There are those who see psychedelics as the newest frontier in investing, and other investors are drawn to the therapeutic potential of psychedelics, often due to a personal experience with mental health issues. Both groups are unlikely to have had prior experience investing in the pharmaceutical space but are the key players in Seed and Series A rounds. The third group is the more traditional biopharma investors, which typically invest in later-stage companies.
Robert Velarde from Iter Investments comments: “We see a wide variety of investors in the psychedelic market and I think it is a really unique opportunity. It doesn’t require you to be a biopharma investor, and a lot of investors are drawn in by personal experience of mental health issues or an interest in frontier investments.”
A major driver of the huge increase in investment growth in 2021 has been the growth of public offerings by psychedelics companies. At the top end of the funding scale, COMPASS Pathways led the way in September 2020 with a $147 million initial public offering, followed by Atai Life Sciences’ $225 million flotation in June 2021 and GH Research’s $160 million IPO. Currently, there are 60 publicly traded companies focused on psychedelics: “The big impact in the last year has been the number of companies going public and receiving high valuations. This has really added to the psychedelic interest,” says Galyna Pidpruzhnykova, Director, Innovation Strategy, Atai Life Sciences.
Despite the rise in public offerings, there remains limited access for larger institutional investors, and as a result, most institutional investment originates in the private market. A notable trend in the past 12 months has been the increased range of investor types entering the private market, although there is likely more heterogeneity to come as the sector matures: “While previously we saw most of the investments coming from niche psychedelic funds and high net worth individuals, traditional healthcare funds are starting to move into the space at a rapid pace. However, it is still early for Big Pharma and many large institutional investors, who seem to be watching and waiting until they see results from Phase 2 or 3 trials,” say Clara Burtenshaw and Sean McLintock, Founders, Neo Kuma Ventures.
Outside investment funds, direct investors in psychedelics can be grouped into three main archetypes, each with different motivations and investing behaviours (see Figure 4).