Psychedelics startups are on a long journey to consumer markets, but these 5 VCs are taking the ride

“Like a pressure cooker, COVID blew the lid off what was a simmering mental health crisis for over a decade,” VC Tim Schlidt told TechCrunch.

According to the World Health Organization, the global prevalence of anxiety and depression increased by a massive 25% in the first year of the pandemic. And when available treatment options showed their limits, both the general public and regulators became more willing to look into alternatives – including psychedelics.

Previously relegated to underground communities and rave culture, drugs like ketamine, MDMA (commonly known as ecstasy) and psilocybin are now being studied to develop therapies to treat everything from PTSD to cluster headaches.

“Today, there are 400+ ketamine clinics in the U.S., and over $200m has been raised over the last two years to open even more,” Dina Burkitbayeva, founder of PsyMed Ventures, said. “Many of these clinics will be sites for MDMA- and psilocybin-assisted therapies, if they are approved, and treatments derived from other molecules as they become available.”

A more favorable regulatory and social landscape is helping psychedelic startups gain a foothold, but they still have to walk a tightrope that’s susceptible to the vagaries of market sentiment. “While there has been a lot of focus on mental health and the promise of psychedelics to be truly disruptive, not all the hype is warranted or justified. In fact, there are many investors who have been hurt by the early hype-driven public markets,” said Sa’ad Shah, managing partner of Noetic Fund.

Burkitbayeva, Shah, and Schlidt are three of the five investors we interviewed for this deep dive. Each of them has an investment thesis that strongly overlaps with applications of psychedelics.

Indeed, investor interest around psychedelic startups has mushroomed in recent years, attracting interest from generalist investors. But as public market sentiment fluctuates, specialized VCs seem more likely to stick around for the whole trip.

Ready for the trip? Meet our interviewees:


Tim Schlidt, co-founder and partner, Palo Santo

Which applications of psychedelics are you most excited about, both in mental health and outside of it?

Outside of depression, anxiety and PTSD (the standard mood disorders we see targeted by psychedelics), the application of psychedelics for OCD is quite compelling. Based on work out of Yale, there appears to be little to no psychotherapy needed, as severe manifestations of OCD appear to be more like a motor disorder than one with a psychological underpinning.

Additionally, psychedelics therapies for a range of substance use disorders are showing great promise. In particular, there has been compelling data around psilocybin for smoking cessation and even alcohol use disorder. While not considered a classic psychedelic, ibogaine has been effective in extirpating all symptoms of opioid use disorder after one session. So we are quite confident that psychedelics will emerge as effective therapies for treating a range of addictions.

Outside of mental health, I am most fascinated by the application of psychedelics for inflammatory disorders. Based on the seminal work of Charles Nichols, certain psychedelic compounds appear to be potently anti-inflammatory at very low doses.

Besides having broad applications across a range of inflammatory disorders, it also opens up a new mechanism underlying inflammatory pathways. Given how low the doses are required to be to achieve anti-inflammatory endpoints, the commercial viability of anti-inflammatories is dramatically higher, as they could be administered at subhallucinogenic doses.

Another field of inquiry outside mental health is neuropathic pain. We are seeing some exploration of psychedelics for fibromyalgia as well as uses for cluster headaches and migraines.

What are you more bullish about: Companies directly involved in developing and/or delivering psychedelics, or ancillary and infrastructure companies?

We are most excited by drug developers. We believe there are many shortcomings to current psychedelics, such as neurotoxicity, potential cardiac liability, inconsistent subjective experiences, and long durations. Next-generation drugs will improve on these qualities in order to make better, more commercially viable drugs.

Additionally, the IP around these opportunities will be far more defensible, as they will be new chemical entities (NCEs). Research on psychedelics was stalled for decades due to DEA scheduling, but capabilities in the fields of pharmacology and medicinal chemistry advanced significantly during this “dark age.” As these molecules begin to see light again, we look forward to modern techniques being applied to produce drugs that have not changed much since the 1960s.

