A top psychedelics VC who's evaluated 374 pitches shares the 2 red flags that turn him off every time
He says there are two major red flags he sees among startups that pitch him.The psychedelics space is booming and a slew of entrepreneurs are trying to enter the industry.that he's seen 374 different pitches from startups in the industry.. The firm has invested $56 million in psychedelics since early 2020, when Shah started the fund.Shah said he's been very selective about the companies he's decided to invest in, which explains why the fund has made 31 investments so far.
He said he looks at all the standard things — optionality, management, resources available to the company, etc. — when appraising a company. But he added that there are two major red flags he sees among companies in the space, which signal to him that he shouldn't invest. An easy red flag to spot, according to Shah, is obvious lack of knowledge of the space. Those guys are easy to rule out, he said."It's a bit of a smoke and mirrors game," Shah told Insider.
"They manage to get away with it because they are in the right space at the right time, they've got a cool company name, and a few advisors," he said."They're getting money as a result, but when you peel the onion, you realize there's not much that they know." As a result, Shah says when he speaks to founders and looks through their decks, he really tries to dig into how well the founders know their business and the industry.Shah says that there's also a flip side to this.
A founder may be knowledgeable about their company, the space, and psychedelics as a whole, but be so overly confident that they don't believe anything can go wrong."There's always known unknowns, and when it comes to teams and management styles and entrepreneurs, they need to be self-aware enough to realize that they haven't covered all the bases, but they've at least thought about it," he said.
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