William Ellsworth

As brain health investing sees unprecedented growth and activity, how do we ensure a sustainable rate of progress going forward? An editorial in 

reported that “In 2019 alone, venture capital (VC) companies invested a record-breaking $637 million in more than 60 different mental health-oriented companies.”

 This has accelerated further in 2020 and 2021.

 The whole VC field is booming, and beyond just mental health care, investment in the broader field of brain health science and technology is also on the rise.

There is a good reason for this: Brain health technologies are essential clinical tools for addressing the global brain health pandemic and its multiple social and technological changes.

 These technologies—spanning omics, digital therapeutics, artificial intelligence, and devices—aim to improve access, screening, prevention, diagnosis, and treatment. There is an increasing convergence of these types of solutions as clinicians, health systems, and payors attempt to simplify clinical workflows and minimize fragmentation of new products and services (

With investment in brain health growing so quickly, it is easy to be optimistic about the current and future state of the field. Recent societal trends reinforce the ostensibly rosy picture. The COVID-19 pandemic accelerated the destigmatization of mental illnesses and highlighted the importance of brain health to the public.

 Similarly, the pandemic has unveiled as never before intrinsic connections between mental and brain health, economy, innovation, and wellbeing.

 It is crucial, though, that we do not take progress for granted and rest on our laurels. It is also critical that we take a responsible approach to this field, which is very vulnerable to hope (due to the dire suffering and intense want for relief) and hype (due to major business opportunities).

Indeed, the stakes are too high. Given the multi-trillion-dollar costs of mental health disorders, the poor standard of routine care, and the projected rises in prevalence and economic burden of mental health disorders in the coming decades, 

 The show must go on! In order to protect and reinforce the vibrant brain health ecosystem, we must anticipate risks of market failure and work to proactively mitigate them. We wrote about this 

; however, this article is a much more extensive thesis and set of recommendations.

) is a graphical depiction of a common pattern that arises with each new technology or other innovation.

 It represents the maturity, adoption, and social application of specific technologies (

). We believe the Hype Cycle is relevant to the frontier brain health technology field and can provide a cautionary tale for the field.

Risks for the Frontier Brain Health Technology Field

We are seeing signs of “Peak of Inflated Expectations” in this field. There are regular news articles touting the rising rates of VC investment, which have helped create a record number of brain health “unicorn” companies (companies valued over $1 billion).

 Concerns have been raised over the emergence of public disclosure of speculative valuations and seemingly inflated valuations (for instance, the digital therapeutics company Pear Therapeutics achieved a valuation of $1.6 billion with less than $4 million in revenue).

 Many commercially successful technologies have major consumer demand, but are not yet integrated into clinical workflows. There is also a common disconnect between commercially successful apps vs those that are validated and more likely to be accepted in clinical practice guidelines. Some have deemed the digital mental health technology field the “lawless wild west,” citing concerns around false claims and poor data privacy management practices.

 Digital phenotyping has failed to make it into clinical workflows.

Further, there are significant safety concerns from post-marketing safety data of a popular new antidepressant, esketamine.

 Such post-marketing data is often not taken into account in the initial go-to-market excitement. Of course, this data is in and of itself a cautionary tale for the psychedelics field, which has received huge investor interest and public interest.

 Psychedelics in psychiatry to date have no post-marketing data, and no study to date is powered to detect conversion to psychosis. Nonhallucinogenic forms of these molecules may be helpful.

 Taken together, these issues create significant concern for this field’s sustainability.

There is thus a risk that the field will slip into the “Trough of Disillusionment.” This will be disappointing, given that every company failure may represent potentially valuable products and services that will not help patients. Moreover, novel intellectual property will be lost. Much of this downward slide will be driven by conventional VC models that are suboptimal for the brain health technology field. Conventional or general VC models rely on financial executives with minimal to no domain experience. The 2/20 model values financial returns within a set timeframe and disincentivizes significant operational input from general partners (GPs).