Most ancillary services and technology will not take off until drugs commercialize, so we see few near-term opportunities in other verticals anyway. Additionally, are skeptic of why certain tech has to be “psychedelic.” For example, there is little to nothing about EMR/EHR, or clinic management software, that needs to be retrofitted for psychedelic therapies, and we foresee large incumbents such as an AdvancedMD being able to expand existing offerings into the psychedelic space.

One piece of tech we do find quite compelling is patient data capture, or what is often called “digital phenotyping.” While the applications of this can be beyond psychedelic therapies, we think companies like Ksana will have a formidable presence in clinical trials and post-market surveillance to track a range of outcomes for psychedelic therapies.

Can you talk about the impact of the pandemic on market prospects for psychedelic startups?

Like a pressure cooker, COVID blew the lid off what was a simmering mental health crisis for over a decade. Isolation and uncertainty dramatically increased patient population sizes across a range of mood disorders — data suggests ailments such as depression or anxiety doubled or even tripled through COVID. Nurse PTSD as well as PTSD from domestic violence increased markedly through the pandemic.

Psychedelics are one of the rare cases where profit and impact work together synergistically. The large number of patients with mood disorders is indicative of a true humanitarian crisis that psychedelics hold the promise of addressing.

Additionally, these large addressable markets present a business opportunity for investors who previously ignored investment in central nervous system disorders for decades.

Are regulatory or public sentiment issues a greater obstacle for psychedelic companies today?

I’d say regulatory, as these have to go through an FDA approval process. So that is the main hurdle psychedelic drugs will have to face. In large part, their advancement will be agnostic of public sentiment.

R&D-driven psychedelic companies usually need a lot of capital and tend to IPO early. Has the volatile climate for listed companies and public exits affected such companies more?

To a degree, yes. We believe we will see a wash out of poorly capitalized companies that are primarily listed on Canadian stock exchanges. That said, we have seen most high-quality opportunities stay private, as they are able to fundraise in private markets and do not need to prematurely list.

Current market conditions have certainly extended the runway required to achieve an IPO, but we are hopeful that upon achievement of Phase 2 readouts, companies will be able to publicly list, given how much a Phase 2 study de-risks an investment.

The positive effect is that public markets have had a downstream effect of making private valuations much more reasonable than in 2021. With 55% of our fund left to deploy, we are quite eager to put money to work in this new environment.

Has M&A appetite evolved in recent months?

We have begun to see Big Pharma showing some interest in psychedelics, with Otsuka the most notable player to make investments in the space (Compass Pathways and Mindset Pharma). While no major M&A has occurred, we do think we will see large acquisitions once select drugs with strong IP achieve Phase 2 readouts.

Cannabinoid biotech offers some glimmers of what could occur in psychedelics, with Jazz Pharma acquiring GW Pharma for $7.2 billion, and Pfizer buying Arena Pharma for $6.7 billion in part due to their cannabinoid portfolios.

We believe appetite has evolved — psychedelic drug discovery businesses are now on Big Pharma’s radar and will begin to be a more frequent topic of discussion in business development meetings at large pharmaceutical companies. We’ll likely start seeing M&A activity pick up in 2026 as a range of compounds advance into the clinic.

What are the characteristics a founding team must have before you’d consider backing them?

We seek teams that have deep biotech experience, with pedigrees comprising successful IND and NDA filings with the FDA. Furthermore, experience within central nervous system disorders and navigating the FDA’s psychiatric and neurological divisions is a requirement. Years of research and understanding around the mechanism underlying classic psychedelics at the 5-HT2A receptor, or at minimum, background in research around the serotonin system helps a lot, too.

Should founders expect to meet you in person before you invest?

Not necessarily, but meeting in person does help. When we are leading a deal and taking a sizable stake, in-person meetings are of much greater importance. Venture partnerships last longer than many marriages, so it is important to meet and ensure it is a good match.

Ryan Zurrer, founder, Vine Ventures

Which applications of psychedelics are you most excited about, both in mental health and outside of it?

