Vine Ventures' Founder Ryan Zurrer: How to invest in psychedelic companies

Ryan Zurrer: [00:00:00] 
I'm firmly of the belief that venture capital when applied correctly is designed to help create and accrue value from making the world a better place. I think if we could do one thing to really improve humanity, it would probably be to allow people who are seeking it either from curing the sick or betterment of the well, seek psychedelic therapy.

Greg Kubin: [00:00:31] 
Welcome to Business Trip, a podcast about psychedelic entrepreneurship. We explore the business models and origin stories of the most interesting companies in psychedelics. I'm your host, Greg Kubin. At times, I'm skeptical about venture capital funding, psychedelic companies, venture capitalists bet on companies that try to go really big, leaving a trail of failed companies in their wake.

The idea of growing at all costs in psychedelics feels expensive when the cost is someone's mental health and wellbeing, but Ryan Zurrer's approach in venture capital makes me optimistic. Ryan is the founder of Vine Ventures, a $25 million venture fund investing in psychedelic companies. It's one of the first venture funds dedicated to psychedelics and Ryan's investing style is based on his own deep relationship with the medicines.

He favors entrepreneurs who have their own connection with psychedelics and in the therapeutic setting he believes that natural psychedelic medicines can provide a better experience than synthetic medicines. Ryan also bought a plot of land in Peru to research sustainable cultivation of plants like Ayahuasca, since it's already becoming endangered, Ryan is immersed in the many cultures, surrounding the psychedelic space, and he's dedicated to creating a fund that aligns with his values.

In this interview, we explore the merits of natural versus synthetic psychedelic medicines. Including Ryan's firsthand experiences we discussed, which businesses are a good fit for venture capital. And we talk about the traits of entrepreneurs Ryan looks to invest in. If you're a founder, investor or early hire at a psychedelic company, this episode will be a treat.

I'd love to start just by hearing about. Your decision to start Vine Ventures and how you came up with that idea. 

Ryan Zurrer: [00:02:33] 
So I have been a very avid, uh, psychonaut, biohacker quantified self enthusiast for a long time, probably close to 20 years now. And I met my wife at her Ayahuasca center in Peru a number of years ago now, and have been, uh, very fortunate to accompany her and the ceremonies and therapies that she's performed over the last few years.

And thus been able to hold my own sort of informal, empirical study of how much of an impact these therapies, when taken in the right context can have for people. And,  you know have been a venture capitalist for about a decade, started a fund called Polychain Capital with Olaf Carlson-Wee, and that went pretty well. Left that in late 2018 and have been mostly interested in this emerging psychedelic space ever since then.

And as I started poking around the space and trying to get up the curve, learning, going to conferences, talking with different folks, I began to notice a number of things emerge. One that a lot of the investors and sort of high profile entrepreneurs in the space had a very strong opinion about how the future of psychedelics would unfold, that it would be strictly doctor controlled, doctor issued.

And in fact, medical doctors would accompany the therapy, which I, I didn't really resonate with. And then, that it would all be sort of patented like big pharma data exclusivity. And for, for long period of time with these defensible patents and value would accrue to these sort of like larger pharma organizations and that it would only be synthetic versions of psychedelics that would be legal or offered by doctors to, to their patients.

And truthfully, that seemed like dystopian future to me. This idea that someone would have to pay say $8,000 a dose for synthetic psilocybin and sit in this white room with a lab coat doctor administering the psychedelic therapy seemed like completely misguided. And I'm firmly of the belief that venture capital when applied correctly is designed to help create and accrue value from making the world a better place. And I certainly would like to see the future of psychedelics, make this world a better place. I think if, if we could do one thing to really improve humanity, uh, it would probably be to allow people who are seeking it either from, for curing the sick or betterment of the well seek psychedelic therapies. 

Greg Kubin: [00:05:26] 
So it sounds like you envision your fund being a mechanism to really shape a future that isn't patented and isn't synthetic and isn't doctor controlled. 

Ryan Zurrer: [00:05:37] 
So yeah, I mean, effectively I created Vine Ventures for myself. I talked with a number of investors and entrepreneurs in the space and I didn't really see anybody pursuing the vision that I had.

I also recognized very early on in my own exploration that a lot of the best work being done in the space today has been done by not-for-profit groups. And there's a very strong culture within the industry of, of an orientation towards say, not-for-profit and actually a lot of skepticism around pure for-profit models and venture capitalists and so on and so forth.

And so I wanted to create a fund that was values aligned for the industry that it, that it participated. In, in, in funds in the past, I, you know, we've had success when we were. It's sort of OG to the space and very values aligned with the culture of the industry and have not had success when it's clearly, you know, orthogonal to the culture of the industry.

And so I wanted to be really aligned with the nature and culture of this emerging psychedelic space. And so, created Vine with, with that in mind and created our entrepreneurs pledge with that in mind, where we will take fully half the GP carrier, the profits that are generated from the fund. And redirect that back into nonprofit projects, research and philanthropy. 

