February 21, 2024


how far Has the Psychedelics Industry Come the Past 12 Months? Well, it depends on where you look.

If you look at the stock market, it’s not so good: the charts are all down, they’re all red, and all you can see are psychedelics companies teetering on their feet, doing their best to impress cynical investors.

Like most other industries today, the collapse in confidence in the industry has spilled over into the private markets, slowing risky deals and further shrinking deal sizes in an already parched risky market.

But if you focus and put aside your prejudices, you will find that beyond the constraints of valuations and stock prices, there is a vibrant world of deals, full of drive to build a sustainable industry. A recent TechCrunch+ survey shows that investors and founders are no longer just looking for attractive opportunities, but are increasingly committed to laying the groundwork for an industry that could harness the power of psychedelics to change lives.

For Leafy Tunnel co-founders Bek Muslimov and Nikolay Tretiyakov, the problems the industry is currently solving are a testament to the progress of the fledgling industry. “The issues our industry is grappling with have become more refined and nuanced, reflecting a necessary level of sophistication. These include the real cost of treatment, reimbursement coverage, commercialization strategies of psychedelic drug development companies, therapist supply and infrastructure resource bottlenecks etc,” they told TechCrunch+.


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Regulation is also moving forward, albeit slowly, with only Oregon and Colorado taking steps to partially legalize psychedelics. But while the industry wants these states to be test beds for everything from drug development to integration into health care infrastructure, some investors point out that the U.S. isn’t the only place psychedelics is getting attention.

“Decriminalization is not the same as legalization at the federal level. I believe we will continue to look at international locations as the main test bed as the larger issue of legalization in the U.S. is discussed,” said Amy Kruse, chief investment officer at Satori Neuro. “this Australia’s development This year is very interesting and worth watching closely. As Australia is often the site of clinical trial research in the psychedelic drug ecosystem, it is worth keeping an eye on its developments. Will they take the lead? “

Like several of the investors we surveyed, Cruise doesn’t just invest in psychedelics, but she’s very much into them. Her company, Satori Neuro, is a new venture investing in solutions to mental health challenges, including psychedelics.

But she and her ilk are among the few investors willing to enter the space, because most investors, especially institutional investors, still have misconceptions about psychedelics or are not comfortable with risking money or reputation interest.

“Psychedelics remains an ‘uninvestable’ industry for most institutional investors,” said Sa’ad Shah, managing partner at Noetic Fund. “While we can certainly argue for significant progress and advances in regulation, institutions still need to see it to believe it. Second, the sector is still too small. It doesn’t guarantee the kind of capital that most institutional investors typically invest in .”

When that changes may depend on how regulation is developed and how the healthcare industry responds to advances in the field. But that’s not to say the path to commercialization and wider adoption is currently closed to psychedelic startups and investors.

Tim Schlidt, co-founder and partner at Palo Santo, explains succinctly: “Instead of seeking to change the way our healthcare system works, we believe that early psychedelic drugs must transform and adapt to existing foundations. facilities. We believe a Trojan horse approach is the only way these therapies will achieve widespread adoption, rather than trying to storm barriers.”

Read on to learn where these investors are betting, how they decide which companies to back, what the M&A landscape looks like in the space, how to best approach them, and more.

We interviewed:


Sa’ad Shah, Managing Partner, Noetic Fund

How does the trajectory of public psychedelics companies affect private companies and startups?

Psychedelics public companies are severely overvalued in 2021, and the market correction has brought private company valuations back to more standard earlier levels.

Today, investors are more cautious about capital, allowing capable founders and teams to work on building great products with a good business plan, rather than getting drowned out by the noise.

Adjustments in investor expectations have also allowed private companies to grow organically and make informed decisions.

Sa'ad Shah - Managing Partner - Noetic - Headshot by Andrew

Sa’ad Shah, Managing Partner of Noetic. Image credits: andrew

At the same time, generalist investors burnt out of investing in bad apples may now have an unfavorable view of investments in the space, leaving good companies backed by deep tech VCs without an additional pool of capital. The inability to raise additional capital in this environment has led many good companies to shelve or halt promising initiatives and prioritize survival over rapid growth.