We’re excited about a variety of indications where psychedelics have shown incredible promise in the academic renaissance of psychedelics. MDMA has shown strong efficacy in treating severe PTSD in MAPS’ clinical trials (two-thirds of patients no longer had PTSD after three MDMA sessions). Ongoing trials for MDMA, psilocybin, ketamine, LSD, DMT and a variety of new chemical entities have potential to treat and heal depression, anxiety, alcohol and opioid use disorders.

We’re also unapologetically supportive of using psychedelics not just for curing the sick, but for betterment of the well. We’re encouraged by what’s happening in Oregon and Canada, and hope to see more markets opening up for people who choose to explore their consciousness and mental well-being for whatever purpose they choose.

What are you more bullish about: Companies directly involved in developing and/or delivering psychedelics, or ancillary and infrastructure companies?

Building the infrastructure of the entire value chain will be important to fostering an open and inclusive industry. Both are equally important to a successful integration of psychedelics into society, and we invest across the full value chain.

There are some big questions on the defensibility of known psychedelics with prior art and a history of use — next-generation psychedelics that come in the form of new chemical compounds will be important assets moving forward, but are also much more challenging to develop, and prove efficacy and safety in the current state of the FDA approval process.

Regardless of how patent fights shake out, ancillary and infrastructure-related companies will be needed to deliver psychedelics. We’re excited by leading GMP manufacturers like Psygen, delivery technology companies like Bexson Biomedical, and software platform providers like Osmind.

Can you talk about the impact of the pandemic on market prospects for psychedelic startups?

Initially, the pandemic accelerated a lot of psychedelic startups by putting a spotlight on mental health and forcing society at large to seriously consider the full suite of tools we have to help people.

In parallel with the ongoing market drawdown, we are seeing a hardening of the industry, where companies that have sustainable business models and offer critical components of the value chain will be the ones to survive the current trough of disillusionment.

The pandemic has caused delays for some psychedelic startups in the drug development space who rely on CROs and other partners, though the impact hasn’t been too intense or widespread. Further, the accelerated approval process for vaccines will have some generalized effect on the FDA approval process more broadly going forward.

Are regulatory or public sentiment issues a greater obstacle for psychedelic companies today?

Regulatory roadblocks pose a greater threat than public sentiment issues in the current state.

Regulations lag public sentiment, which has improved dramatically, especially around psilocybin and MDMA for therapeutic uses. Nonetheless, there’s a lot more work to be done on both fronts, and both should move forward as more data is produced in clinical trials and through real-world evidence from markets like Oregon.

R&D-driven psychedelic companies usually need a lot of capital and tend to IPO early. Has the volatile climate for listed companies and public exits affected such companies more?

Yes, any time you have lengthy, costly processes, there’s going to be higher risk that is more heavily subject to the volatility of markets.

Has M&A appetite evolved in recent months?

Recently, we saw Numinus acquire Novamind. We think there will be more consolidation in the clinics infrastructure market.

There is increasing pressure on startups, especially those in drug development, to tightly manage their cash in the current environment, so some funding rounds may turn into acquisition opportunities.

What are the characteristics a founding team must have before you’d consider backing them?

High-quality teams of legitimate, mature entrepreneurs who are in it for the right reasons, ideally with a personal connection to what they’re building.

Technical skills with a defensible innovation (moat).

In the current market, teams who have strong conviction but are still open-minded to feedback and willing to pivot when reality presents them with signs that a new direction is necessary.

In the drug development space, founding teams should have fully dedicated scientists with deep experience and some evidence for efficacy that supports the theory behind their approach.

Should founders expect to meet you in person before you invest?

We always try to meet in person when the logistics make sense — we have team members in the Bay Area of California. It’s not a prerequisite for us to invest, though, and the majority of our deals are done over Zoom, especially since Vine was founded shortly before the pandemic hit globally.

Dina Burkitbayeva, founder, PsyMed Ventures

Which applications of psychedelics are you most excited about, both in mental health and outside of it? 

We are excited to invest in teams that are developing treatments to promote dendritic growth without hallucinogenic effects (Delix Therapeutics) and improving on current options to address some of the shortcomings of first-generation psychedelics (Freedom Bio).

