Over the past year, mental health services has been pushed to the forefront – with multiple dedicated platforms such as Hao Xin Qing (Good Mood), Jian Dan Xin Li, Yi Dian Ling, and Zhaoyang Doctor completing new rounds of financing. In 2021 alone, the global investment into digital health solutions will exceed $35.8bn.

As a global investment firm, Eight Roads has been an early investor in specialized healthcare services for historically neglected or under-resourced populations. In the mental health space, our global platform including our US-based sister fund F-Prime Capital have invested in companies like NOCD, US HealthVest, Quartet Health, Sondermind, and Equip Health. However, the mental health services markets in China and the United States differ significantly.

“Compared to the US market, the most notable feature in China is the fragmentation between the fields of psychiatry and psychological counseling,” said Chersy Miao, Principal, Eight Roads Ventures China. With lack of standardization across the practitioners' education, training, and professional standards, it is difficult for psychiatrists and psychologists to diagnose and treat patients collaboratively.

In addition, psychological counseling clinics often can have difficulties with obtaining medical licenses, which not only limits their ability to diagnose or prescribe, but also their ability to facilitate seamless referrals for patients beyond their clinical scope. Therefore, Chersy believes that the successful integration of those two is necessary to effectively meet the rapidly growing demand of the mental health industry in China.

Beyond care for critical serious cases, China's healthy and semi-healthy populations also need more extensive mental health services that cater to their lower intensity needs but are currently limited by a lack of general awareness. A successful mental health service platform will need to have an advanced tech user experience that can guide & navigate users to the right product, according to Chersy.

In May 2021, Eight Roads led the Series Pre-B financing round for KnowYourself (KY), a comprehensive mental health-focused lifestyle brand. Today, KY has over 10 million active users on its platform and has established a diversified business portfolio, including content creation, an Eclipse app (an innovative self-care digital tool), urban spiritual meditation halls, and community building. The "daily practice" offering developed by KY can support and guide users to conduct psychological training. “KY is positioned more in line with the Chinese market. Its high-quality content has attracted a precise user base,” continued Chersy, “The underlying logic of KY's products is based around evidence-based medicine, but its consumer-focused user access & experience design mitigates the risk for attracting patients with more serious mental conditions.”

Therefore, what China needs in this healthcare services category are companies that can provide comprehensive tools that challenge the status quo. If companies in this sector are solely focused on solving a narrow range of pain points, they will be exposed to other systemic risks.

The following is a select transcript of the interview:

Q: What’s the status quo for the mental health services sector in China?

A: We have invested in several companies in this sector in the US and have found that comparatively, the Chinese market is very different from those in other countries. In China, psychiatry is classified under the medical system, but psychology is under the social welfare system, leading to the current situation where psychiatric diagnosis & treatment and psychological counseling are somewhat disconnected and not effectively integrated where they may be in other healthcare systems like the US.

In the US, practices often operate as individual units of a larger, fairly standardized institution with an interoperable payment system, so once general practitioners or psychologists come in contact with patients outside of their clinical scope, there is a smooth network to transfer the patient through. There are also clear procedures in place for what kinds of patients should be taken in. For doctors and patients, there is also relatively comprehensive commercial insurance coverage.

Whereas in China, the two systems are not effectively integrated. Psychiatrists in China usually have completed medical school training and are subject to clinical guidelines & diagnostic standards while practicing medicine. Psychologists in China tend to have inconsistent professional backgrounds and qualifications. Some are psychiatrists with specialized psychology counseling training, others have studied psychology in university, and some start practicing directly after receiving relevant training.

Mutual recognition between the two systems also becomes difficult given the different theoretical foundations that psychiatrists and psychologists have. Psychology itself has different methodologies – with psychodynamics, dominated by Freudian psychoanalytic theory, as the most widely-accepted system in China. Psychologists do not diagnose patients with a spectrum of depression, bipolar, or other conditions but instead uncover problems in patients' subconscious (i.e., family issues, childhood trauma, etc.) to identify the root cause of their symptoms. As a result, it becomes difficult for psychologists and psychiatrists to learn from or collaborate well with each other, both on the academic and the practice levels if they can't communicate well.

Q: Based on the current situation and the existing healthcare services available, what business model are you most optimistic about?