Greg Kubin: [00:07:14] 
Venture capital funds are managed by general partners called GPs and they're funded by limited partners called LPs.

Ryan is a general partner of Vine Ventures. General partners make money by charging limited partners, a management fee, as well as a carry. Which is a percentage of profits. The management fee is typically 2% and is used to pay for administrative costs like salary and rent. The carry is typically 20%. Some call this fee structure 2 and 20. Ryan's fund will give half of their carry.

That is to say, half of their profits back to nonprofits and indigenous community is chosen by the entrepreneurs he invests in.

Ryan Zurrer: [00:07:58] 
But not only will, will Vine Ventures direct that back into the industry in a non-for-profit fashion, but the entrepreneurs who make up the portfolio will have the decision along with the advisors, to the portfolio of where that capital goes.

Whether it goes to, you know, indigenous projects or research or a mixture of various things. And. And I thought that was important. I don't think a traditional venture capital fund is just going to waltz into this industry and have success connecting with entrepreneurs without really walking the talk on being values aligned.

I mean, if at the end of the day I, Ryan Zurrer, don't make any money specifically from this industry, well that, that's totally fine. If we have a, a world in which everyone who wants access to a psychedelic experience, either for curing the sick or betterment of the well, have that access. I think we've done our job as venture capitalists and really pushing the ball forward for mankind.

I think. You know, generally as we get GMP manufacturing, right; the way that happened with cannabis and, you know, with edibles and other things like that. And we can start to get consistency. In naturally produced psychedelic compounds. I think there will be certainly a space for that. 

Greg Kubin: [00:09:28] 
GMP stands for good manufacturing practices.

It is a quality control standard for pharmaceutical companies set by the FDA. To be GMP compliant. You have to do things like ensuring facilities are in good condition, the equipment is properly maintained and employees are qualified and trained. At the end of the day, GMP is there to protect the patients who will be taking the medicines.

Ryan Zurrer: [00:09:53] 
And then I think, really the market and demand on the client side will be the driving force there. That a lot of these folks were force feeding everyone synthetic psilocybin will just be met with the, you know, the stark reality that their clients don't want that, you know, the 22 million vegans and vegetarians and continental North America, which also make up quite a large portion of the psychonaut population are not going to take your synthetic silicide with like, that's just not going to happen.

So we need to start to think about, okay, you know, what does the supply chain look like? That has say good manufacturing practices, such that we can get to consistency and you know, and it's safe for people to obtain natural compounds. Because the synthetic compounds, while they're great in certain situations, I don't think will be tremendously popular for a, for a wider population.

Greg Kubin: [00:10:55] 
So you had mentioned that the synthetic product is quite different than the natural in, in what specific ways have you observed that? 

Ryan Zurrer: [00:11:07] 
So for example, if you try Ayahuasca versus pharmahuasca, I find it to be a fundamentally different experience. It's shorter acting if it's pharmahuasca, um, it's not nearly as intense.

And then  generally sort of everything that has gone into the set and setting of, of say, like an Ayahuasca ceremony in the jungles in Peru versus say like a pharmahuasca ceremony in a, in an urban setting North America. It makes for a very different experience.  

Greg Kubin: [00:11:36] 
Ayahuasca is a South American psychedelic brew often made from the Chacruna leaf and the Ayahuasca vine. 

The leaf contains dimethyltryptamine also known as DMT, a very potent and psychedelic molecule. In addition to being a schedule, one drug DMT is also a molecule. Our brain releases when we're dreaming. The Ayahuasca vine helps inhibit stomach enzymes that would otherwise not allow our body to metabolize the DMT.

The brew has been used as a ceremonial entheogen among the indigenous people of the Amazon basin for thousands of years. If you ask Amazonian shamans, how they gain such a deep molecular knowledge of these plants, they'll tell you it came from their visions and from the plants. Ayahuasca journeys can induce some of the most blissful, challenging and profound psychedelic experiences known to humankind.

Very far out visions, revelations, insights and mystical experiences have been reported. The word Ayahuasca literally means "vine of the soul" in Catchoua a language indigenous to South America. 

Ryan Zurrer: [00:12:51] 
And so the conclusion that I would draw from this, trying to appear in the future, and again, be open minded about how the future may unfold, you know, we, we must note that the future may unfold.

In this dystopian way that, that some of the entrepreneurs in the space have explained today, specifically from the, you know, the groups from like Atai and Compass that it will be fully synthetic. I very much hope that it's not going to be that way. And I'm very much, and I will be working as hard as I can to, to ensure that that's not the case.

Usually the feedback is, is one of that. You know, the synthetic version was at best, a watered down experience and at worst, a fundamentally different experience that didn't bring nearly the level of, of, of insight and new understandings that the natural compound in the right set and setting would have.