Our main focus is on psychedelic therapeutics companies working to address mental health indications, but we also look at indications beyond mental illnesses, such as Alzheimer’s, Parkinson’s, stroke, eating disorders, and more. We’re also excited about the many applications of psychedelics for helping people achieve a more expansive, connected and creative perspective: What we call “mental wellness.”

We are especially interested in the intersection of psychedelic therapeutics with other cutting-edge technologies in mental health, such as neurostimulation and precision psychiatry, to create more therapeutically effective treatments.

What are you more bullish about: Companies directly involved in developing and/or delivering psychedelics, or ancillary and infrastructure companies?

Both! We believe that in the long term, companies in both the drug development and infrastructure-related sectors of the industry will produce successful players.

In the first wave of the psychedelic investing cycle, there will be more value created by drug development companies. The lead time to develop a molecule and/or new psychedelic-assisted therapy, and obtain FDA approval can be anywhere from seven to fifteen years.

Since research and funding for psychedelics have been stalled for nearly three decades, we are in a phase of focusing on developing and bringing to market treatments that are as safe, efficacious and accessible as possible. Ketamine is currently the only psychedelic that can be legally used for treatment of mental illness, with MDMA and psilocybin expected to be approved in the next two to three years, and a large pipeline of novel new compounds and combinations in the works. This dynamic means that the majority of the talent in our industry is currently focused on developing therapeutics rather than building infrastructure.

The second wave will be focused on delivery and access, a sector that will grow exponentially once new molecules are approved and being commercialized. Today, there are 400+ ketamine clinics in the U.S., and over $200 million has been raised over the last two years to open even more. Many of these clinics will be sites for MDMA- and psilocybin-assisted therapies, if they are approved, and treatments derived from other molecules as they become available.

Can you talk about the impact of the pandemic on market prospects for psychedelic startups?

I began investing in the psychedelics space a few years prior to the pandemic, and I remember how much more difficult it was to engage people in a conversation about the need for better treatments to address mental health issues. There was a lot more denial and stigma around the subject then.

The pandemic led to increased isolation, exacerbating substance use and mental illness in a big way, and catalyzing more mainstream conversation about mental health issues. Every single person was touched by these problems in one way or another, and the need for effective treatments ignited the growth of the psychedelics industry.

This wave of the psychedelic therapeutics movement started before the pandemic, but has grown significantly faster since then.

The pandemic also brought about changes to the Ryan Haight Act in March 2020 in order to promote telemedicine, remote patient monitoring, and the mailing of controlled substances such as ketamine. This significantly impacted the psychedelics space, leading to the formation of the dozen or so virtual ketamine clinics currently in operation, which have cumulatively raised over $100 million to date.

Are regulatory or public sentiment issues a greater obstacle for psychedelic companies today?

Regulatory and public sentiment issues are less of an obstacle today than at any point in the past three decades. I believe that cannabis legalization and decriminalization has helped politicians, scientists, investors, entrepreneurs and the larger public be more open to the medicalization and decriminalization of psychedelics. Today, there are approved or in-progress bills across 100 cities in the U.S. to decriminalize psychedelics.

In terms of the regulatory outlook, the FDA seems very receptive to this new class of antidepressants. However, the REMS (Risk Evaluation and Mitigation Strategy), requirements and limitations set by FDA on how treatments are administered, is still likely to be strict.

R&D-driven psychedelic companies usually need a lot of capital and tend to IPO early. Has the volatile climate for listed companies and public exits affected such companies more?

The current macroeconomic climate is volatile and has been experiencing a bear run over the last few months. Rising interest rates tend to create strong downward pressure, especially on growth markets and biotech. As a result, the overall biotech market is down, with XBI down 51% from its all-time high on February 5 last year.

Because it has become more challenging to raise capital, psychedelics drug developers are consolidating through acquisitions, such as Numinus’ acquisition of Novamind. Some companies, like MindCure, are also shutting down operations. Every emerging industry goes through this process, and we expect to see stronger companies emerge from the crowd as a result.

