Psychedelics are creating an alternative form of healthcare, so it is only reasonable that the industry would seek out alternative sources of funding. Nearly all businesses in the psychedelic industry are in the early stages of development, so companies are searching for funding in a less-than-favorable economic environment. While there are traditional investment opportunities available to some companies, others are turning to alternative methods such as crowdfunding.
Crowdfunding has emerged as a powerful tool for raising capital, enabling the psychedelic industry to flourish while promoting democratized participation. In this article, we’ll explore the role of crowdfunding in advancing the psychedelic industry, highlighting real-world examples, and weighing its pros and cons.
What is Crowdfunding?
Crowdfunding has gained prominence as a mechanism for raising funds from a large number of individuals. It is a modern investment tool that allows anyone to put money towards a company, project, or idea that they deem worthy. This tool redistributes power from big institutional investors to the everyday person. This happens through special platforms designed to connect companies to interested investors.
Any company has the ability to create a campaign, on websites such as Wefunder. Crowdfunding generally refers to Reg A or Reg C offerings, which allow two things that the more common Reg D offerings do not. It allows the company to advertise the offering and allows non-accredited investors to get access to equity before a company goes public (if it ever does).
An increasing amount of companies are utilizing crowdfunding to raise capital, and it has already been bringing money into the psychedelic industry.
The Pros & Cons of Crowdfunding
- Democratization of Investment: Crowdfunding allows a diverse range of individuals, from seasoned investors to everyday enthusiasts, to participate in funding ventures that they believe in. This not only spreads financial risk to a greater number of investors but also engages a broader community in supporting an industry’s growth.
- Visibility and Awareness: Crowdfunding campaigns lead to increased public awareness for companies through marketing to a broader audience. Generally, only institutional investors are targeted in early funding rounds, which means that the greater public is not aware of the company until the later stages of development.
- Early Adopter Engagement: Crowdfunding campaigns can sometimes provide investors with early access to products, services, or research findings. This creates a sense of involvement and ownership, encouraging backers to remain invested in the success of the venture.
- Accelerated Research & Development: By securing funds directly from the public, businesses may be able to accelerate their development timelines. The ability to do this depends on the speed at which a company is able to raise its required funding using this tool. This could be particularly beneficial in emerging industries where swift progress is essential to establish credibility and build momentum.
- Regulatory Uncertainty: Some industries, such as psychedelics, operate within a complex regulatory landscape. Crowdfunding campaigns may encounter legal hurdles as regulators grapple with evolving guidelines for fundraising in this space.
- Oversaturation and Competitions: The democratization of investing that crowdfunding offers could potentially lead to an oversaturated market, making it challenging for individual campaigns to stand out. An increase in competition for investor attention on crowdfunding platforms could dilute the impact of each fundraising effort.
- Managing Investor Expectations: Backers may have high expectations for returns on their investments, which might not align with the long-term, speculative nature of some ventures. It may be difficult for businesses to manage these expectations. However, this is an issue that arises with traditional routes of investing as well.
- Lack of Expertise: While crowdfunding opens doors for various investors to get in on the ground floor of a company, not all of them have the expertise to evaluate the viability of a start-up. This could lead to misguided investment decisions and potential disappointment for un-seasoned investors. This is, however, not an issue exclusive to crowdfunding. This issue of democratizing investing became very apparent with the Game Stop debacle. This pivotal moment in investing history showed that whether you have $100 or $10 million to put into a company, investing is a gamble. Some are going to win, and some will not. Ultimately, it is up to the individual to make informed decisions, and no one should be investing money that they cannot afford to lose.
Crowdfunding & Psychedelics
This new means of funding is particularly suited to the psychedelic industry because of the high level of passion that many people have for psychedelics. Crowdfunding relies on the interest of people who are not traditional investors, many of whom are investing their own money because they wholeheartedly believe in the mission of the company that they are supporting.
There is an abundance of individuals who are incredibly passionate about helping people heal through the power of psychedelics, which makes crowdfunding a great option for psychedelic companies that want investors who are aligned with their vision. Several psychedelic companies are already utilizing crowdfunding to fund their development.
Nucleus, a psychedelic venture studio, leveraged crowdfunding to fuel its efforts to support the emerging industry with data tools, content, and more. By tapping into crowdfunding platforms, Nucleus raised $517k to facilitate the development of its assets. Tactogen— a psychedelic drug development PBC— finished out a crowdfunding campaign earlier this year as well.
Crowdfunding is being used in the broader wellness industry too. Nutritional mushroom brand, SuperMush, currently has a crowdfunding campaign up on WeFunder that has already raised over a million dollars from 147 people, and is still accepting investments. Another wellness company, EI Ventures, was able to raise over $20 million.
Crowdfunding has emerged as a valuable asset to help propel the psychedelic industry forward. Examples such as these demonstrate its ability to provide a versatile source of funding to fuel research, development, and public awareness of this emerging sector.
However, it is important to view crowdfunding with an understanding of its challenges, as well as advantages. Regulatory uncertainties, competition, managing investor expectations, and the need for expert evaluation need to be carefully considered to avoid setbacks. As the psychedelic industry continues to evolve, it is important to find a balance between utilizing the power of crowdfunding and maintaining integrity and accountability.
At the end of the day, crowdfunding is a tool and a means to an end. It can propel growth and innovation, but needs to be wielded with a strategy. The psychedelic industry, with its potential to reshape mental health treatment and expand human consciousness, is full of opportunities for exploration. Utilizing crowdfunding can be a tool to help people do this through funding their businesses.