Ei.Ventures is raising a Crowd SAFE at a gigantic $111 million valuation, with an 80% discount rate. The company will have to make significant capital investment up front to develop its product offerings, making this valuation even more unreasonable at this stage. Although the high discount rate may appeal to some investors, Ei.Ventures’ price score is very low due to its unjustifiably high valuation. 

Assessing Ei.Ventures’s potential market size is tricky, simply because many of its product offerings are facing legal hurdles. Some psychedelic-based drugs are being approved for FDA use — the first of these was Johnson & Johnson’s SPRAVATO nasal spray to treat depression, which was approved in early 2019.

The psychedelic drugs market as a whole is projected to reach $6.87 billion by 2027, growing at a CAGR of 16.3%. Even at such a high growth rate, this is not a massive market size for a company with such high development costs. The global behavioral health market overall — which includes the creation of treatment facilities and programs for mental health patients — is expected to reach $240 billion by 2026. Ei.Ventures would only operate within a small niche of that larger market. If psychedelics continue to grow in popularity, the company could also face competition from larger, more established drug companies. 

Overall, the psychedelics market is growing rapidly — a boon to Ei.Ventures’ future prospects. However, the market is still niche currently, limiting the company’s current market potential. Balancing these factors together, the market score for Ei.Ventures is middle-of-the-road.

CEO and co-founder David Nikzad is an angel investor who has made a living for himself by investing in startups like Airbnb. His record of investments include notable startup investment platforms WeFunder and Republic. His most significant contribution to Ei.Ventures is likely less a gift for business than a kind of “New Age credibility.” Nikzad’s life story of engagement with nightlife and postmodern philosophy — he proclaims a high level of emotional intelligence, which he abbreviates “Ei,” on his LinkedIn page — exhibits the kind of markers that potential psychedelic treatment seekers could be looking for as signs of authenticity. This comes across in Ei.Ventures’s marketing. That said, he does support a number of “farma-centric” businesses including Ei.Ventures through his parent company, Orthogonal Thinker.

Nikzad’s co-founder and partner through Orthogonal Thinker is Jason Hobson. Hobson seems to have a similar outlook on life, but he follows a slightly more traditional business path. He spent several years as an attorney, owns his own law firm, went through the MDE program at UCLA, and served as a VP at Alliant Capital. While Hobson’s extensive experience with the law could help in guiding the company through the FDA approval process, he has little in the way of relevant industry experience to recommend him.

Dr. Linda Strouse, the Director of Clinical Trials, offers something more in the way of experience. Strouse brings more than 25 years of experience working in the pharmaceutical industry and is therefore quite familiar with the traditional “big pharma” companies oriented to oppose Ei.Ventures’s rise. Strouse is co-founder and VP of Randy’s Club — a medicinal cannabis company — and is the principal for Strategic Clinical consultants, representing seven and a half years of clinical research direction. Strategic Advisor Najla Guthrie and Chief Medical Officer Dr. Jack Rentz likewise offer relevant clinical experience to the company.

It should be noted that Nikzad himself is the only team member who prominently proclaims his role at Ei.Ventures. Due to the lack of industry experience that both Nikzad and Hobson share, the team score for Ei.Ventures is very low.

If Ei.Ventures’s astronomically high valuation is a downside for investors, here is the upside. Ei.Ventures’ proprietary API — Active Pharmaceutical Ingredients — and other products have patents pending. The millions that have gone into development represent a threshold that will present significant obstacles for potential competitors. Provided that products that require FDA approval receive it and Ei.Ventures can establish reliable partnerships and distribution, high profit margins are guaranteed. The company’s decision to move in multiple directions could also offer it multiple verticals for profit and growth.

There are also competitors in the space. Johnson & Johnson, as mentioned above, is one such competitor. Other notable emerging companies include Mind Medicine — a Canada-based company that made a big splash on the investment scene — has lately opted to focus on LSD over psychedelics as a treatment compound. Revive Therapeutics is another Canada-based company that has acquired Psilocin Pharma Corp. and plans to use psilocybin in similar ways to Ei.Ventures to treat mental health conditions. Lastly, there’s COMPASS Pathways, a London-based company that seems to have pulled significantly ahead of Ei.Ventures. COMPASS has developed psilocybin for use in patients with treatment-resistant depression, and is conducting an FDA phase IIb clinical trial for its use. Apparently the FDA is highly impressed with the treatment, deeming it a “Breakthrough Therapy.” 

Due to Ei.Ventures’ patents and the high level of capital required for competitors to develop similar products, the company’s differentiators score is its highest across all five metrics.

As a pre-product company, Ei.Ventures has little in the way of performance to recommend itself. A lack of financial records make it impossible to track the company’s expenses and asset buildup. The company is developing mental wellness and health app partnerships for launch in 2021, but has yet to declare any notable partnerships or contracts. With essentially no data available for assessment, Ei.Ventures’ performance score is its lowest across all five metrics.

First, the market for psychedelics-based medicine is basically nonexistent. Ei.Ventures is among several companies attempting to grow that market from the ground up. In its marketing material, Nikzad is quick to point out that in order to reap the full benefits of so-called unicorn companies, investors must get in on the very beginning of such trends.

What he doesn’t say is that such investment comes with significant risk. Risk that the target markets won’t grow as expected (or in this case, that regulations will not loosen over time), risk that products will underperform, and risk that competitors will push past a would-be market leader. Despite Nikzad’s touting of his knack for prediction, the truth is that no one knows how the market will behave — especially in predicting such socially-divisive trends. Thanks to the high valuation, investors will need enormous, truly unicorn-level returns to capitalize on their investment. Even should Ei.Ventures succeed in that regard, such success is likely many, many years away. 

Investors should remember that for every unicorn, there are hundreds if not thousands of failed or moderately successful businesses. Additionally, co-founders Nikzad and Hobson don’t have strong industry experience — it isn’t clear that they are the right team to lead such a venture to success. 

Legalization of marijuana and legalization of psychedelics in Oregon do point to trends of greater relaxation of restrictions on psychedelics overall. As global mental health worsens and science-based cures and therapies often prove lacking, Americans could be drawn to psychedelics as one among many forms of alternative medical care. The lure of the narrative is likely part of what the market will need to grow significantly.

Is Nikzad right about psychedelic medicinal companies being the next unicorns? Maybe. It’s always a gamble, and in this case, a significant one.

Emerging into a trending space of psychedelic medicine, Ei.Ventures is developing mushroom-based pharmaceutical ingredients and products. The startup hopes to ride an emerging trend of greater legalization and medical acceptance of traditional drug therapies and reach unicorn status as an industry mainstay.

The company’s products, once developed, have the potential to treat an assortment of physical and mental illnesses such as depression and anxiety. Investors have cause for significant doubt here, though. The valuation is extremely high, and the team doesn’t appear particularly well-positioned to pull off a unicorn-level rise. Additionally, there is major market uncertainty due to legal regulations. All products developed will require FDA approval, increasing the capital commitment necessary to bring them to consumers. Therefore, Ei.Ventures is an Underweight Deal.

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com.

Analysis written by Benjamin Potts.