Aside from price divergence, what factors have hampered M&A activity in the psychedelics space over the past 12 months?

Three main factors hamper M&A activity:

  1. The size of the isolation effect: While there are clear signs of efficacy in clinical trials, the extent of the effects of psychedelics alone is still a work in progress. Big Pharma awaits more data on this before making a merger. Meanwhile, pharmaceutical and large biotech venture capital firms are more interested in exploring non-psychedelic pathways.
  2. Intellectual Property Uncertainty: The acquisition was somewhat hesitant due to the 18-month uncertainty of filing and obtaining a patent.
  3. Maintain cash balance: In this environment, biotech companies are focusing on prioritizing and allocating funds to their major programs, and making big moves more deliberately than before.

The cost of drug development is very high, and it is even more difficult for start-ups to raise funds. Does this make psychedelic startups that don’t develop any drugs more attractive to investors than those that do?

A business model that can generate revenue at a low burn rate is more attractive to traditional investors than a non-revenue generating business such as drug development. However, some investors still understand the unique risk-reward profile of each situation, so founders need to have access to the right investors.

Some drug development companies continue to raise funds at higher valuations due to ongoing validation of efficacy and the “selectivity” in their programs – i.e. they are pursuing several promising leads/molecular pathways. More at risk are pure-play drug discovery companies that don’t have any leads to test in the near term, especially at this point in time.

Drug development or not, a company is attractive to investors if, and only if, it is solving a critical problem that incumbents in the market cannot effectively solve. The few non-drug development companies touting themselves as “specifically targeting the psychedelic drug industry” can only do so if they have a unique and differentiated value proposition, can build a sustainable economic moat, have a proven track record of funding, and have the right team to execute.

How has your attitude toward the psychedelic field changed since then? Our previous psychedelic survey a year ago?

What we thought of the market a year ago can only be validated by what happened in the hallucinogen market.

Our overall focus is and has been on the central nervous system (CNS), and we are mode agnostic, whether it be psychedelic drug development, other pharmacological approaches, medtech devices or digital therapeutics.

Especially in the area of ​​psychedelics, we think the industry has clearly grown from scary toddlers to teenagers, but there’s still a long way to go. We continue to focus on the non-psychedelic approach to hallucinogens as it holds the most promise for commercialization with less scrutiny while adhering to current standards of care.

We’re not surprised by the closure of several ketamine clinics, and as we said last year, given the lifecycle of the industry, we think it’s too early for “downstream” opportunities to have a viable chance of success.

What we didn’t anticipate was the level of headwinds facing the market as a whole, which is affecting money-making companies to raise additional capital to guide their plans through. This is very much a Darwinian model in play. The strongest and most resilient will survive.

We have to admit that in a new industry like ours, the failure rate of startups can be high, especially in a macro context. So our approach is to have a high credibility portfolio and rely on/support companies that can perform well in any given environment.

We also believe that the simple “select molecule and indication” strategy that was easily funded in 2020/2021 will disappear as it is not a viable business model. To survive, you must demonstrate safety and efficacy, protect your intellectual property, differentiate, and have a team that can execute the science and business to commercialize and scale.

Colorado and Oregon have voted to partially legalize psychedelics, but there are some caveats. Should these U.S. states be considered a test bed for what might happen in this area globally? Why or why not?

If we want to talk about the test bed, we should first look at Australia, which was the first country to legalize ecstasy and psilocybin for therapeutic use with proper protocols and compliance.

In jurisdictions where psychedelics have been legalized, psychedelic-naive individuals are likely to use psychedelics outside of the medical system. To reduce any unforeseen risks in these situations, effective pre-screening programs and post-session psychotherapy and support must be implemented to ensure people can access services safely and effectively.

Additionally, a reliable source of information is needed to educate individuals. Therefore, our aim is to focus on regulated pathways (eg, FDA, EMA, Health Canada) to introduce psychedelic-assisted psychotherapy to patients in a safe, effective, and accessible manner.

The decriminalization process must ensure proper security checks. This requires proper education on psychedelics and following safety protocols.