Startups are jumping into mental healthcare to treat people with substance use disorders. Healthtech startup Pelago just grabbed a fresh round of funding to power its own push.
Pelago, which provides virtual care for substance use disorders including alcohol, tobacco, and opioids, recently announced $58 million in Series C funding led by Atomico, with participation from Kinnevik, Octopus Ventures, Y Combinator, and Eight Roads. All are existing investors in Pelago.
The Series C was an upround for Pelago, said Dr. Yusuf Sherwani, cofounder and CEO. He said the startup was able to get more cash because the team focused on efficient growth, tripling its revenue last year and approaching profitability.
Sherwani said the Series C round may be Pelago’s last capital raise before it hopes to IPO. If the startup chooses to limit new investments, he said, Pelago could hit profitability later this year or in early 2025.
Investor appetite for addiction tech startups has skyrocketed since Sherwani cofounded Pelago in 2017. When the startup launched with the name Quit Genius, virtual behavioral healthcare hadn’t yet taken off. During the startup’s first three years, Sherwani said it “felt like banging our head against the wall.”
But when the behavioral health market took off during the pandemic, a crop of addiction tech startups began grabbing venture funding to provide virtual care to patients with substance use disorders.
“We’ve seen incredible growth in the category. People want to solve this problem, and they recognize that there’s real ROI in doing so,” Sherwani said.
The scope of addiction in the US is staggering. About 48.7 million people aged 12 and over in the US, about 17% of the population, had a substance use disorder, according to a 2022 survey done by the Substance Abuse and Mental Health Services Administration. Healthcare spending resulting from these disorders costs employer-sponsored insurance more than $35 billion annually, according to a 2023 study by researchers at the Centers for Disease Control and Prevention.
Pelago sees these stats as an opportunity to help people struggling with substance use disorders while saving money for their employers. It’s providing care to large businesses and health plans across the US, like MetLife, Phillips, and GE Appliances, through a combination of telehealth, remote monitoring, access to prescriptions, and virtual therapy sessions.
Pelago has raised $151 million in venture capital to date. The startup raised $64 million in Series B funding in July 2021.
Pelago offers its services in all fifty states, with care available to 3.4 million people.
With the Series C funding, Pelago plans to launch a program in the second quarter of the year to refer members who don’t complete substance use disorder treatment to inpatient facilities.
The startup wants to treat more substance use disorders, too, including dependence on cannabis and stimulants, which the company calls “emerging threats.”
On average, Pelago says it saves customers three times as much money as its program costs. That return on investment has helped Pelago retain its existing clients and continue to grow, Sherwani said.
“Our mission is everybody should have access to substance use care that works, but we’ve got to make sure it’s the right business decision for our customers, too,” Sherwani said. “They’re looking at the ROI and they’re saying, it’s too expensive for us not to have a solution like this.”