Greg Kubin: [00:13:49] 
Doesn't the FDA have regulations that prohibit natural compounds from being prescribable, and so they kind of have to be synthetic? 

Ryan Zurrer: [00:13:57] 
Yeah, so this is a really good, good point. And what I, you know, one of the original sort of founding thesis of a Vine was that the door that cannabis sort of kicked down other natural psychedelics will be able to walk through it.

And what we see is that in countries where we've got, you know, federal legislation that guides the production and sale of cannabis, you would use very similar, a very similar approach for psychedelics. Now, obviously the control of distribution has to be fundamentally different. I'm of the opinion that I think it will be the domain of a therapist that probably has some specific training. In fact, part of my research has demonstrated that there was more than 4,000 underground therapists in continental, North America, which is a staggering number. A lot of these people, you know, my wife included are very experienced, very capable, understand a range of different settings, have done a lot of training towards this.

So it's something more akin to say like a massage therapist than say a medical doctor, but, you know, in the U S we don't have a federal legislation with respect to cannabis, it still remains scheduled federally. And then you have state by state exceptions. I expect that we will see again, the same thing unfold for psychedelics. That it will be States that will have certain exceptions that they, that they mandate for given therapies and given indications.

And then federally, I would guess that America probably lags on, on legislation, but we'll see, you know, before we see America, we'll probably see a dozen other countries sort of blaze, blaze a trail with respect to coherent legislation, um, you know, excited about what's happening in Canada. Very excited about different pockets within Europe, Netherlands, Switzerland.

And I don't think it's really one of these things where we can try to try to solve that issue all at once that realistically for the FDA to come around in any meaningful fashion, they're probably going to need to see success in other countries and then also success in sort of microcosm, state level experiments that are almost certainly going to be California, Oregon, and Colorado first.

Greg Kubin: [00:16:42] 
This coming election, Oregon will be the first state to vote on permitting psilocybin assisted therapy. There'll be voting on Oregon Measure 109, also called the Psilocybin Mushrooms Services Program Initiative, which is cosponsored by therapists, Tom and Sherry Eckert. The measure creates a path towards access to natural psychedelics.

Psilocybin  in this case that bypasses the FDA you don't. 

Ryan Zurrer: [00:17:10] 
If you look at the path that cannabis forged, it's likely that, that we see, um, similar occurrences in similar locales, uh, with the emergence of psychedelics. 

Greg Kubin: [00:17:24] 
The, the timeline that I hear frequently is that, you know, MDMA therapy is on track in the United States to be approved by around 2023.

Psilocybin around 2025. Do you have sort of a timeline in your mind around when you see some of these treatments being more available in the United States? 

Ryan Zurrer: [00:17:46] 
The  sort of litmus test that I use to when talking with people about the emergence of this industry is that we can probably agree that there is a path towards liberalization.

And I don't say legalization, but liberalization of some kind in five or less years. And I was saying that more than a year ago now. So let's say, say four or less, and how that looks in, in the U S. remains to be seen, but I think there will be some kind of path towards liberalization around that timeline.

I would think that MDMA, will be faster. And then once, once psilocybin is approved it, it really opens the flood gates for other things, right. Like if you've approved psilocybin Mescalin is a very short sort of like logical leap into, into the next obvious thing. And then from Mescalin, you know, you can kind of get into the other's short acting DMT, I think will, will be.

So because of that, the short acting nature of that, I think it may be approved actually relatively quickly. I know Usona is, is pushing for phase two studies to begin even this year with, with that. So. You know, we could probably look at a two to three year timeline for that to be available in, in what right now are ketamine clinics.

And soon, you know, every ketamine clinic in continental North America will eventually be a psychedelic therapy clinic. Right. And they'll just offer a range of psychedelic therapies depending on what different folks are looking for. 

Greg Kubin: [00:19:30] 
For the DMT, you know, research that's being done. What are. What are the use cases for it?

Ryan Zurrer: [00:19:37] 
I know that there are phase one studies happening from a group called ENTHEON in Canada, also around depression, but also, but then they're planning for some studies around addiction as well. And this is interesting that we see most of the work and capital being deployed towards studies specifically for curing the sick.

Like we haven't, you know, I would really like to see, a study of of say DMT or, uh, any psychedelic on one's ability to meditate or one's consistency with meditation, or one's sort of overall life satisfaction. Even if they start from a, a point of relatively satisfied. And the group at Imperial are starting to look at these types of things, mixing, say, Uh, psychedelics with holotropic breathwork and the effect that that can have. These types of things are, are, are particularly interesting for me, but I am, I myself

am excited about DMT because it's, it's a, you know, a shorter experience, but I don't see it as having the profound effect that we've seen very consistently with some of the other classical psychedelics. I think there's something to be said about the language of time. There's a lot of groups trying to work, working on shortening the length of time of a trip because ours is just, you know, untenable or too long.