 Additionally, strategies prevalent in technology startups may not always transfer well to health care startups (eg, “fake it ‘til you make it,” “move fast and break things,” and Theranos). Problems we observe with conventional VC models are outlined in 

How Conventional Venture Capital May Risk Sliding the Field Into the “Trough of Disillusionment”

A Brain Health Technology Market Sustainability Grand Strategy

We suggest a grand strategy that could enable the field to bypass the “Trough of Disillusionment” and progress directly to the “Plateau of Productivity.” VC remains a critical component, but we believe it is imperative to consider additional investment, operational, and governance approaches. We outline these approaches to optimize the field’s sustainability in 

Elements of a Brain Health Technology Market Sustainability Grand Strategy

To optimize the integrity and legitimacy of brain health technology investing, it is key to develop standards and best practices with major international stakeholders. Examples may include the World Health Organization, the United Nations, and the Organisation for Economic Co-Operation and Development (OECD). Engagement with these groups will support sustained engagement with sovereign wealth funds, pension funds, mutual funds, and other large multinational corporations. Moreover, to ensure a global impact, global stakeholders must face the challenges to assure brain health development in low- and middle-income countries (LMICs), where multiple structural conditions may block progress and sustainability. For example, the October 2021 WHO Mental Health Atlas outlined a global lack of progress in leadership, governance, and financing.

“None of the targets for effective leadership and governance for mental health, provision of mental health services in community-based settings, mental health promotion and prevention, and strengthening of information systems were close to being achieved.

The new UN Health Innovation Exchange is a step in the right direction aiming to connect funders, investors, and innovations. Other progress has recently been made. We 

 that the Sustainability Accounting Standards board included mental health and wellbeing in its proposed updated human capital standards.

 Also, a new ISO standard 45003 gives guidance on managing psychological health and safety risks within an occupational health and safety management system

; the Business Roundtable noted that the generation of a healthy environment is a key purpose of a corporation

; and the signatories of the Principles of Responsible Investing listed mental health as one of the top 4 social issue priorities in the future.

Further, the OECD’s New Approaches to Economic Challenges unit has established a Neuroscience-inspired Policy Initiative that seeks to reconceptualize and revitalize the economy and how it works in new ways, laying the groundwork to identify relevant metrics while building a transdisciplinary network of stakeholders. The initiative will rapidly refine and advance the concept of Brain Capital (a novel asset class grossing up brain health and brain skills) via a series of research projects, surveys, data collection, economic modeling, seminars, and clear policy analyses and recommendations.

Tracking Brain Health Technology Market Sustainability

Tracking metrics on this topic would be useful, given the risks outlined in this article. Metrics of company and market sustainability could offer investors greater ability to make scientifically and data-grounded investments and to ensure the field develops sustainably. However, developing representative metrics of company and market sustainability is challenging in a market where most investments flow into private companies. This precludes the use of typical financial metrics such as free cash flow and yearly revenue. While private companies will disclose data, it is likely that they will only release information that is self-serving and can generate interest from investors and the general public. Further, given the strength of the financial incentives of both limited partners and fund managers, it will be challenging to achieve a more sustainable approach. Financial incentives prioritize force feeding unicorns to maximize exit price and maximizing the share price of public companies. Most likely, metrics will need to be carefully developed by integrating data and judgment in a transparent way, possibly through the tools of multi-criteria decision analysis.

Tracking market sustainability is further challenged by the 

 inherent in a field largely reliant on highly technical advances.

 This enables companies to craft a reductionist and self-serving story of how their products function, a phenomenon exemplified by Theranos. Moreover, many life science companies themselves do not fully understand how their products work, which complicates efforts to overcome the information asymmetry rife in the brain health technology field.

Nonetheless, we believe there are available metrics that could help form an index of company and broader brain health market sustainability. These measures represent outputs that can help investors mitigate the risk of company and broader market failures. 

 outlines such elements that may be included in a proposed brain health market sustainability index.

Potential Components of a Brain Health Market Sustainability Index

 recently published a project mapping 50 emerging digital health technologies onto the Hype Cycle.

 We suggest that this type of project should be completed specifically in the brain health technology field, and it should involve surveys of diverse stakeholders from many countries. Then tracking where individuals believe brain health technology map onto the Hype Cycle in a yearly manner would be prudent to guide the field.

