New providers entering the market are almost universally told to start small. But I’ve come to think that’s only half the answer — the better advice is to start niche.
Hear me out, during the COVID-19 pandemic, I had an inbox full of pitches from new companies pledging to solve the mental health crisis with virtual therapy. While there was a massive need in that sector, it’s also hard to differentiate.
When I say niche, I don’t even mean autism therapy or substance use disorder care. I mean truly specific conditions — obsessive-compulsive disorder, trauma, women’s mental health.
Starting with a specific patient population can make the provider the go-to for that condition.
Still, I think some providers are cautious about focusing on just one patient population or condition because it’s harder to make the case to their private equity or venture capital firms that there is enough of a market to support it.
A few weeks ago, in my BHB+ Update about digital health funding, I noted that more investors are backing niche companies focused on everything from women’s health to gambling addiction. But many niche companies are further along in their maturation and are now demonstrating how these types of providers can successfully expand or be prime M&A targets.
In this BHB+ Update, I will explore:
–How providers that are treating a specific patient population can use that niche to expand
–Why larger providers are seeking smaller providers as an M&A target
–How starting with a subset of patients can build trust
A stepping stone
Once companies have succeeded in a niche market, they can expand into other types of care.
I think a really interesting example of this is NOCD. The startup was launched in 2018 with a laser focus on virtually caring for individuals with obsessive-compulsive disorder (OCD). It has since raised roughly $84 million in capital and garnered investment from some of the biggest VCs in health care including, Cigna Ventures, 7wireVentures, Kaiser Permanente Ventures, F-Prime Capital and others.
The company began evaluating expansion options in March of 2025, after its first month of positive EBITDA. At the start of this year, it announced the acquisition of trauma care provider Rebound Health—and simultaneously a fundamental restructuring: both NOCD and Rebound Health will now operate under a parent company called Noto.
At the time of the deal, the company told me that Noto would expand on NOCD’s OCD focus and begin to operate as a specialty behavioral health care provider for complex psychiatric and mental health conditions.
“We envision a future where multiple specialties—each focused on a complex, underserved condition—are powered by Noto,” Stephen Smith, founder of NOCD and CEO of Noto, told me. “Each specialty would leverage shared operational infrastructure for payer partnerships, enrollment, and treatment operations, while maintaining deep clinical focus and evidence-based care. Our initial focus is on complex psychiatric and behavioral-health conditions that are often hidden in payer claims data but are highly treatable with the right specialty care model.”
NOCD was able to zero in on one condition, make the case to payers that it can manage patients with OCD, including through value-based arrangements, and then expand into new treatment types once it achieved profitability.
We’ve also seen this with niche providers that started in physical health care and expanded into behavioral health. For example, virtual provider Hims got its start treating just men’s health conditions. It has now expanded into a much larger provider, offering everything from weight-loss medications to SSRIs.
Starting with a specific patient population can give providers clinical expertise in a field and a corner of the market. Starting as a trusted provider can make it easier to expand.
A prime acquisition target
Beyond the ability to start with a specific concentration and grow, companies starting in a particular niche can also do well as M&A targets because they fill a specific need for the company.
We’ve actually seen this quite a bit with transcranial magnetic stimulation (TMS) and interventional psychiatry providers. While TMS is quickly growing in popularity, it certainly fits into a niche category as it provides one type of care generally to patients who have a treatment-resistant condition.
Still, many large PE-backed providers are keen to get into the space. For example, in 2024, Latticework Capital Management- backed Beacon Behavioral Partners acquired The Neuropsychiatry & TMS Group.
Additionally, Discovery Behavioral Health bought Anew Era TMS & Psychiatry in 2022.
There has also been some activity in the serious mental illness treatment space. For example, last summer, virtual psychiatry provider Valera Health announced its acquisition of digital suicide prevention startup Vita Health.
The move was made to help the provider move into more value-based care arrangements.
“The value-based care opportunities — though slow to evolve — are coming,” Craig Albright, CEO of Valera Health, told Behavioral Health Business at the time of the acquisition. “They will come, we think, fastest for the most difficult to treat and the most expensive patient populations. So we went through this process because we were looking for complementary clinical competency.”
For larger providers, acquiring another similar provider adds scale, but a niche provider brings new expertise, which is often invaluable.