Has M&A appetite evolved in recent months? 

Although IPOs have slowed, and there have not been many deals, we anticipate that M&A interest will continue to grow.

The first of M&A activity is going to be led by the better-capitalized psychedelics […] Biotech companies are looking to buy attractive drug development assets from companies with low cash reserves at valuations that could be magnitudes lower than they were a year ago. We will likely see larger pharma companies engaging in M&A as more data becomes available.

What are the characteristics a founding team must have before you’d consider backing them?

The quality of the team is the first and foremost criteria we consider when weighing any potential investment. We focus on four main areas to ascertain prior experience and knowledge: science, clinical development, business management and fundraising capabilities, and integrity.

Science: We have invested in world-renowned scientists and clinicians in the psychiatry and psychedelics space. There are very few scientists who have studied and worked with these compounds due to historical prohibition and lack of funding. We made it a point to connect with each one and help bring to life promising science by incubating or funding companies or connecting them with other team members.

Clinical development: We make sure that the team has strong expertise and prior experience in bringing a drug through the FDA with preference for the relevant divisions within FDA (psychiatry and addiction medicine).

Business management/fundraising: A strong management team that can raise the large amounts of capital needed for development.

Should founders expect to meet you in person before you invest? 

We made most of our investments without meeting the founders in person. PsyMed’s team is also fully remote, with Matias, Greg and I based in California, and Razi in Canada. We do love meeting founders in person when it’s possible though :).

Clara Burtenshaw, partner, Neo Kuma Ventures

Which applications of psychedelics are you most excited about, both in mental health and outside of it?

We believe that the use of psychedelics as adjuncts to psychotherapy will be revolutionary treatments for the treatment of depression and PTSD.

Psychedelic-assisted therapy has shown greater efficacy than traditional talking therapy and aims for long-term results by treating the underlying trauma at the heart of mental health and addiction problems, unlike conventional antidepressants which manage serotonin levels in the brain.

We are excited by a new wave of small biotech companies that are exploring the potential of novel psychedelic drug scaffolds to treat a range of indications in pain management, such as difficult to treat short-lasting unilateral neuralgiform headache attacks (a program led by Beckley Psytech), cluster headaches (a program led by Bright Minds Biosciences), and various alternatives to opioids for the treatment of postoperative pain.

What are you more bullish about: Companies directly involved in developing and/or delivering psychedelics, or ancillary and infrastructure companies?

We are bullish about both for different reasons. We invest across all aspects of the treatment arc and see opportunities for innovation at every stage, from diagnosis through to patient monitoring following treatment.

Within drug development, there is great potential for optimized versions of classical psychedelics that address issues that may impact commercialization, such as the duration of a trip, de-risking the activity of the 5HT2-B receptor, which can increase cardiotoxicity risk, and finding the most efficacious standardized dose so that synthesized formats of the natural products can be delivered across existing healthcare architecture.

These types of investments are high-risk, but high-reward. There are enough companies exploring and there are early green shoots of Big Pharma interest that make us bullish about drug development.

That said, psychedelic healthcare is and will be an incredibly nuanced experience, unlike any treatment a patient has experienced before, and requires new infrastructure for the delivery of treatment.

Care delivery, particularly improving patient outcomes through optimizing set (the mindset of the patient throughout treatment) and setting (the environment in which treatment is delivered) is of critical importance, and we are extremely bullish about the companies exploring this in innovative ways.

For example, platforms and applications including biomarker-driven personalized music (such as Wavepaths); virtual reality that can be used in intention setting, preparation and integration (such as Tripp VR or Fireflies VR); and with patient engagement and monitoring platforms.

We are also looking deeply at how we can create wider access through more localized and affordable care, led by a patient-first approach and robust risk-mitigation strategies (for example, Journey Clinical).

Can you talk about the impact of the pandemic on market prospects for psychedelic startups?

The pandemic has had a severe impact on mental health and well-being around the world. In addition, the need for new therapeutics has gained greater urgency amid a national epidemic of opioid abuse and suicides. This has had a ripple effect in the form of increased funding, regulatory support and public interest in novel treatments like psychedelic healthcare.