In the brain health technology field, there is considerable variability concerning where particular technologies and technology classes sit in the Hype Cycle. Therefore, further work is required to map specific examples onto the cycle. However, irrespective of where these examples stand, formalizing and employing the abovementioned sustainability strategy in the United States, where most investment is currently directed, could mitigate the risk of a broader brain health market failure.

 Of course, we believe our approach should also be deployed proactively outside the United States, especially as global investment begins to increase. We hope that it may even be possible to largely avoid the “Trough of Disillusionment” and reach the “Plateau of Productivity.” We believe our approach could sustain the brain health technology market for decades. Humanity deserves and needs it!

 is an undergraduate studying neuroscience at Dartmouth College. 

 is a director at the PRODEO Institute, an Atlantic Fellow in Brain Health Equity at the Global Brain Health Institute at the University of California, San Francisco, and a Thiel Fellow at Stanford University. 

 is cofounder of the PRODEO Institute and CEO of PRODEO. 

 is Alfred Deakin Professor of Psychiatry at Deakin University and director of IMPACT at Deakin University (Institute for Mental and Physical Health and Clinical Translation). 

 is the director of the Latin American Brain Health Institute, a senior researcher at the Universidad de San Andrés, and a Senior Atlantic Fellow at the GBHI at the UCSF and Trinity College Dublin. 

 is a venture capitalist and an adjunct faculty member at UC Berkeley and Singularity University. 

is a venture capitalist and an adjunct professor in engineering at Stanford University. 

 is a senior clinical advisor for Cohen Veterans Bioscience’s Trauma Research Programs who also serves as strategic advisor co-leading CVB’s Suicide Strategy Initiative. 

 is a corporate attorney, a professor of law at University of Surrey, and an adjunct professor with the UCLA David Geffen School of Medicine. 

 is venture capitalist, founder and managing partner at Newfund Capital. 

 is an undergraduate studying computer science at Stanford University. 

 is the CEO of Fondation FondaMental and professor of psychiatry at University Paris Est Créteil. 

 is a neurologist, neuroscientist, and technologist. He is an adjunct professor with the Department of Neurology at Johns Hopkins School of Medicine and co-lead of The BrainHealth Project at the Center for BrainHealth at The University of Texas at Dallas. 

 is senior scientific and technical manager at the US Army Engineer Research and Development Center, where he manages crisis response and resilience project portfolio. 

 is the CEO and president of Cohen Veterans Bioscience. 

 is cofounder of the PRODEO Institute and co-lead of the OECD NIPI, and he holds adjunct roles with IMPACT at Deakin University, GBHI at UCSF, Brain Health Nexus at Cohen Veterans Bioscience, and Baylor College of Medicine. He is a probono strategic advisor to the HEKA Fund (a collaboration of Newfund Capital and FondaMental Fondation).

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Articles

New approaches to ensure that the brain health technology sector continues to flourish for decades.

Avoiding a Brain Health Innovation Market Failure: Lessons from the Hype Cycle

Elizabeth Holmes of the blood testing company Theranos, who is being tried for 12 charges of wire fraud and conspiracy to commit wire fraud, serves as a sobering reminder of the importance of due diligence.

 Theranos’s many esteemed investors were not unscrupulous, just unaware. Holmes’s case is one of information asymmetry, in which 1 party has information that the other does not. Holmes knew she was selling snake oil; her investors did not.

 is considered by economists as a major source of market failure.

 in the past years, this field needs sustained investment increases over the coming decades to seriously tackle 

multi-trillion dollar global brain health challenges

 Approaches to understand and then minimize information asymmetry between technical entrepreneurs and investors are key.

This asymmetry creates an imbalance of power and can lead to negative results, spanning from poor decision making on the part of the less informed party, all the way to providing an opportunity for exploitation and unethical behavior (

Table 1: Common Types of Information Asymmetry

The opportunity for information asymmetry to lead to fraud is particularly alarming. According to 

, 47% of companies experienced fraud in the past 24 months, and more than $4.5 trillion are lost to fraud each year globally.