I actually kind of go the other way. I think that the put putting a string of hours together in a trip actually gives you a longer sort of attack surface to really resolve problems and have significant insights. 

Greg Kubin: [00:21:26] 
A DMT journey usually lasts a mere 30 minutes, whereas LSD up to 12 hours, a psilocybin trip typically lasts four to six hours.

And my ketamine trip lasted around one hour. As you may have heard on episode one of Business Trip. 

So would love to talk about some of the companies that you've invested in already.

Ryan Zurrer: [00:21:50] 
One no-brainer investment that we were super excited to get behind with PsyGen. PsyGen is, to our knowledge, the only licensed manufacturer in Canada. Danny, the entrepreneur behind PsyGen has been running it for a number of years.

It's also one of these, sort of picks and shovels types of business that fits into the industry, no matter how the future unfolds. You know, even if it is big pharma controlled, these big pharma companies still need somebody to produce the actual synthetic compounds. And so Danny fits into that. He fits into today's environment where he's producing mostly for academic studies and medical research.

We had a study conducted with some analysts looking at the space over the last year. And I guess I would share a couple of, of anecdotes from, from that study. So we scoped out 283 companies in the space. That includes all of the psychedelic tourism companies that we could find. So, you know, your retreat centers in Peru and Holland and other, otherwise. We sussed out some of the large

sort of mega pharma companies that have some exposure to the space, but it represents less than 5% of the revenue base. So for example, Johnson and Johnson that obviously has Esketamine, we took, we removed that just to not have the noise eclipse, the signal there. And so what we found across these, these 283 companies is today

the valuation of the space is about 4.8 billion US dollars. Uh, 610 million US dollars raised during 2019. My expectation, when, when we did the study a few months ago, was that we would probably see a doubling or tripling of that amount raised in 2020. I think we're probably still on track for doubling.

So over a billion dollars will be raised this year towards the industry and that's outside of the, the not for profit sector. But then what we're seeing is value is accruing upstream to the, the drug development and somewhat the GMP manufacturing. Now that can be patented drug development or, or can be generics, but

this is what we consider upstream. And then as we move downstream, which is more the interaction with the client. So that's, you know, in city clinics or psychedelic tourism centers or digital platforms. 

Greg Kubin: [00:24:28] 
It seems like the downstream opportunities we need, there just needs to be time to elapse until those businesses are able to actually service a customer.

Ryan Zurrer: [00:24:38] 
Certainly the, the clinics today. Have a path towards, you know, servicing customers. But what we're seeing is that generally clinics are running at somewhere between 10 and 25% of capacity. And then the same thing could be said about psychedelic tourism, but generally as a category, i, so I like psychedelic tourism, you know, in, in, in some respects, it was very much, uh, my path towards, towards a deeper relationship with psychedelics.

However, as an investor, I don't think psychedelic tourism is really interesting in space, especially now in a post COVID environment. You know, you couple a hotel with this sort of psychedelic therapy model. And in doing that, it just, is it, you know, hotels are erratic. I used to own a hotel, actually still do own a hotel in Brazil and it, you know, it's a low margin business. 

Greg Kubin: [00:25:41] 
Would you say clinics are a good fit for venture because they're pretty labor intensive and service based businesses. So how can clinics actually be venture backable opportunities?

Ryan Zurrer: [00:25:56] 
The clinical model, I think, is really important for expanding, you know, awareness and adoption of psychedelic therapies. As a venture investor

I'm not as excited about it because it's very capital intensive, not that scalable. Right. And so they don't really fit the criteria of the traditional venture investment. And so I take investing in clinics with a, you know, with great caution and so I really respect the work that clinics are doing in, you know, in providing us a first generation of infrastructure of distribution infrastructure.

But I don't think that it's going to be the winner in distribution infrastructure over the longterm. 

Greg Kubin: [00:26:47]
I would love if you could like kind of break down the math of how, how the math actually works from a fund manager's perspective and really how that dictates the types of opportunities that are right for you.

Ryan Zurrer: [00:27:01] 
In a traditional sense, typically, a fund is structured such that, you know, let's imagine that it makes 10 investments. Usually we'll make more, somewhere 30 to 50, but let's imagine for the sake of our numbers, that a fund is going to make 10 investments. It expects that fully seven of those investments are just full zeros, just complete loss of money, might as well classify that as a charity. Which we can get into the whole charitable component here in minute. That two other of those investments may make the principal back or may make a small profit - small, reasonable profit.

And then one of the investments will make the whole fund. And so, what that does with the implication here is, is that venture capitalists are incentivized to, to really go out and make, say, compelling, risky bets on thing, on a type of business that could return the whole fund. You know, you're sort of the prototypical example that someone would, would draw as teal capital investment in Facebook.

Right. I don't think that fund had a range of other profitable investments, but it returned extraordinary amount to its investors because of that one win. You know, something could be said about funds that I participated in past that like, Polychain, you know we did, really really, well on, on a couple of investments, but you know, others, not so much, but that's okay.