A: The first category is psychiatric hospitals which are directly aimed at patients with more serious, clinically diagnosed mental illnesses, such as schizophrenia, where patients have a higher tendency to harm themselves/ others and require intensive, long-term intervention

The second category is clinics that provide both psychiatric services and psychotherapy – these integrated diagnosis and treatment centers are commonly seen in the West. Ideally, these clinics are aimed at patients with mild to moderate psychiatric disorders. The doctor first diagnoses the condition and the relative severity, then works with a counselor to generate a treatment plan. Because the treatment plan includes both prescription drugs and psychotherapy, the process is physician-led due to the importance of these prescriptions within the plan. This way, patients actively manage their condition by regularly taking medication while attending weekly counseling visits, and at the same time follow-up with psychiatrists semi-frequently where the physician can assess the progress of the treatment. The doctor and counselor can discuss their common cases each week to identify any points of improvement. Within the institution itself, there is regular oversight and training to ensure a certain standard and quality of practice for psychiatrists and counselors.

This integration of psychiatry and psychotherapy is very promising in this field, but it faces many challenges, such as finding open-minded doctors and psychological counselors within China who are willing to cooperate with and recognize the value in each other. Getting licensure for mental health clinics – especially in first-tier cities – can also be a challenge as it is strictly controlled, meaning doctors within these clinics cannot diagnose or prescribe medication. Medical qualification is another core obstacle in their rapid development. But we still believe in the value of this integrated model.

Q: Are doctor resources important for long-term competitiveness?

A: Doctors certainly continue to play an indispensable role within the system of care. I think that regardless of online or offline, the most important factor is to see how the platform combines doctors and psychological counselors. Mental health providers must find an effective model to truly integrate the two parties and implement them into the SOP.

Q: Within non-clinical or consumer health-based platforms, what kind of company can best address the C-side needs?

A: Currently, no company can address all the pain points – we will pay attention to the companies that are clearly positioned and can solve the problems within a smaller-scaled ecosystem, as our portfolio company KnowYourself, does. KY's content is distinctively strong and differentiated so it is able to attract a very precise customer base made up of young adults concentrated in first- and second-tier cities who are attentive to their own mental health. With widely accepted content, the brand has built strong user loyalty from a customer base with a high willingness to pay.

In fact, after initially amassing a substantial user base a few years ago, KY had ventured into online psychological counseling but found that the severity of the users' conditions far exceeded their expectations and that they critically lacked the support from higher-level medical institutions, policies, or even insurance. To avoid systemic risks, the company had to quickly pull back on this business transformation and rethink its strategic positioning, concentrating instead on product development, ultimately evolving into the current business model & matrix-based around the consumer and holistic psychology.

The current positioning of KY also complements well the market situation in China. More importantly, KY's products and tools are supported by evidence-based medicine and international, cutting-edge CBT (cognitive behavioral therapy) technology, while having their user reach & experience intentionally designed for a healthy and semi-healthy demographic. For example, the experience of KY's flagship app Eclipse is similar to that of Keep, where users follow its modules for training and meditation to relieve anxiety, insomnia, and negative emotions, providing an effective tool that both improves mental health awareness and prevents more acute psychological problems for a broad range of people.

Targeting a less mature user base in China, a guided process is used when KY promotes the features such as meditation to customers who recognize their brand; many people have limited knowledge about or are uncertain about meditation at first. KY has also developed several modules such as psychological assessments, asynchronous text consultations, and social communities. Acting as a "one-stop-shop" platform, KY hopes for its users to further discover their personal interests and needs. Because China's mental health services user base is still in its infancy, entrepreneurs with an Internet / Tech background have an opportunity to better build targeted, domestic products that are more in tune with user needs, habits, and interfaces (UI) than foreign counterparts.

Q: KY's differentiator is its strong C-side operational capacity?

A: Yes, and now it’s also expanding to include a 2B business. The B-end business developments are extremely promising, especially now as corporate HR departments of many large companies have relevant demands & corresponding budgets and want to purchase mental health-related employee benefits but are finding it unrealistic to allocate psychological counselors to hundreds of thousands of employees when utilization rates are still relatively low. KY is offering a very universal tool that everyone can use, and corporations recognize the value in that – value in early awareness, prevention, and intervention.