- Sa’ad Shah is a Managing Partner of the world’s largest psychedelics venture capitalist.
- He says he sees two big red flags among the startups launching it.
- “It’s kind of a game of smoke and mirrors,” he told Insider.
The psychedelic space is booming and a multitude of entrepreneurs are trying to enter the industry.
Take it from Sa’ad Shah, managing partner of the Noetic Fund, who told Insider in a recent interview that he has seen 374 different pitches from industry startups.
Noetic Fund has $ 170 million in assets under management, according to Shah, and is one of the most fundraising venture capitalists in the industry. The company has invested $ 56 million in psychedelics since early 2020, when Shah launched the fund.
Shah said he was very selective about which companies he decided to invest in, which is why the fund has made 31 investments so far.
He said he was looking at all the standard elements – optionality, management, resources available to the business, etc. – during the valuation of a company. But he added that he saw two big red flags among space companies, which signaled him that he shouldn’t invest.
Red flag # 1: When a founder doesn’t know his stuff
An easy red flag to spot, according to Shah, is the obvious lack of knowledge of space. These guys are easy to shut out, he said.
There are a lot of people getting into psychedelics because it’s such a new and hot market, he said.
“It’s kind of a game of smoke and mirrors,” Shah told Insider. He added that he found it surprising the number of founders who have started a business in an industry that they know very little about.
“They manage to get by because they’re in the right place at the right time, they have a cool company name and a few advisers,” he said. “As a result, they make money, but when you peel the onion, you realize they don’t know much.”
As a result, Shah says that when he talks to the founders and examines their decks, he’s really trying to figure out how well the founders know their company and the industry.
Red flag # 2: When a founder thinks he knows everything about psychedelics
Shah says there is also a flip side to this.
A founder may know his business, the space, and the psychedelics as a whole well, but be so confident that he doesn’t think anything could go wrong.
In such cases, Shah says he and his partners are immediately turned off.
“There are always known unknowns, and when it comes to teams, management styles and entrepreneurs, they need to be self-aware enough to realize they haven’t covered. all the basics, but at least they thought about it, ”he said. noted.