MentalHappy is offering equity at a $7 million valuation. This is a fair price for several reasons. First, MentalHappy has already launched a technology product that is primed to scale, making this low valuation an attractive opportunity for investors. Second, MentalHappy has already raised almost $1.5 million in venture capital funding. This valuation is a reasonable price compared to the capital raised so far. Finally, this valuation represents a modest increase of roughly $1 million from MentalHappy’s 2021 valuation of $6 million. This seems more than fair given that MentalHappy has achieved a significant pivot during that time. While MentalHappy has barely generated any revenue under its new business model (selling to therapists rather than consumers), the company’s progress in introducing a new product and raising capital from prestigious investors offers solid justification for this valuation. 

The market for online mental health services is growing rapidly. The North American telepsychiatry market was valued at $2.1 billion in 2019, with an expected compound annual growth rate of 24.7% over the next five years. Analysts attribute this growth to the unfortunate rise of mental illness, particularly in the aftermath of the COVID-19 pandemic. 

Investors should note that MentalHappy’s growth depends not just on consumer demand for mental telehealth services but also on the growth of the mental health care profession. There are signals that interest and job opportunities in psychology and mental health care fields are growing in the US. However, the last two years of press about how much burnout therapists face may temper interest in the field.

Overall, MentalHappy is catering toward a market that is decently sized and, more importantly, set to grow rapidly in coming years. But MentalHappy isn’t solely reliant on consumer demand for mental health services. MentalHappy’s direct clients are mental health care providers. The company is betting that tools like its own can help sustain interest in the therapy profession, which will be important for MentalHappy to maintain a base of therapist customers.

MentalHappy was founded by CEO Tamar Blue. Blue holds a degree in economics and sociology from Florida State University. After working as an operations manager at a recruiting firm for five years, Blue founded a company focused on matching employers and job seekers. That company shut down after less than two years, and Blue started MentalHappy shortly after. She has led the company for more than six years. Blue’s personal struggles with anxiety sparked her interest in creating a new way to manage mental health disorders. 

The MentalHappy team is quite small, and Blue seems to be the primary employee. The only other senior member of the team is Chief Psychologist Amy Leo. Leo is a registered therapist and psychotherapy content creator, with courses, a podcast, and a personal brand as “the singing psychotherapist.” Leo does not appear to work for MentalHappy full-time, given her other pursuits. 

Blue gained acceptance into Y Combinator and has built a strong network of investors and partners since 2016 — both notable accomplishments. However, her professional background isn’t particularly impressive or specialized within the fields of technology or mental health. It will soon be important for MentalHappy to expand its team to include technical leadership, sales and marketing experts, and more.

There are a wide variety of mental health therapies and companies offering access to mental health professionals. MentalHappy’s pitch materials indicate that the company is focused on selling directly to therapists, with less emphasis on reaching the general public and helping them find online group therapy. This does appear to be a differentiator. Most other group therapy platforms are catered toward consumers and employ therapists as staff or as contractors, rather than selling to them to build their own client lists on the platform. 

However, MentalHappy’s website is less clear about this distinction. It appears that consumers can sign up for groups themselves, so MentalHappy is in fact catering to both therapists and consumers. If that’s true, MentalHappy looks a lot more like a number of other mental health platforms, ranging from major names like Talkspace and BetterHelp to more group-focused options like Grouport and Circles.

It appears that MentalHappy is still in a state of business model flux, in the midst of a transition between selling to patients and selling to therapists. While the latter approach appears to be more unique, frankly either approach is quite similar to other options in the saturated therapy market. It’s not clear how MentalHappy’s group therapy experience could be superior to that of other platforms. It’s also not clear that MentalHappy offers superior tools for therapists beyond what they could get by signing up to offer services on other platforms.    

At first glance, investors will find MentalHappy is a very early-stage company with zero revenue. The company didn’t bring in income in 2020 or 2021. It also burned quite a bit of cash in each of those years, with net losses of $170,855 in 2020 and $311,781 in 2021. However, MentalHappy’s complete financial picture is a bit more complicated than that. MentalHappy has actually been around since 2016 and appears to have gone through a major pivot in the last two years. Based on unaudited documents shared in MentalHappy’s last crowdfunding raise, which ended in April 2021, the company was actually generating revenue of $26,022 in 2018 and $38,219 in 2019. It wasn’t very much, but MentalHappy was bringing in income by charging subscriptions for patients to access mental health content and classes via an app. MentalHappy clearly pivoted to focus on offering tools for therapists to grow their group therapy practices. As a result, the company experienced a loss in revenue for two full years. 

That’s a rather concerning sign. It seems that MentalHappy spent several years attempting to grow a consumer-focused mental health app and concluded that growth was too slow. Then, it spent a full two years pivoting to a new model that only recently began generating revenue (and it’s not clear how much). MentalHappy clearly needs to succeed with this new business model because the company has been steadily burning cash with no signs of growth for many years now. 

