Venture Capital in Psychedelics
The majority of the psychedelics community has rarely made contact with the world of venture capital and high-growth startups.
This is dangerous because it doesn’t allow for those that work with psychedelic substances to understand what the next 10 years will bring their way… and as of right now the future doesn’t look too bright.
A Venture Capital (VC) firm, is in its simplest form just an entity that invests the money of rich folks into the companies that it believes will become the most financially valuable. There are of course other considerations for some investing groups such as: patient outcomes, environmental impact and sustainability, and general ESG methodologies. But for the most part VC firms work to provide a return, financial gain, to their investors by providing cash to startups that want to grow their business fast.
Let’s say that you are a psychotherapist who’s been running their own clinic for a few years. You were trained by MAPS to do psychedelic assisted therapy and have incorporated the service into your practice. Business is booming. Everyone wants access to your transformative care.
Perhaps you want to open up a second clinic where you can hire on some more therapists with the proper training, but you don’t have the money saved up yet to open up another location.
You could wait a few years, go to a bank to get a loan, or you could seek out an investment.
If you choose to go raise money for your venture you’ll be met with a lot of questions most of which will be pointed at one thing: scale. Most investors won’t put down capital for you to just open up one additional clinic. You’ll need to describe a vision of growing fast and scaling your brand to be the most impactful, widely distributed clinic on the planet.
Why? Because investors lose money on most investments that they make. Almost all of their returns are made from the few investments that knock it out of the park. The billion dollar unicorn that can grow their money more than 100x.
None of this is to say that good companies that can generate a high return don’t exist, but it’s very difficult to find that balance. Within our current system, companies need to compete with one another. That competition plays out through cutting costs, moving quickly, and oftentimes deprioritizing people, the environment, and quality.
It’s also very difficult to prioritize long term results. Every VC firm collects a new pool of money every few years called a fund. Most funds only run for 7 years, 10 years on the long end. Within 10 years you need to see a company sold off or going public for you to cash out and see the fruits of your investment. A company that has a 25 year mission to revolutionize patient care, but has to suffer losses for the first 10? Not going to happen.
As I mentioned earlier, there are strategies for forming firms around values, impact, and longer term results. But it’s extremely difficult. A firm can focus on investing in B Corps, but B Corp status is very time and resource intensive to pursue. There are a few companies in the space that have done it including MAPS and The Third Wave, but it’ll be a long road before we see a meaningful percentage of psychedelics companies adopt this style of doing business.
All of us from Auryn Fund, to Field Trip, to our own Tabula Rasa Ventures are trying hard to make sure that the future of this industry reflects the incredible community that’s built it. But we need to be having more open conversations along with detailed strategies for how to do investment right.
If you read the PALA story, it resonated strongly because it’s the future that many of us currently see approaching. But now that we’re aware of what the coming years will bring, what are the tangible steps for us to change it?
Over the coming months we’ll be releasing podcasts, articles, and stories that cover this specific topic. Leave us a comment with your thoughts and who you’d like to hear from. We’ll make sure to reach out.
