🫠 Psychonaut POV

[6-min read] Q&A with Daniel Goldberg, Venture Capitalist

Welcome to Tricycle Day. We’re the newsletter that’s willing to bet on you. Tell us where to send the term sheet; we’re in. 🤝

After Daniel Goldberg had a transformative experience with MDMA, he knew he had to help more people access the life-changing benefits of psychedelic medicine. So he launched Palo Santo, his niche VC fund.

We talked to Daniel about his choice to invest in psychedelics, his outlook on psychedelic biotech markets, and what advice he’d give to young people hoping to break into to the field of psychedelic medicine.

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Daniel Goldberg Psychonaut POV

Q&A with Daniel Goldberg, Venture Capitalist

How did you first become interested in psychedelics? What about the psychedelics industry made it an attractive vertical to invest in?

In 2018, my personal experience with medicine sparked my interest in the field. I delved into reading and research, particularly after Michael Pollan's book came out. It resonated with me, especially regarding mental health and the potential of psychedelics as a healing tool. Fortunately, I was referred to an underground guide for an MDMA-assisted therapy session, which was truly life-changing and set me on this path.

Looking back, I'm grateful that I waited a couple of years before launching Palo Santo with my co-founder Tim Schlidt. Taking that time was important because it allowed me to witness the benefits and challenges of working with different medicines. I observed how they affected individuals with their own mental health struggles, some finding tremendous benefits while others didn't experience the "magic bullet" effect. During that period, I met Tim, who was also exploring psychedelics for the first time. I attended my first Horizons conference in 2018, where I met some of the inspiring people I consider colleagues today. It was there that I noticed a disparity between the excitement within a small group of insiders and the broader movement.

With a background in venture capital, particularly in managing our tech and consumer fund called Bridge Venture Fund, I had experience helping to scale businesses and bring in industry experts to support portfolio companies. Tim, coming from private equity, brought his experience in supporting healthcare services companies. We applied this ethos to Palo Santo, ensuring we had the right scientific advisors before launching. Prior to launching the fund, we made a few early investments, but we knew we needed expertise from the psychedelic and biotech/biopharma spaces.

Many people from the cannabis, crypto, and hedge fund sectors were entering the psychedelic space, and many made broad bets on the field. We took a different approach, focusing on scientific expertise. We aimed for a more nuanced and strategic portfolio construction. Our first two scientific advisors, Chuck Nichols and Julie Holland, joined us early on and are still with us. We have since expanded our scientific advisory board, assembling a unique group of experts within and outside the psychedelic field.

How do you evaluate potential investments in the psychedelics space? What are some of the key factors you consider?

Our main focus is on supporting companies that have the highest potential to make a significant positive impact. That might seem obvious, but there are a lot of great ideas that won’t get sufficiently funded or make it to market for other reasons. We have a diversified portfolio that spans various compounds and indications, primarily in the mental health space. This includes exploring psychedelics for pain management, addiction treatment, and even anti-inflammatory properties, as suggested by Chuck Nichols' research.

When evaluating companies, we prioritize the quality of their management teams and their ability to take a drug through the entire process of development and commercialization. This is especially relevant on the biotech side, which currently makes up 70% to 80% of our fund.

Another thing worth mentioning is our focus on new chemical entities. Everyone is starting to realize the challenges associated with the “known compounds” in terms of intellectual property and defensibility. That's why we strongly believe in betting on companies that are blazing the trail with entirely novel compounds.

Right now, there’s plenty of capital at work tackling significant issues like PTSD and severe depression. But let's not forget the myriad of other needs that demand attention. We're at the very early stages of drug development in this field, and there's still so much we don't know. As we move forward, I believe the conversation will shift away from the notion that we're tampering with sacred medicines. Of course, Ayahuasca, Peyote, and other medicines from indigenous cultures need to be considered within their cultural context, but can we say the same about MDMA, which was originally developed by Merck? What if we could develop a medicine similar to MDMA but without the associated drawbacks? Imagine the positive impact it could have. Matt Baggott, from Tactogen, is actively working on this problem right now. The potential for patients to safely and frequently use an entactogen, without the dreaded comedown of MDMA, could truly benefit people worldwide. There's an abundance of exciting possibilities to explore.