Outside of basic revenue performance, MentalHappy has achieved some successes. The company was accepted into Y Combinator, a prestigious startup accelerator, and has since raised almost $1.5 million in funding from crowdfunders, venture capitalists, and angel investors. Its venture capital investors include Index Ventures and Social Impact Capital. That’s no small feat, particularly for a Black woman founder like Tamar Blue, who has successfully navigated a funding ecosystem that is notoriously biased against female founders of color. More than 50 professionals are now using the MentalHappy app, and the company has partnered with cancer recovery programs. In addition, MentalHappy has forged a partnership with NFL Hall of Famer Terrell Owens, who is speaking out about the mental health crisis in the Black community. MentalHappy has attracted press attention from Forbes, TechCrunch, Revolt TV, and more. These are notable milestones, but they don’t quite make up for MentalHappy’s lack of revenue growth over the last six years. 

MentalHappy is a relatively high-risk investment. It’s not a good sign that the company was generating meager revenue in 2018 ($26,022) and 2019 ($38,219) and has since generated zero revenue. The MentalHappy team is also very small. It relies solely on founder and CEO Tamar Blue, who lacks prior industry experience and an impressive entrepreneurial record. All in all, MentalHappy’s complicated operating history indicates that the company’s future is not fully secure. 

MentalHappy’s core fundraising narrative has changed dramatically since its last round on StartEngine. In April 2021, MentalHappy was touting the promise of its consumer-focused app for mental health support, with content and courses from experts alongside group support opportunities. MentalHappy seems to have largely abandoned the consumer side of its business, discontinuing monthly subscriptions for app content. These days, the company is focused on selling to therapists, helping them build up a group therapy practice to serve more patients sustainably. 

This pivot has had major negative impacts on revenue. MentalHappy’s revenue wasn’t very high to begin with during its consumer-focused days, at just $26,022 in 2018 and $38,219 in 2019. But the company then generated zero revenue until March 2022. While this pivot seems promising moving forward, it did take a long time to achieve, with significant revenue implications. 

Reassuringly, MentalHappy’s valuation grew modestly from $6 million to $7 million between these two rounds. Its small team has expanded slightly from four employees to seven. MentalHappy now has 50 professionals using its app, and it also made new partnerships with cancer recovery programs and NFL Hall of Famer Terrell Owens. However, it’s unclear if these milestones will help MentalHappy recover and surpass its prior traction. Therefore, MentalHappy’s KingsCrowd rating has been downgraded from a Deal to Watch to a Neutral Deal.

MentalHappy has a noble mission to broaden access to mental health care and support providers while doing so. However, the company is competing in an extremely crowded landscape and doesn’t offer any key differentiation when compared to the plethora of other therapy platforms out there. MentalHappy’s model doesn’t seem to be solving the therapist shortage issue. In fact, the company faces the same issue as all similar platforms in the space. The number of therapists could decline due to persistent negative press about the stress and burnout of being on the front lines of the mental health crisis or for any number of other reasons. Under those circumstances, companies like MentalHappy will be less able to serve a growing patient population. 

In addition, MentalHappy’s pivot over the last two years has revealed potential operational concerns about the company. MentalHappy appears to have spent four years attempting to scale a consumer-focused mental health app, but it only ever generated $26,022 in 2018 and $38,219 in 2019 after those efforts. Then the company shut down that revenue stream and pivoted to its current therapist focus. That took two years to pull off, during which time the company went entirely without income. There’s a lot riding on this new therapist-focused model, but investors don’t yet have any data to gauge how that launch has performed since March 2022. MentalHappy has navigated a difficult road over the last few years, and it’s not clear that the company is out of the woods yet. 

While MentalHappy clearly hasn’t found product-market fit yet, the company seems to have evolved toward a more innovative business model that does seem primed to address the growing mental health crisis. Group therapy is an efficient way for more patients to get support within a single hour of a therapist’s time. It also expands revenue opportunities for therapists, allowing them to reap more consistent financial rewards from a very arduous profession. 

In addition, MentalHappy has achieved a few important successes over its history. CEO Tamar Blue successfully led the company through prestigious startup accelerator Y Combinator and gained investments from several other venture capitalists after that, including Index Ventures and Social Impact Capital. This is no small feat for any founder, but it is particularly notable for a woman of color navigating a frustratingly close-minded funding ecosystem. MentalHappy has a chief psychologist, Amy Leo, who has a strong personal platform. The company secured solid partnerships with NFL Hall of Famer Terrell Owens and cancer recovery programs. These connections could help MentalHappy finally achieve growth after several years of finding its identity. 

MentalHappy is a mental health platform focused on group therapy. The company previously focused on providing mental health content directly to consumers with a subscription plan, but it has since pivoted to offer tools for therapists to grow their own group therapy programs. Group therapy seems like an efficient, helpful solution for America’s current mental health crisis. Plus, MentalHappy is Y Combinator-backed, has solid partnerships, and has successfully raised almost $1.5 million in funding.

On the other hand, MentalHappy has been operating since 2016 without any meaningful revenue growth. In fact, the company went from meager revenue in 2018 and 2019 down to zero revenue while pivoting from its consumer-focused app to a therapist-focused platform. It’s too soon to tell whether this transition will allow MentalHappy to finally achieve growth, especially if negative press about therapist burnout starts to hamper interest in the profession and shrink MentalHappy’s market opportunity. It’s also concerning that regardless of MentalHappy’s particular business model, the company is competing in a crowded landscape of similar mental health software platforms. Therefore, MentalHappy has been rated a Neutral Deal. 

For questions regarding the KingsCrowd analyst report or ratings for this company, please reach out to support@kingscrowd.com. 

Analysis written on June 9, 2022.