And you, you know, you take the good with the bad and you keep the eye on the horizon of something that could really move the needle for the world, because that's where things get interesting for venture capitalists, is as a very compelling innovation and some kind of like deep new technology that generally has a, has a world changing, uh, feature to it.

But then from there, there's a couple of other sort of like venture math rules of thumb that applies. One is it's dual power law, and that you, your winners, any investment that then does a follow on round. You're incentivized to continue to invest in that, in that round, because you will cause your winners will consolidate around just a few.

And so, so typically you'll see ventures, a venture capitalist, pile more money into follow on rounds. And in fact, try to incentivize their founders of their successful companies to do follow on rounds so that they compile more money into those follow on rounds  and kind o try to maximize the exposure of the fund to those one or two obvious winners in the fund.

Now that creates a little bit of a, all of these things create a set of psychology with the investor, the venture investor, and thus a certain communication with entrepreneurs quite often, that may or may not be in the best interest of the entrepreneur. And so that's really where, where some of the drawbacks come from, from venture.

Now there historically it's been better for venture investors to just, again, pile in as much as they can to the, they're winners within the fund and not take money off the table when there are liquidity moments. Again, that's the whole dual, dual power law in play. However, now, because we're starting to see the emergence of liquidity at, at, in shorter timeframes.

So where venture investments, used, used to take 10 years to reach maturity. Now we're seeing many of them reach maturity two, three, four years. So for example, you know, uh Vine has had more than one exit already in, you know, in less than a year of, of operation. That was something that could not have happened years ago in venture.

So I'm of the opinion that the academic evidence that has led towards this culture of, of not taking money off the table, doubling down on, on, on winners every time and not being sort of venture math, so to speak isn't necessarily true of today's environment. It was true before because you couldn't take, you know, couldn't diversify, you couldn't rebalance your portfolio because you didn't have liquidity in your portfolio.

But now because you've faster moments of liquidity, you have the opportunity to rebalance portfolio. So it's interesting that venture is also changing over time. And we're starting to see new models emerge that are, that I think are compelling and will be more profitable for investors in the end. 

Greg Kubin: [00:31:38] 
So I would love to get your thoughts about like the industry dynamic within psychedelics, which I think we also saw within cannabis of companies going public much sooner, one place where I've seen it is with, uh, more pharmaceutical drug development companies typically around

like phase, once they get past phase two clinical trials, they'll often go public to get more capital and which they'll need to continue through the clinical trials. But what do you think of this sort of dynamic of companies going public sooner? 

Ryan Zurrer: [00:32:12] 
I would say it's very complicated and nuanced that what we're seeing and what we see very frequently in Canada is companies that, you know, don't really have

anything of substance, they have no revenues. They have no, you know, even sometimes no business model, being able to go public on what's called the TSX ventures exchange and raise capital that way. Generally I'm against that as a rule of thumb for entrepreneurs, because the entire time that they're trying to do this reverse takeover and go on this highly speculative exchange, they're not running their business through that whole period.

The period is about a six month process. So imagine, okay, so you're going to put your new company on hold for six months while all of your competitors continue to move forward. And while you're doing this, you know, sort of funky capital race, and then you, and then often what you see very unfortunately is a bit of like a pump with, with something that's new.

Say like the psychedelics industry or a few years ago cannabis, or a few years before that crypto and what have you. And then the companies are trying to, what I call backfill their valuation by releasing lots of, of press releases and, and communications announcing different things that they're doing.

And it gets almost, you know, redundant and even ridiculous at times of companies like announcing every little move that they, that they make as if it's some like some notable event. And that can very frequently become a massive distraction for the company. And I often caution my entrepreneurs against doing it.

However, we also must note that this is a legitimate capital formation vehicle that is designed for, you know, high risk investments. Originally the TSX venture exchange was designed for junior minerals and materials miners to get speculative capital well so that they could go up into, you know, the Northwest territories or, or wherever else.

And, and try to mine for precious metals or, or whatever they were doing. It was highly speculative, really risky. So the reporting requirements were reduced. The regulatory requirements are much lower than what you see on traditional exchanges, either in North America or basically anywhere in the world.

The problem is this was sort of repurposed by some enterprising individuals over the last kind of 20 years or so for any speculative industry whatsoever. And so, you know, we we've seen this story play out and then you get these kind of pump and dump groups that will push a slide deck out into the world and raise money and then try to, to, to pump that stock.

And they, they. You know, they make money effectively selling the stock. They don't actually make money doing anything in their business. We saw a delisting of, uh, one Canadian company Champignon Brands, a relatively recently, and, and we're all, you know, we're seeing a range of, of companies kind of go this route and then do the back-filling of, of valuation.

