A new international study led by researchers from Kaunas University of Technology (KTU) in Lithuania has shed light on why some digital mental health start-ups succeed in becoming unicorns—start-ups valued at over $1 billion—while most do not. The research found that many of these successful companies received private funding at an early stage, chose to build essential but not overly complex technologies, and often adopted a subscription-based revenue model. In contrast, companies that relied on state funding were generally less successful, suggesting that government support, while well-intentioned, may hinder growth in this fast-paced sector.

The study focused specifically on digital mental health platforms, which experienced increased demand following the COVID-19 pandemic. The researchers examined 125 ventures in this field, including 12 unicorns, to understand what distinguishes the successful ones. They found that a winning formula often included early private investment, simple yet effective technological solutions, and a focus on meeting customer needs rather than pushing the limits of scientific innovation. Professor Asta Pundzienė, who led the study at KTU, emphasised that only a small percentage of digital health start-ups become unicorns. Still, success does not always hinge on developing advanced or “deep” technologies.

One of the more surprising findings was that government funding—typically seen as a positive force in research and innovation—can sometimes hinder a start-up’s ability to grow into a unicorn. This is partly because state agencies often focus on goals such as academic excellence, job creation in research fields, and the development of cutting-edge technologies. While these aims are valuable, they may not align with the fast-paced, customer-focused mindset required for a digital start-up to thrive. Instead of agile growth, state-funded start-ups often face layers of administrative accountability that can hinder their progress and make it more challenging to respond to market demand.

The contrast between American and European approaches to innovation was also a key theme in the study. Most of the unicorns analysed were based in the United States, which the researchers attribute to the country’s robust network of private investors and a commercial environment that encourages market-driven innovation. In the US, businesses focus on what customers need and are willing to pay for. Deep technologies are often introduced later, once the company is already generating revenue. This contrasts with the European model, where innovation is usually expected to be scientifically novel from the start, sometimes at the expense of practical usefulness or speed.

Professor Pundzienė and her team believe this research should inform how investment is approached in Europe. They argue that current funding models may need to be restructured to support better start-ups that address real-world needs rather than simply pushing technological boundaries. For example, digital mental health services that offer teletherapy or online support may not be based on complex algorithms. However, they can still provide critical services and meet a growing demand, making them worthy of early investment and support.

The study also stresses the importance of flexibility in funding decisions. Ventures should be evaluated not only on their scientific or technical merit but also on their ability to meet market needs, scale efficiently, and generate revenue. According to the researchers, early-stage funding should be tied to these practical outcomes rather than abstract innovation criteria. If start-ups are supported in creating valuable, accessible services, they may later be able to develop more complex, high-tech offerings, ultimately benefiting both the industry and consumers.

In conclusion, the KTU study suggests that becoming a unicorn is rarely a matter of one single decision or factor. Instead, it is the result of a thoughtful combination of early funding, targeted service development, and alignment with market needs. Policymakers and investors, particularly in Europe, are encouraged to reconsider how they evaluate and support digital service start-ups, especially those in the healthcare sector. Rather than insisting on deep tech from the outset, a focus on simplicity, utility, and customer value may be the smarter path to success.

More information: Asta Pundzienė et al, What entrepreneurial decisions enable the breeding of digital platform unicorns? Strategic Entrepreneurship Journal. DOI: 10.1002/sej.1543

Journal information: Strategic Entrepreneurship Journal Provided by Kaunas University of Technology