 Concerning startups, fraud is most prevalent among small companies. According to the 

Association of Certified Fraud Examiners’ (ACFE) 2018 report

, organizations with fewer than 100 employees see the largest share of fraud cases and lose nearly twice as much per scheme compared to organizations with more than 100 employees.

We believe that brain health technologies will add monumental value to human society in the coming decades. However, if entrepreneurs and investors are not on the same page, information asymmetry could impede development of the brain health technology company space.

The problem of information asymmetry is exacerbated by ever-growing information overload. In 1971, before the advent of the internet and social media, the prominent Nobel Prize winning economist 

 noted “information…consumes the attention of its recipients…a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.”

 This problem has become increasingly apparent in our daily lives as a cacophony of online media competes for our attention. 

, there are more than 474,000 tweets, 400 hours of new video on YouTube, 3 million new posts on Facebook, 3.5 million Google searches, and over 15 million text messages delivered.

The problem of information overload is particularly acute in brain health technology investing. There has been a 

 in technological breakthroughs; basic, translational, and clinical neuroscience discoveries; and brain health technology company formations.

 Likewise, there has been substantial growth in investments—venture investors poured a 

 into brain health-related startups by the year-end of 2020.3 The brain health technology sector urgently needs sustained investment over decades. Further, the brain health technology market has the opportunity to tap into the 

 in global assets with environmental, social, and governance investment imperatives that could be harnessed by the brain health space if the market continues to mature.

The effect of such information overload is to amplify information asymmetry. Sunstein, in 

argues that less is often more, highlighting that in many cases, abundant information is neither necessary nor welcome, and can be an impediment to effective decision making.

 People typically make decisions by distilling redundant information rather than adding unnecessary complexity.

Because of the immense complexity of neuroscience, it is particularly vulnerable to such asymmetry. Complex neuroscience principles, technology, and 

 may be poorly understood by advisors, employees, and investors without a relevant technical or clinical background.

 Additionally, it is especially hard to develop an accurate sense of the product’s capabilities and scientific validity when it lacks peer review. 

As a result, investors and customers are arguably more reliant on views of others and are consequently vulnerable. Who do nontechnical investors turn to when evaluating a neuroscience company? In some cases, they may consult experts in the field. Often, however, they may simply trust the due diligence of earlier investors. Current capital markets and funds (private equity and venture capital) have so much money that free riding is increasingly common. Large firms count on the due diligence of smaller funds (or early-stage investors), who in turn count on the reputation of the big firms. Thus, mistakes and oversights from early investors might not always be rectified in future investment rounds.

Moreover, the rapidity of the current market environment maximizes asymmetries. Building a trusting and robust relationship with founders over time used to be the usual way for an investor to gain access to reliable and accurate information. Over time, investors observe consistencies and inconsistencies in narratives and presented factors and data. However, deals are closed so quickly and fear of missing out is widespread among investors, therefore effective diligence cannot be completed.

The relationship between marketing and the product is another source of information asymmetry. Overemphasis on marketing without product development—a staple of the Silicon Valley “fake it till you make it” mentality—may distract from an unvalidated or poorly validated product. In some cases, as with Theranos, “the emperor has no clothes,” and the product is nonfunctional. Of course, when communications to customers and investors paints a rosier picture than the truth of product development, this leads to further information asymmetry. From a product-market fit perspective, there are many novel market segments and a rapidly evolving brain health landscape. Only select people may understand these product-market fit dynamics, enabling information asymmetry to arise between key stakeholders.

Entrepreneurs may have a monopoly of knowledge over the different market activities and thus spin or even withhold relevant and accurate information.

In particular, market activities are often overplayed by entrepreneurs. It is important for investors to discern the difference between conversations in the market, unpaid pilots, paid pilots, commercial contracts, and revenue from commercial contracts. However, entrepreneurs often inaccurately portray these activities in conversations with investors (eg, claim unpaid or one-off pilots as commercial contracts). Entrepreneurs may have a monopoly of knowledge over the different market activities and thus spin or even withhold relevant and accurate information.