And it just doesn't smell good. And I would say it sets, it can set an industry back years. I think it set cannabis back a number of years, post-crash, you know, you get the stigma that is really difficult to shake. I'd say the, you know, the crypto bubble that and subsequent crash also set crypto back a number of years, you know, it's really difficult to shake that stigma.

So it's a very difficult thing, but at the same time, we're talking about really capital intensive and sort of businesses, especially in the us drug development side. And so you have to be really open minded to whatever capital formation activity is plausible. And if these sort of risk on investors are willing to participate in higher risk enterprises then, and that's, you know, one of the only legitimate ways to raise tens, millions of dollars for say phase one or phase two studies.

Because phase two studies certainly do cost in the tens of millions of dollars at this point.

Greg Kubin: [00:36:31] 
A new drug or treatment must be approved through the FDA's clinical trial process before it can be prescribed to patients. Clinical trials have several phases, which each address different questions. Let's break it down.

 First there's a preclinical phase. That's intended to see if the medication causes serious harm on animals or human cell cultures. 

Then there's phase zero through four phase zero trials learn how a drug affects the human body. 

Phase one trials determine the proper dosage and how it should be administered.

Phase two trials see if the drug actually works in treating people with the underlying condition. 

Phase three trials, compare a new drug with the standard of care drug to see, which is better. If investigators can prove that the new medication is at least as safe and effective., they're in good shape to be approved.

Phase four trials happen after a medication has been approved by the FDA and it's called postmarketing surveillance. This stage determines the longterm and rare side effects. The full completion of clinical trials often costs over a hundred million dollars since they require thousands of participants and careful testing.

Ryan Zurrer: [00:37:48] 
And I'm typically not interested in a company that pitches to me, with the, like the caveat or, or teaser that they plan to go public within a really short period of time. I'm looking for entrepreneurs like Danny of PsyGen, who are just interested in running their business and love their business and, and, and just want it to be sustainable and are looking for that.

And then we'll take care of the, the, you know, the liquidity moment, if the entrepreneurs and it for the right reasons and can execute on their vision. 

Greg Kubin: [00:38:21] 
Mhmm. What are some of the traits of founders that you invest in? What do you look for?

Ryan Zurrer: [00:38:28] 
Primarily a competence in their field. Right? So for example, if I'm investing in a drug development company, I don't want it to be run by like four MBAs and one like scientific advisor. The same way that if you're investing in a software startup, you would look for a team that's

dominated by software engineers, not by a bunch of MBAs. And then the second thing that I look for that I would say is maybe a little bit different than, than what we're seeing in the space is I look for people who, who are passionate and say knowledgeable about this space, you know, independent of their work.

So I personally find it hilarious that I'll talk with a team doing say drug development of psychedelic compounds that not only have never tried their own product, have never tried any psychedelic product. And I'm just like, how has is that even, like, how is that even a thing? Like, imagine if I, if myself and all Olaf when we were raising money for, for, for Polychain back in, in 2016, if we were going around to investors and saying, Oh no, no, no, no, we don't, we don't use Bitcoin.

Right? Like we don't even know how to send a, a Bitcoin transaction. Like I, you know, I don't touch the stuff. Right. Would that not seem weird to you? So where that strangely in this industry seems like a trait that like a lot of entrepreneurs are very proud to inform me that they have never touched psychedelics and have no intention to do so. 

I'm just like, well, like how do you even have like product knowledge then? So, so I looked for people who are, you know, who are genuinely passionate psychonauts like myself and who believe in this. Above and beyond their, their current business or their current strategy, because those are, those are going to be the ones who will do it when it's not cool and cheek and unique.

Right. They'll do it. When, you know, when all hope is almost lost or they'll do it when. You know, when they're not making lots of money. 

Greg Kubin: [00:40:40] 
Would love for you to walk me through your process of investing, like from receiving that very first cold email from a founder to writing the check, what does that process look like?

Ryan Zurrer: [00:40:53] 
I think for face to face meetings will, will continue to be important, but for, for now, because we can't do that and we're doing mostly Zoom calls, uh, typically, so we have a due diligence list my, my partner, Jesse has composed and it runs through a whole range of things from a company formation documents to patent applications.

And, and just trying to get an idea for like, what does this team actually have? And then yeah, the third thing, this sort of third step is typically reference checks. That is an often overlooked step in, in venture, but it's probably the most important one because at the end of the day, you know, if you played the early stage, you're investing mostly in people and you'd be surprised if, you know, if you actually do the work, the hard work on doing a reference check, even if it's just like, you know, calling two or three people that the person gave to you, you get a better sense of what they've done in the past and how they work.

So, so especially if somebody has come out of a failed startup, I want to speak with their former partner. That's it, that's probably the, the most important conversation that you're going to have on the character of that individual. Because either, you know, they left everything in a mess and, and it was a big fight and blow up in the end or, you know, it just didn't work out, but they're good natured.

