

As the COVID-19 pandemic and resulting economic downturn have negatively affected many people's mental health, industry experts predict consumers will need greater access to behavioral health providers and solutions. That could attract more investors to mental health startups going forward.

Healthcare investment trends

Overall, the COVID-19 pandemic dampened technology investment with digital health deals and dollars sliding in the first quarter of 2020.

Global digital health funding came in at $4.5 billion in the first quarter, down 8% from the fourth quarter of 2019. The number of deals also declined quarter over quarter, coming in at 408, down 4% from the fourth quarter of 2019, CB Insights reported.

The biggest digital health deals in the quarter include infectious disease blood tester Karius landing $165 million in a funding round led by SoftBank’s Vision Fund 2, Concerto HealthAI—a provider of real-world data and enterprise AI technology solutions for precision oncology—snapping up $150 million and Medicare Advantage startup Alignment Healthcare raising $135 million.

RELATED: Digital health investments were off to a record start. How will COVID-19 change things?

Looking at overall healthcare investment, global healthcare startups closed the lowest number of funding rounds (1,156 rounds) in the first quarter of this year since the fourth quarter of 2018.

However, funding continued to rise for healthcare startups as equity funding surpassed $14.6 billion in the first quarter despite the impact of COVID-19. March was the strongest month in the quarter with $5.7 billion raised among global healthcare companies, CB Insights reported.

Funding to North American companies reached an all-time high: North American healthcare companies raised $10.3 billion in the first quarter of 2020, the highest quarterly level on record and a 35% increase from the fourth quarter in 2019.

This was driven by a record-high number of mega-rounds, or financing rounds over $100 million. 

RELATED: Health tech funding snapshot—Alto Pharmacy scores $250M; GV leads $100M round in Verana Health

Despite the overall decline in global digital health funding, there were several bright spots.

Telehealth: Fueled by COVID-19, telehealth reached a record number of deals. During the quarter, telehealth startups closed 103 deals, double the amount seen in the fourth quarter of 2019 and the highest level on record. Globally, investors poured nearly $1.6 billion into private telehealth companies.

That's second only to $1.9 billion raised by telehealth startups in the third quarter of 2018.

Going forward, telehealth use will likely come down but remain above pre-pandemic levels as providers expand their offerings and as patients embrace the technology.

Post-pandemic reimbursement policy is a bigger question and could influence what types of services users shift toward, the report said.

RELATED: Investors poured $4B into healthcare AI startups in 2019

Women's health: After three consecutive quarterly declines, women’s health funding increased, rising 150% from fourth-quarter 2019 levels.

Startups focused on women's health raised $361 million in 31 deals.

Deals during the first quarter demonstrated a continued interest in women’s telehealth providers and improved prenatal diagnostic solutions, according to CB Insights' analysis.

Advantia Health, a national provider of women’s healthcare that offers both in-person and virtual care, scored $45 million led by BlueMountain Capital Management. 

Women and family health startup Maven landed $45 million in series C funding from some high-profile backers. The company was initially started as an app but grew into a business that helps employers offer benefits to support their workers with maternity and fertility costs. 

Healthcare AI: Startups that focus on using artificial intelligence to solve healthcare problems raised $984 million in equity funding across 80 deals during the quarter.

Funding surged by 37% from the previous quarter, and deals also rose 3% from the fourth quarter, but both deals and dollars remained below the peak hit in the third quarter of 2019.

Companies have been leveraging AI to combat the COVID-19 pandemic, such as AI-based solutions for early detection of the virus and to support research.

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