However, despite a dire need for improved therapeutics, the biotech industry has been deeply impacted by the pandemic as well. The early successes of the COVID-19 vaccination programs, along with a number of innovative breakthroughs, drove record capital flow and enthusiasm for the biotech sector in 2020, but this has since cooled significantly.

Furthermore, as the Federal Reserve moves closer to raising interest rates as a result of pandemic monetary policy, investors are repricing investments in riskier corners of the market. This abrupt change in market sentiment has had a significant impact on the psychedelic biotech sector, leaving many smaller firms with an uphill struggle to raise additional funding.

Are regulatory or public sentiment issues a greater obstacle for psychedelic companies today?

Regulatory challenges create massive obstacles for psychedelics companies looking to develop novel therapeutics. Acquiring the underlying psychedelic substances for clinical trials is an expensive process, in addition to the burdensome delays required to obtain the licenses required to handle such substances.

The regulatory landscape also creates uncertainty, which decreases the pool of capital that psychedelic companies can access to bring their products through the various phases of clinical trials.

However, the FDA is supportive of the breakthroughs that psychedelic drugs can provide and has designated breakthrough status to clinical trials involving psilocybin, MDMA and ketamine. The clinical trial data is showing safety, tolerability and efficacy, so in the long-term, we feel confident of an FDA approved drug that will serve as a catalyst for a wider review of drug scheduling. We hope this will include a relaxation of schedule 1 status so that psychedelic treatments can be delivered to patients safely.

I believe that public sentiment has shifted a great deal. With so many people suffering and such little innovation in new therapeutics to treat mental illnesses, people’s attitudes toward new treatments have softened. Evidence-based journalism on the trials, as well as patient accounts has helped immensely to de-stigmatize the area.

R&D-driven psychedelic companies usually need a lot of capital and tend to IPO early. Has the volatile climate for listed companies and public exits affected such companies more?

Yes! Whilst most biotech investors hold stock for the long term — i.e., until clinical inflection points anchor valuations and lead to partnerships and drug licensing — the current macroeconomic climate is extremely challenging for even the most fundamentally sound biotech companies. Inflation and rising interest rates have made these stocks less appealing to investors who have pivoted their investments into different sectors.

That said, a number of companies went public very early in their life cycle buoyed up by hype and hope, and have not been able to sustain stock prices or raise adequate capital to proceed with their clinical trials. This is not unusual in a new industry and a certain level of attrition is to be expected.

Has M&A appetite evolved in recent months?

We saw some green shoots for psychedelics M&A activity in 2021, with Otsuka signing two deals: a $5 million option agreement with Mindset Pharma, and a collaboration with ATAI’s Perception Neuroscience 3.

It has been estimated that the total potential cash and debt capacity of the biopharma industry may reach USD $1.6 trillion by the end of 2022, and therefore, larger, cash-rich pharmaceuticals are well positioned to follow their peers and take positions in the sector after data readouts.

What are the characteristics a founding team must have before you’d consider backing them?

We look for a strong team with relevant industry experience, novel intellectual property, a large addressable market, and a robust strategy to achieve target endpoints. We appreciate founders with hustle, ideally people who have managed to secure non-dilutive funding or partnerships that allow for a more efficient use of resources.

Strategically, a company should have a clear understanding of their funding needs, inflection points and go-to-market strategy. It is critically important to map the company’s timeline and understand its future needs, and an excellent founding team will have a clear idea of this.

Should founders expect to meet you in person before you invest?

We make an effort to meet every founder we invest in. This may not always be possible prior to the investment itself, and if it isn’t, we will meet the founder afterward. It was surreal and fantastic to meet in person some founders who we had worked with remotely during two years of lockdown.

At Neo Kuma we are active investors, often taking investor-director or board-observer positions, traveling with founders to conferences, as well as working through the challenges of scaling a business together.

Sa’ad Shah, managing partner, Noetic Fund

Which applications of psychedelics are you most excited about, both in mental health and outside of it?