What are some of the biggest challenges facing entrepreneurs and investors in psychedelics right now?

On the investor side, being able to provide ongoing support for portfolio companies has become critical. Fortunately, we raised a substantial amount of capital, and while we have to carefully select which companies we believe will have the highest chances of success, we are in a good position with available funds. The shift in valuations has affected everyone, but if you're invested in well-funded companies and have dry powder to deploy, there are exciting opportunities on the horizon. It's a positive change as long as you have cash to invest, but it can be worrisome if you're already fully deployed.

The other challenge for investors lies in demonstrating to downstream life sciences investors that the companies we are currently invested in are the right bets. They’re the ones who will be writing larger checks for $30 to $40 million down the line. So it’s incumbent on us to prove the value of those investments.

On the company side, there's a genuine lack of capital to support these projects, particularly in the biotech sector. The days of simply slapping the word "psychedelic" on something and getting funding are over. Real assets, a clear path to commercialization, and a strong team are prerequisites for raising capital today. It's important to plan for the long term and ensure you have 18 to 24 months of runway. This recession is likely to be prolonged, and no one should assume otherwise.

How do you see the psychedelics industry evolving in the next few years? What excites you most about the future?

One of the most hopeful aspects I see in the psychedelics industry is the influx of interdisciplinary talent. Every day, brilliant and thoughtful individuals from various fields are discovering psychedelics and expressing their interest in joining this space.

Renowned figures like Jerry Rosenbaum at Harvard University are engaging with psychedelic research programs, and major universities across the board are witnessing increased interest. This surge of talent is a positive sign. It isn't a result of mere hype; it's an indication that there is genuine scientific inquiry and real academic credibility in the field.

I'm excited about the talent entering the psychedelic space, but I believe it needs to happen at an even faster pace. We should embrace outside voices, welcome newcomers, and shed any tribalism or "I was here first" attitude. As someone who entered the field relatively recently, I was fortunate to be met with open arms. I believe that sharing our stories and responsibly spreading the word will attract more talented individuals who can contribute critically to the field. It's essential to have diverse perspectives and expertise.

Can you offer any advice to aspiring entrepreneurs looking to start companies in the psychedelics space?

First and foremost, I would reiterate the importance of taking time after a first psychedelic experience before making any major decisions. It's crucial to allow yourself the space to integrate the experience and reflect on its impact.

That being said, for young individuals interested in entering the psychedelic space, I would encourage them to focus on the science. Many early-stage startups in this field lack a solid scientific foundation for their ideas. So, understanding and learning the science behind psychedelics is essential. If possible, pursuing education in pharmacology during undergrad or a master's program can be incredibly valuable. From a business perspective, I don't foresee a massive wave of hiring in the psychedelic industry in the next couple of years, unless candidates have a strong grasp of the science, which will always be a valuable asset.

Alternatively, focusing on the clinician side of things is also a wise choice. There will be a significant demand for therapists of all types as psychedelic therapies gain prominence. Organizations like Fluence are doing excellent work in this area.

Launching a psychedelic business at this exact moment might not be the most feasible option, at least until the first psychedelic drugs are approved. Rather than rushing into starting new businesses, I would recommend grounding yourself in the science and establishing connections within the field. Attend conferences, meet people face-to-face, and engage in meaningful human contact. This will dispel the lazy narratives propagated online and in the media. The notion of good guys versus bad guys in the psychedelic space oversimplifies the reality. By interacting with individuals from diverse perspectives, you may discover unexpected allies and gain a more nuanced understanding of the industry.

Want more from Daniel? Follow Palo Santo on Twitter and Instagram, and check out Palo Santo’s website to learn more about their investment fund.

That’s all for today. Before you head off, don’t forget to share, rate, and review Tricycle Day below. Catch ya next time, Cyclists! ✌️

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DISCLAIMER: This newsletter is for educational and informational purposes only and is not intended as a substitute for professional medical advice. The use, possession, and distribution of psychedelic drugs are illegal in most countries and may result in criminal prosecution.

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