And, and sometimes that's the most important signal. And then from, from there, we're pretty fast on decision making. And if I like a team and, and like what they're doing, then, then we can write a check in a week and have done so in the past, I think the whole due diligence process for Gilgamesh, which I think is the first comp, uh, psychedelics company to be accepted into Y Combinator. I think we did that in less than a week. And so it can be pretty fast if, if a team has all their ducks in a row and everything is going smoothly. But we try to make it as rigorous as possible. 

Greg Kubin: [00:43:00] 
Alright, so changing gears for a moment would love to talk about the role Ayahuasca churches could play in the United States over time.

Uh, I know we were chatting before this, before this conversation, you had mentioned seeing it as a potential alternative route to some psychedelics kind of, becoming more accessible. And so wanted to kind of get your thoughts about the role that Ayahuasca churches can play in the United States. 

Ryan Zurrer: [00:43:30] 
Yeah. So this is an idea that I am really excited about.

Maybe for me, the most compelling on that, that I've jammed on with a number of different entrepreneurs and players in this space. And just to contextualize for your audience here, there are effectively two paths that exist today in which someone could legally be allowed to consume, uh, psychedelics. One is this drug development, FDA approval path, uh, really long road, you know, typically measured in decades and measured in hundreds of millions of dollars of capital to get through. The other one that we've actually seen be successful,

although not with as much fanfare or awareness is a real religious exemption path. And so we've seen a number of churches in America, get a religious exemption to be able to use Ayahuasca in most cases, but one native religion got religious exemption for the use of payote as well in, as their sacred sacrament.

And so, for example, the church of Santo Daime, which is this very large Brazilian church that I know quite well, cause I lived in Brazil for a decade. A very well capitalized church, you know, millions of participants in that church were able to get it through, but then a much, much smaller church called the, the União, the church of União do Vegetal, um, which is this very small kind of vegan group.

And also at, uh, Brazil, we're also able to get this religious exemption through. I think maybe one of the most interesting ideas in this space is to, to look at sort of this general area of conscious health and wellness that many of us subscribed to and look at the sort of text and information that's been aggregated over the last 20 years in, you know, biohacking, quantified self, you know, a lot of just

conscious exploration. You could argue that you say Burning Man and a lot of the culture around that is, is something that sort of fits with with this model. You could argue that the podcast material of Tim Ferriss and Joe Rogan over the last two decades actually serves as sort of a fundamental text or, or, or document of record for this church and basically classify

this, it sort of set of culture, beliefs, values that so many of us in Silicon Valley and beyond, um, subscribe to whether it's, you know, California Sober or, or, or range of other things and classify that as, as a church in and of itself, push that through religious exemption, which instead of being hundreds of millions is probably somewhere in the hundreds of thousands.

The to get through, and then you have a path towards permission to possess, consume, and distribute within the confines of your church to others. And that actually, for me, seems like the most compelling path towards, again, liberalization of psychedelics. I think there's, you know, you can check all the boxes that you would need to for, for religious exemption and

you know what again, I think it's just what, you know, what reality sort of dictates, right? That this is, these are religious ceremonial experiences for most, for most of us, are as close to religion as any of us get. And, and we should be permitted to, you know, to, to have these sacraments in these context and settings.

And I am excited by the number of Ayahuasca churches in California and elsewhere sort of coming together in a collaborative fashion and starting to think in this way. And, and I think that'll be a very interesting path that may catch a lot of people by surprise, with respect to liberalization. And that's why sort of at the start I mentioned liberalization and not necessarily legalization.

Greg Kubin: [00:47:51] 
Yeah.

And interestingly, it's a non-commercial path. 

Ryan Zurrer: [00:47:55] 
Indeed. And that's been kind of one of the interesting things that I've, that I've noticed in, in, in this space thus far, is that a lot of the best work being done has been, it has been, is being done by folks in the non-for-profits space and the way that, you know, I'm totally fine with that.

But I think that the sort of like pharma guys aren't getting. What they're not understanding is that if you build the network, there are businesses that you can then operate on top of the network. If you build the network for sort of, for free, and there's like a path towards, for people to be able to exchange and, and, you know, exist in that fashion on this network.

There will be ways to accrue value you and, and, and capture value on top of the network. But the network should be built as essentially public utility. Right. And a lot of these pharma guys are wanting to say, build a network of, for example, of like psilocybin therapy, but then own the toll of entering and exiting the network.

And I'm kind of like, well, no, let's just like, have it as well basis. And then let's see what ideas people come up on top of that. And maybe that's just, you know, that's just been the nature of my investing and thesis over the last decade or so at least, you know, with, with crypto networks, you'll build the network as a utility and then you'll build some kind of.

You know, operating businesses on top of, of that network. And that's, that's totally fine, but the network gets built as this nonprofit, you know, purely utility thing. And it has to be in order to get the cultural buy-in. When you have somebody that owns the network, you don't really get the community effect.