The disconnect between revenue and valuation may also present information asymmetry between founders and employees. Potential employees without a comprehensive understanding of startups may not understand how a brain health technology company may be worth millions or billions of dollars, and yet have minimal or no revenue. Entrepreneurs also may charismatically explain inaccurate revenue projects and withhold information from potential employees. Subsequently, potential employees may accept jobs and take on more risk than they would otherwise feel comfortable with if they comprehensively understood the current state of the startup.

Finally, we would be remiss not to mention that cognitive biases may worsen information asymmetries. For instance, 

 could have a negative impact on our field in the long run.

 The increasingly high and speculative valuation dynamics embolden founders as well as investors to think that they have “got it.” It is important that overconfidence does not lead to insufficient diligence, and insufficient operational and governance activities.

Table 2: Solutions to Mitigate Information Asymmetry

Action is required to mitigate information asymmetry in brain health companies, or else brain health technology could suffer. For one, the field should encourage more advertising of failures and accurate analysis of how they could have been avoided. Additionally, to mitigate cognitive biases like overconfidence, training in 

, and associated self-reflection may be useful.

 Finally, information needs to be disseminated in a manner that is clear, simple and accurate, and minimizes jargon. We have developed a 

 that may apply in this situation to equip people to be more effective investors and board members.

 Specialist investment funds should be established in niche areas with highly skilled investors, operators, clinicians and scientists (eg, 

). Engaging clinicians and scientists with deep domain expertise, as independent experts, is additionally key to ensure 

investors and brain health practitioners are aligned

 Material incentives, reputation incentives, control incentives, and stock option incentives have also been found to be 

 to reduce information asymmetry, improve decision making, and lessen the investment risk of investors and entrepreneurs.

 Further details around these solutions are outlined in 

To work toward addressing the current global brain health challenges, continued investment and interest is needed in the brain health space. We cannot afford to turn a blind eye to problems stemming from information asymmetry. As with the case of 

, information asymmetry and fraud in one company can sour investor interest in the space for years to come.

 The brain health technology space cannot afford to be set back by information asymmetry and fraud due to the urgent need for innovation and sustained investment. The decisions made now to understand and mitigate information asymmetry between key stakeholders in brain health technology companies will have repercussions for decades to come.

 is a director at the PRODEO Institute, an Atlantic Fellow in Brain Health Equity at the Global Brain Health Institute (GBHI) at the University of California, San Francisco (UCSF) and a Thiel Fellow at Stanford University.

 is a Senior Clinical Advisor for Cohen Veterans Bioscience’s Trauma Research Programs. She serves as Strategic Advisor co-leading CVB’s Suicide Strategy Initiative. 

 is an undergraduate studying neuroscience at Dartmouth College.

 is a corporate attorney, a professor of law at University of Surrey and an adjunct professor with the UCLA David Geffen School of Medicine. 

isa senior advisor to the Organisation for Economic Co-Operation and Development (OECD) Secretary General, head of the New Approaches to Economic Challenges Unit (NAEC), and co-lead of the OECD-PRODEO Institute Neuroscience-inspired Policy Initiative (NIPI).

 is Chief Commercial Officer with Stanford University’s Brainstorm Lab and adjunct faculty with the Massachusetts General Hospital, affiliated with Harvard University.

 is a technologist, venture capitalist and an adjunct professor in engineering at Stanford University. 

 is a venture capitalist, managing director at Newline Ventures and Adjunct Professor in Management Science & Engineering and Civil & Environmental Engineering, Stanford University.

 is an undergraduate studying computer science at Stanford University.

 is cofounder of the PRODEO Institute, colead of the OECD NIPI, and holds adjuncts roles with IMPACT at Deakin University, GBHI at UCSF and Baylor College of Medicine.

Bad Blood: Secrets and Lies in a Silicon Valley Startup

Information asymmetry occurs when one party has more or better information than the other party. Asymmetry and fraud will sour investor interest in the field.  

William Ellsworth

Articles

Avoiding a Brain Health Innovation Market Failure: Lessons from the Hype Cycle

Sustaining Investment in Brain Health: The Dangers of Information Asymmetry

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Move Over Data, Brain Capital is the New Oil

Convergence Mental Health: A New Pathway for Transdisciplinary Innovation and Entrepreneurship