6 questions investors should ask when evaluating psychedelic biotech companies

As a venture firm that invests in psychedelics, we receive hundreds of pitches every month from founders developing psychedelic therapeutics.

Startups are developing treatments for depression by combining psilocybin with psychotherapy, creating new delivery methods, like dissolving strips and patches, and even formulating compounds that rewire neural circuits without hallucinogenic effects.

Once fringe, underground, illegal or just limited to ceremonial use by Indigenous cultures, psychedelics are going mainstream in medicinal form. Psychedelic medicine is spawning new companies in every part of the healthcare and life sciences ecosystem, including areas within drug discovery, manufacturing, clinics and retreats, telemedicine and other digital therapeutics, as well as consumer packaged goods.

Our fund has invested more than $15 million in companies developing psychedelic therapeutics. We believe psychedelic medicine and progress in digital therapeutics, precision psychiatry and neurotechnology will revolutionize how mental health is treated. Unlike traditional antidepressants and pharmaceuticals, psychedelic medicine has the potential to help people address the root causes of their mental health concerns rather than just symptoms.

A landmark study by Johns Hopkins found that psilocybin treatment for major depression is four times more effective than traditional antidepressants. Other benefits include their ability to promote the development of new neural pathways and increase empathy and openness, which can be beneficial states to facilitate healing.

We believe in a future where psychedelic therapy will be as common as going to the dentist. But the path won’t be easy: Many biotech companies working with psychedelic compounds must complete multiyear clinical trials that can cost over $100 million before winning FDA approval, similar to any other biotech company.

So how do we pick which companies to invest in? Here are six key questions we ask when evaluating psychedelic biotech companies:

Does the team have the skills, experience and values to bring a product to market?

The most important factor that can make or break a psychedelic biotech company is its team. Psychedelic medicine is a multidisciplinary domain, so it’s important that the team has a strong foundation in psychedelics, biotechnology, neuropharmacology and/or psychiatry.

That means in biotech, unlike traditional tech companies, it’s rare for a wunderkind first-time founder to start a successful company given the scientific expertise and network required, which may need decades of experience.

It’s also important that the team shares our values when it comes to safety and patient well-being. We especially like teams that have psychedelic experience and are grounded in psychedelic history through academic research, field work or personal exploration. These companies will have a leg up on the competition in areas like product development, culture and recruitment.