You can't. It by very nature, you obviate a way, the community effect that you can have, which in today's environment, often the most valuable asset. Is, is a great passionate community. If you've got a great passionate community, you'll, you know, you'll make whatever else you need to. And, and so that's kind of the approach that I'm taking here is that if we can get a path towards liberalization where we can build a community in here, then the community will, then flourish a thousand flowers of opportunity that entrepreneurs can, can, can capture and accrue value to.

Greg Kubin: [00:50:29] 
Okay. So almost, almost done here. I feel like we've covered a lot of really great ground. 

Um.

Ryan Zurrer: [00:50:35] 
Well, let's, let's cover one other thing is I would love feedback. I'd love your feedback on this. And generally on feedback on this, so, as we mentioned, you know, there's a lot of people doing great work in not-for-profits sphere and there's a lot of teams sort of coming and pitching.

To me and saying, Hey, we're, you know, right now we're just doing this not-for-profit activity either with MAPS, with somebody else, but we have some vision to pursue a path of sustainability over the long term. And, and so I'm, and so then I'm sitting there being like, okay, well, do I write them, you know, a charitable contribution check or do I write them a venture check?

And so we've proposed at Vine, we've proposed a, a hy, a hybrid approach that we're really excited about. So we call it the snake, the simple agreement for convertible equity. And in, in, in, in this, we would make what is effectively a donation to start and classified as donation. And then the interesting thing is you can write that off against your taxes in the current year.

Rather than if you make a venture investment, you get the write off, but you get it in say the seventh or eighth year, when you actually write the investment down. So you write it off right away. And then if they, if the organization goes on to, you know, to create some business of value that has revenues and profits and things like that, it has an automatic conversion where that donation then actually becomes

an equity investment and converts at say the seed valuation of tha company, or even a pre- defined valuation. And then what you would do in that case is you would amend the tax write off that you declared in the future the current year, but you would do that then in the future year. And you've now you've got a valuable asset,

so who cares? So that ends up, that ends up being interesting. 

Greg Kubin: [00:52:36] 
My question would be, would you foresee companies, most companies making that transition or some organizations or groups just deciding to stay as a nonprofit longterm? 

Ryan Zurrer: [00:52:47] 
Think about this though? The vast majority of venture capital is just charity for, you know, kids coming out of Stanford anyways, right?

Like 90,90% plus of venture capital should have been classified as charity. It would have been better at tax optimization in that case. And so we're just sort of taking this a step further and, and, and recognizing it for what it is. I feel like generally in society, we're, we're seeing this as a, as a, as a more general trend.

That there's a lot of calls for the reimagination of capitalism. There's a lot of questions about the, you know, the traditional ways of, of, of doing business. And so one of the things I find most compelling and most interesting about this, this emerging space is that I think maybe some of the answers for society at large of how do we straddle the,

the line between for profit and not-for-profit may emerge from this industry. And you often get that, that, you know, an industry will have a culture to it. And as a result, I'm certain innovation will come about. And so I'm cautiously optimistic that we'll, we'll see new types of business models emerge specifically from the psychedelics industry that then takes on a whole new world of itself.

Greg Kubin: [00:54:20] 
What I like about Ryan is that he'll jump through hoops to make psychedelic medicine, widely accessible. He invests in companies that navigate the FDA's clinical trial process, but at the same time, he floats the idea of starting a church to circumvent the FDA's rigorous rules. He's a proponent of natural compounds but will also invest in a maker of generic synthetics to make psychedelic medicine affordable.

Ryan is at once a contrarian, idealist and purist. What makes for a very dynamic participant in psychedelics. This is Business Trip, a podcast about psychedelic entrepreneurship. If you liked this episode, you can help us by subscribing to the podcast and leaving us a review. Also, helps spread the word by sharing our social media links with your community.

You can find us on Twitter and Instagram @businesstripfm and if you're building a company in psychedelics or you're looking to get more involved in the space, email me at greg@businesstrip.fm. On the next  episode of Business Trip, we talk with Flor Bollini, a healer and medicine woman turned entrepreneur. Flor is building a company that will help define the protocols for psychedelic assisted therapy.

Flor Bollini: [00:55:33] 
Do we have time to prepare the system to educate practitioners of the level of care required to actually hold people in this way and not to be traumatic? Because the medical setting is a less place that you need to have these kinds of experiences. FDA is not regulating and set, and setting and dosaging as such, which is the most important thing to make these medicines effective.

Greg Kubin: [00:55:57]
I'm your host, Greg Kubin. Business Trip is created by me and Matias Serebrinsky. Associate producer and engineer is Jonathan Davis. Music came from Chad Crouch and Blue Dot Sessions. And our theme music is by Dorian Love. This is Business Trip. Thanks for tripping with us. We'll see you next time.

Ryan Zurrer: [00:56:24] 
I'll talk with a team doing, say drug development of a psychedelic compound that not only have never tried their own product, have never tried any psychedelic product. And I'm just like, like, how is that even a thing?

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