Opinion: Preventing market failure in brain health: Moving toward fixes in investment, operations, and governance

The world is in the midst an escalating global crisis of brain health, by which we mean all mental health and neurological disorders across the lifespan, from autism and schizophrenia to Alzheimer’s and Parkinson’s.

The existing workforce of health care providers cannot keep up with this brain health epidemic, and existing approaches to care are woefully inadequate. Screening is rarely implemented. Diagnosis is often subjective. Treatment is largely trial and error.

Brain health technologies are key to addressing the global brain health crisis. These technologies span the “omics,” digital therapeutics, artificial intelligence, robotics, and devices. They aim to improve the entire spectrum of care from prevention to screening, diagnosis, treatment, and continuing care. They can facilitate scale and equity (think apps and telehealth) along with personalization (think genetics).


Although the field of brain health technologies is booming today, it could easily implode.


Gartner’s “hype cycle” is a graphical depiction of a common pattern for new technologies. It has five phases: Technology Trigger, Peak of Inflated Expectations, Trough of Disillusionment, Slope of Enlightenment, and Plateau of Productivity. We believe the hype cycle is relevant to the brain health technology field and offers a cautionary tale for it.

We are seeing signs of the Peak of Inflated Expectations in brain health technology. Midway through 2021, a record-setting $1.9 billion had been poured into brain-health-related startups. There have likewise been soaring valuations for early VC-backed companies and a record number of so-called unicorn companies — those valued at more than $1 billion — in the field. These ballooning valuations often contradict underlying fundamental problems brain health companies face.

These fad-like trends distract from deeper issues that numerous companies are facing. Some have deemed the field of digital brain health technology as the “lawless wild west,” citing concerns around false claims about health benefits and poor data privacy management practices. There is a common disconnect between commercially successful apps and those that have been clinically validated, leaving consumers and clinicians to differentiate which technologies will work and which are merely hype. These issues are worrisome for the sustainability of the brain health technology field.

There is significant risk that the field will enter the Trough of Disillusionment, which portends chilled interest from investors. This is especially problematic because the field needs decades of sustained growth, investment, and innovation to overcome the current brain health crisis. Market failure in the brain health technology space would be disastrous. Every company failure means the loss of potentially valuable products, services, and novel intellectual property that could help patients.

Given these dynamics, conventional venture capital may be suboptimal for the brain health technology field.

Conventional venture capital models are staffed by financial executives with minimal to no domain experience. The 2 and 20 model values financial returns within a set time frame and disincentivizes significant operational input from general partners, the people who manage venture funds. Within traditional venture capital models, force-feeding unicorns — stuffing a company with too much money until it chokes — may occur to optimize returns to limited partners, the people who provide capital for venture funds, leading to limited exit options, investors becoming more financially and less mission driven, and high failure rates for other portfolio companies due to insufficient capital and attention from general partners.

Conventional venture capital models may also not have incentives to invest in the longer time horizons essential for neuroscience innovation. It may not be possible to complete thorough and effective diligence in the drive for rapid market activities spurred by fear of missing out, and this could lead to a higher chance of investing in poor science or entities with no real market potential.

The current focus on a few perceived winners in a portfolio to the exclusion of other companies that require more operational support may lead to the demise of companies that could otherwise positively affect the brain health field, filling unmet needs and bringing dramatically advanced solutions to clinicians and consumers.

Innovative solutions are needed to mitigate the risk of the brain health technology market failing. A multi-pronged approach spanning investment, operations, and governance can prevent the field from falling into the Trough of Disillusionment and progressing directly to the Plateau of Productivity.

From an investment perspective, thematic venture capital funds with domain expertise and skilled resources are key. Specialized investment funds are emerging in the brain health space, including those for dementia-related companies, for human experience technologies, and for neuroscience and education. Other investment models such as venture studios, which found and fund companies, may be especially beneficial for the brain health technology space. The venture studio model has the unique advantage of “bringing ideas, capital, resources, and talent together — partnering with co-founders to build the best ideas into great companies,” as one company has described it.

Integrated investing models that include venture studio, venture capital, and advisory capabilities may also be extremely valuable for early-stage brain health technology companies. Other innovative funding strategies include venture philanthropy, public private partners, and venture creation based on emergent discovery.

From an operational perspective, the development of effective brain health executives is an important workforce innovation. These are individuals who have the clinical, research, and business experience — as well as the creative thinking — needed to navigate the rapidly evolving landscape of technologies in brain health.

From a governance perspective, investor and clinical perspectives must be aligned. Involving brain health practitioners and researchers in technology companies’ diligence teams can mitigate information asymmetry, such as complex neuroscience principles and black-box algorithms being poorly understood by advisers, employees, and investors without the relevant technical or clinical backgrounds. Forming partnerships with research institutions, universities, investors, health care associations, consumers, and caregivers will also be valuable, something that Dallas-based Pegasus Park Biotech+ and others are doing. Optimizing privacy and security measures and demonstrating efficacy through high-quality studies will also better enable solutions to seek reimbursement or addition into national formularies.

With the large societal issues the world faces, avoiding failure in the brain health market by proactively mitigating the risk is vital. A multi-pronged approach that incorporates innovative investment and changes in operational approaches and governance is key.

Erin Smith is an Atlantic Fellow for Brain Health Equity at the Global Brain Health Institute at the University of California, San Francisco, and a Thiel Fellow at Stanford University. Mark Heinemeyer is the CEO of PRODEO, a brain health technology executive services group. Harris A. Eyre is co-lead of the Neuroscience-inspired Policy Initiative of the Organisation for Economic Co-Operation and Development, the PRODEO Institute and the Meadows Mental Health Policy Institute, a member of the founding steering committee for Brain Health Nexus of Cohen Veterans Bioscience, and a pro bono strategic advisor board member for the Paris-based HEKA Fund.

Source: STAT