Psychedelic startups are on a long journey to consumer markets, but these 5 VCs are taking over – TechCrunch

“Like pressure cooker, COVID has blown the lid off what was a mental health crisis that had been brewing for over a decade,” VC Tim Schlidt told TechCrunch.

According to the World Health Organization, the global prevalence of anxiety and depression increased by 25% in the first year of the pandemic. And when treatment options are available showed their limitsthe general public and regulators have become more willing to seek out 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 over 400 ketamine clinics in the United States, and over $200 million has been raised in the past two years to open even more,” said Dina Burkitbayeva, founder of PsyMed Ventures. . “Many of these clinics will be sites for MDMA and psilocybin-assisted therapies, if approved, and other molecule-derived treatments as they become available.”

A more supportive regulatory and social landscape is helping psychedelic startups gain a foothold, but they still have to walk a tightrope sensitive to the vagaries of market sentiment. “While there has been a lot of attention to mental health and the promise of psychedelics to be truly disruptive, not all the hype is warranted or warranted. In fact, many investors were impacted by the hype-driven early 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 the applications of psychedelics.

Indeed, investor interest in psychedelic startups has multiplied in recent years, sparking interest from generalist investors. But as public market sentiment fluctuates, specialist VCs seem more likely to stick around for the entire trip.

Ready for the trip? Meet our interviewees:

Tim Schlidt, Co-Founder and Partner, Palo Santo

What applications of psychedelics are you most excited about, both inside and outside of mental health?

Outside of depression, anxiety, and PTSD (the standard mood disorders we see targeted by psychedelics), the application of psychedelics for OCD is pretty compelling. From the work done at Yale, it seems that there is little or no psychotherapy needed, because the severe manifestations of OCD are more like a motor disorder than a psychological disorder.

Additionally, psychedelic therapies for a range of substance use disorders show great promise. In particular, there is compelling data on psilocybin for smoking cessation and even alcohol use disorders. Although not considered a classic psychedelic, ibogaine was effective in eliminating all symptoms of opioid use disorder after just one session. We are therefore fully confident that psychedelics will emerge as effective therapies for treating a range of addictions.

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

As well as having broad applications in a range of inflammatory disorders, it also opens up a new mechanism underlying inflammatory pathways. Given the low doses required to achieve anti-inflammatory goals, the commercial viability of anti-inflammatories is considerably higher, as they could be administered at sub-hallucinogenic doses.

Another area of ​​investigation outside of 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 most optimistic about: companies directly involved in the development and/or supply of psychedelics, or ancillary and infrastructure companies?

We are very excited about the drug developers. We believe that current psychedelics have many shortcomings, such as neurotoxicity, potential cardiac liability, inconsistent subjective experiences, and long durations. Next-generation drugs will improve on these qualities to make better, more commercially viable drugs.

Additionally, the intellectual property around these opportunities will be much more defensible, as they will be New Chemical Entities (NCEs). Research on psychedelics was stalled for decades due to DEA programming, but capabilities in the fields of pharmacology and medicinal chemistry advanced significantly during this “dark age.” As these molecules begin to see the light again, we eagerly await the application of modern techniques to produce drugs that haven’t changed much since the 1960s.

Most ancillary services and technologies won’t take off until the drugs come to market, so we see little short-term opportunity in other verticals anyway. Moreover, they are skeptical as to why certain technologies have to be “psychedelic”. For example, there is little or nothing in EMR/EHR, or clinic management software, that needs to be modernized for psychedelic therapies, and we anticipate that large incumbents such as AdvancedMD will be able to expand existing offerings in the psychedelic space.

One technology we find quite compelling is patient data capture, or what is often referred to as “digital phenotyping”. While the applications for this may go beyond psychedelic therapies, we believe companies like Ksana will have a formidable presence in clinical trials and post-marketing surveillance to track a range of outcomes for psychedelic therapies.

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

Like a pressure cooker, COVID blew the lid off what was a mental health crisis that had been brewing for more than a decade. Isolation and uncertainty have dramatically increased the size of the patient population across a range of mood disorders – data suggests that conditions such as depression or anxiety have doubled or even tripled thanks to COVID. PTSD in nurses as well as PTSD due to domestic violence have increased dramatically during the pandemic.

Psychedelics are one of the few instances where profit and impact work in synergy. The large number of patients suffering from mood disorders is indicative of a real humanitarian crisis to which psychedelics promise to respond.

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

Are regulatory or public opinion issues a bigger hurdle for psychedelic companies today?

I would say regulatory, because these have to go through an FDA approval process. This is therefore the main obstacle that psychedelic drugs will have to face. Much of their advancement will be independent of public sentiment.

R&D-focused psychedelic companies are typically capital-intensive and tend to go public early. Has the volatile climate for listed companies and public releases affected these companies more?

To some extent, yes. We believe we will see a collapse of thinly capitalized companies that are primarily listed on Canadian stock exchanges. That said, we’ve seen most high-quality opportunities stay private, as they’re able to raise money in the private markets and don’t need to sign up prematurely.

Current market conditions have certainly extended the runway needed to complete an IPO, but we hope that once the Phase 2 readings are completed, companies will be able to publicly register, given how much a Phase Study 2 reduces the risks of an investment.

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

Has the appetite for M&As changed in recent months?

We’ve started to see Big Pharma showing some interest in psychedelics, with Otsuka being the most notable player to invest in the space (Compass Pathways and Mindset Pharma). Although no major mergers and acquisitions have taken place, we believe that we will see significant acquisitions once certain high-IP drugs reach phase 2 readings.

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

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

What characteristics should a founding team have before considering supporting it?

We are looking for teams that have deep experience in biotechnology, with pedigrees including successful IND and NDA filings with the FDA. Additionally, experience in central nervous system disorders and navigating the psychiatric and neurological divisions of the FDA is a requirement. Years of research and understanding around the underlying mechanism of classic psychedelics at the 5-HT2A receptor, or at a minimum, experience in research around the serotonin system also helps a lot.

Should founders expect to meet you in person before investing?

Not necessarily, but meeting in person helps. When we are conducting a transaction and taking a significant stake, face-to-face meetings are of much greater importance. Venture partnerships last longer than many marriages, so it’s important to meet and make sure it’s a good match.

Ryan Zurrer, Founder, Vine Ventures

What applications of psychedelics are you most excited about, both inside and outside of mental health?

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