VC investors see long-term opportunity in psychedelics startups

Shares of the Peter Thiel-backed psychedelics startup Atai Life Sciences jumped on its first day of trading on Wall Street in June 2021, reported CNBC. Thiel’s startup is the third psychedelic biotech to go public in the U.S., following in the footsteps of MindMed and Founders Fund-backed Compass Pathways.

All of these biotech companies are in the process of developing therapies using the psychedelic mushroom compound psilocybin, LSD and MDMA derivatives to treat addiction, traumatic brain injury and mental illnesses such as anxiety, depression and schizophrenia.

Psychedelics have recently been decriminalized in several U.S. cities. This has led to growing investor interest in psychedelic treatments. Over the one year, startups based on turning psychedelic compounds into legal medicines have raised millions of dollars from private investors, and several have gone public. 

Marijuana’s legal advancements in recent years have also paved the way for investor interest in remedies once relegated to the black market. Businesses involved with drugs such as psilocybin, an ingredient in magic mushrooms, or ibogaine, which is used in ayahuasca-style ceremonies, are increasing rapidly in number, with early-stage investors predicting such substances have an even better future than cannabis at disrupting the $70 billion market for mental health.

According to reports, “Investors are seeing big opportunity in psychedelics based upon the numbers that the nascent cannabis industry has been putting up… after all, last year, worldwide sales of legal cannabis re-accelerated in 2019, growing nearly 46% to almost $15 billion. By 2024, that number is expected to triple.”

Founded by Grey House Partners, the Noetic Funds has invested in more than a dozen psychedelics companies and has now launched a second fund, Noetic Fund II LP, a venture capital fund that is looking to raise a minimum of $200 million to invest in early-stage psychedelic and central nervous system-focused companies addressing global ailments including mental health conditions, substance use disorders and inflammatory-related ailments.

Another VC firm, Iter Investments, was recently launched by Fort Lauderdale, Florida, attorney Dustin Robinson with $15 million to fund psychedelics startups. 

Noetic Funds and Iter Investments are far from being the only two funds launched specifically for investing in psychedelics startups. According to a recent analysis by Business Insider, 18 newly founded venture capital firms have poured more than $79 million into the psychedelics field so far.

Interestingly, their investment interests are not limited to psychedelics developers, but also businesses that will support them, including ingredients manufacturers and chains of clinics where the drugs may have to be administered under supervision.

Finally, while a number of doctors look at psychedelics as a cutting-edge field worth exploring, a lot in the end will depend on how effective and safe these drugs are, as well as how easy they are for caregivers to administer.