Wayne Cantwell is a Co-Founder and Managing Director of Decathlon Capital Partners, a leading variable repayment private debt firm.
The need for behavioral health services continues to increase. The Behavioral Risk Factor Surveillance System found that the number of American adults experiencing poor mental health increased to 42.5%, up from 35.7%, between 2011 and 2022. Another study found that more than 50 million Americans experienced some sort of behavioral-health issue between 2019 and 2020, but less than half accessed timely care in 2021. This is often because professional services aren’t easily available.
This shows that the need for qualified professionals to work with children and adults has never been greater. But despite growing demand, many firms are challenged to finance growth while maintaining their standards of care. The creation of additional services often requires sophisticated financial solutions. Some behavioral health founders may be weighing private equity investment, while others may be considering private debt to support growth. As the co-founder of a private debt firm, here are the benefits and risks of each that I recommend keeping in mind.
The Pros And Cons Of Private Equity Investment
With their access to large pools of capital, some private-equity firms may be able to provide a smooth highway to growth. Along with ready capital, they can provide operational expertise, stronger management teams and strategic guidance. This may make private equity an attractive option to behavioral health companies seeking funding.
However, it’s worth noting that some have shared concerns about bringing private equity into healthcare. A 2024 professional journal article said that private equity investments in human and social services can “compromise the extent and quality of available services, and cause significant emotional, physical, and financial harm.” Behavioral healthcare businesses that receive private equity funding could also find themselves pushing toward unsustainable growth, which can lead to over-expansion, and being driven by short-term, bottom-line objectives. In these scenarios, you run the risk of sacrificing quality care for the sake of instant revenue gains. Providers may feel pressured to focus more on getting patients, rather than offering personalized, long-term treatment.
Behavioral health firms that choose this model should be careful not to grow without taking time to ensure infrastructure, systems and staff are in place to support their expansion. Businesses should also ensure they’re prepared to meet the established standards of treatment and the financial expectations of investors.
Private Debt
Private debt financing is another funding option that businesses may explore. Some solutions are grounded in a company’s revenue performance, not equity ownership, and repayments are structured around variable repayment models, which can leave room for maneuverability. If the business revenue swings from month to month, so does the repayment. For behavioral-health firms, this structure often aligns with fiscal reality. They can encounter uncertain revenue streams, especially when insurance reimbursement is delayed or erratic. Tying repayments to revenues can offer some protection during down months.
Private debt also doesn’t have the same growth expectations as private equity or venture investors, which firms might find helps them focus on building solid foundations for growing at a sustainable pace and investing in quality care.
Challenges To Consider
But growth-debt options won’t make sense for every behavioral health firm. Providers of this financial tool generally want to see a track record of past growth, and they want leaders of behavioral health firms to clearly spell out how additional financial resources will power even more growth. Providers also want to see executives’ plans to generate and sustain positive cash flow.
In some instances, too, the cost of private lending may be modestly higher than alternatives.
Providers of private-debt financing have a clear-cut interest in the success of their borrowers. This means a successful transaction grows from straightforward conversations in which behavioral-health executives ensure they fully understand the terms of the financial agreement and lenders have a clear understanding of the firm and its future.
The Bottom Line: Patient Well-Being Should Always Come First
At the end of the day, the behavioral health business is about a whole lot more than money and finance—it’s about people. It’s about building trust with patients, forming long-term relationships and ensuring individuals have access to the treatment they need when they need it. At a time when the demand for behavioral health services is higher than ever, we need to make sure that firms in the industry are set up for long-term growth that prioritizes patient outcomes above all else.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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