We are most excited about the second-generation drug development that is currently being worked on by several noteworthy startups, addressing the key questions of scalability and access.

Second-gen drug development is targeting distinct receptors while avoiding interaction with undesired receptors. This is key, as it allows us to improve on existing molecules with regards to the duration, long-term safety, potency and frequency of availing psychedelic-assisted psychotherapy.

In short, second-gen drug development will allow us to target a host of ailments at scale while staying within the frameworks of our current standards of care. They will be just as efficacious, if not more, while potentially being a curative rather than symptomatic treatment.

What are you more bullish about: Companies directly involved in developing and/or delivering psychedelics, or ancillary and infrastructure companies?

At this stage of this industry’s life cycle, it is important to focus on what we define as “upstream” assets, which refers to drug development and discovery, intellectual property and novel chemical entities. The further “downstream” one goes, the closer you get to the end user, the patient or consumer.

While our focus is mainly “upstream,” we are very mindful of the question of commercialization (i.e., accessibility), which is critical to keep in mind. As such, our portfolio includes investments in ancillary and infrastructure such as diagnostics, patient monitoring, devices and digital therapies, as well as delivery mechanisms, GMP manufacturing, etc.

Can you talk about the impact of the pandemic on market prospects for psychedelic startups?

Unfortunately, mental health has only gotten worse and is showing no signs of improvement.

Over the last three decades, the mental health market has not seen a change in standard of care, and the worsening of mental health due to the pandemic, including an increased prevalence of issues like social anxiety, has also highlighted the high unmet need.

While there has been a lot of focus on mental health and the promise of psychedelics to be truly disruptive, not all the hype is warranted or justified. In fact, there are many investors who have been hurt by the early hype-driven public markets. Let’s be very clear, this is NOT cannabis, and those who saw the public market activity as cannabis 2.0 have been hurt. This is a distinct and nuanced knowledge-based industry.

Are regulatory or public sentiment issues a greater obstacle for psychedelic companies today?

Indeed, the “scheduled substances” status for several molecules makes it tougher than average for researchers and companies to access these molecules, even if just for comparative studies.

Overall, regulatory and public sentiments are taking a turn in recent years. While psychedelic decriminalization in the U.S., with Measure 109 (Oregon) and Washington D.C.’s Initiative 81, has shed a spotlight on legalization efforts, this may also bring about more scrutiny and attention.

In essence, there is very little room for error. At times, I fear that it won’t take much to potentially derail or delay the process. Hence, policy reforms around wide use of psychedelics have to be carefully considered and weighed. What we cannot risk to disrupt is the FDA approval process for pure-play medicinal use of psychedelics.

R&D-driven psychedelic companies usually need a lot of capital and tend to IPO early. Has the volatile climate for listed companies and public exits affected such companies more?

The public markets have not helped the industry at large. But, in some ways, that is good. There is starting to be a clear separation of wheat from the chaff, and the real crown jewels in this industry are still the private companies.

What matters going forward is their ability to meet milestones they set out to achieve, and by doing so, be better positioned to raise more private capital from the marketplace. This is a long game and not for everyone.

Has M&A appetite evolved in recent months?

M&A appetite is certainly there, but is still quite discrete, limited and very selective. In addition to several publicly traded psychedelic companies with a decent amount of cash on their balance sheet, we have also seen some of the larger pharma companies enter the space and kick the tires on startups.

Players such as J&J, Merck, Astellas, UCB, Novartis, Boehringer Ingelheim, Sanofi and Otsuka are just a few examples. We fully expect M&A activity and consolidations to start later this fall and in 2023.

What are the characteristics a founding team must have before you’d consider backing them?

Maturity, especially in terms of key learnings from past failures, and a self-effacing acknowledgment of their weaknesses and shortcomings. This allows us to better gauge how and where Noetic can help.

Should founders expect to meet you in person before you invest?

It’s a nice to have, but not a must. In the brave new world we now live in, we have learned how to become more efficient and adapt accordingly. That being said, a face-to-face meeting is always valued and appreciated.