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Gold and Bitcoin Are Critical Inflation Hedges

The entire U.S. stock market is currently valued at around $53.9 trillion. That’s all the companies on the NYSE, Nasdaq and OTC markets combined. 

During the 2008 global financial crisis, the whole stock market was valued at just $11.4 trillion. The market capitalization is up almost five times in 13 years.

The U.S. stock market is tremendously large, accounting for 55.9% of the entire world’s market cap. That’s partly because we have amazing global brands like Nike, Apple, Amazon, Google, Microsoft and countless others.

But stocks are also just flat-out expensive right now. The proof is in Warren Buffett’s favorite metric, the Buffett Indicator. 

The Buffett Indicator compares the value of stocks to GDP to measure if stocks are undervalued or overvalued. The higher it is, the more expensive stocks are compared with the underlying economy. Today, the Buffett Indicator shows a level of 235% market value to GDP. 

The recent spike in value is nearly vertical. 

(Note: this is according to CurrentMarketValuation.com, which provides detailed information on its methodology. There are other interpretations of the Buffett Indicator, using different data, that say we’re less overvalued than CurrentMarketValuations claims. YCharts, a large financial data service, puts the number at 205%. But it’s still very overvalued.) 

Bonds: Also Ridiculously Overvalued

The total value in the U.S. bond market today is around $46 trillion. America accounts for a whopping 39% of the global bond market, which stands at $119 trillion.

Much like stocks, bonds are very, very expensive right now. As the price of a bond goes up, the yield goes down. And right now, yields are extremely low. The U.S. 10-year treasury note yields just 1.23%, well below the current roughly 5% inflation rate. So over the last year, 10-year treasury note holders have lost approximately 3.8%, according to official inflation numbers. And that’s before tax…

Bond prices can’t go much higher, and yields can’t go much lower, unless bond yields go negative (meaning bond investors would be losing money both before and after inflation is accounted for). 

The Appeal of Bitcoin and Gold in This Environment

Inflation jumped by 6.1% in the second quarter of 2021 according to official numbers. That’s the highest rate since the 1980s. 

There’s a chance the spike is being caused by supply chain problems related to the COVID-19 pandemic, as many mainstream economists claim. But there’s also a chance that it’s being caused by the incredible amount of money being pumped into the system by the Federal Reserve. As Lyn Alden, one of my favorite financial thinkers, showed on Twitter, the money supply is still growing quickly. 

If inflation turns out to not be “transitory” as the Fed and Treasury claim, I believe there will be a rush into alternative assets and inflation hedges. 

In this inflationary scenario, the stock market should do better than the bond market. But many industries and companies without pricing power will struggle as their costs rise. And with the U.S. stock market valued at $53.9 trillion, even a small amount of money shifting from stocks into bitcoin or gold and gold miners could have a massive effect on gold and bitcoin prices. 

I believe the larger concern is the $46 trillion domestic bond market. What happens if inflation sticks around the 5% to 6% level for a few years? Are bond holders simply going to sit there and lose around 4% a year (and likely more based on more realistic inflation numbers)? It’s certainly possible, but I believe a significant portion of them will move their money into alternative investments. 

The stock market is the standard alternative to bonds. But with share prices being so expensive, I think some investors will seek out other inflation hedges. I suspect this at least partially explains the soaring real estate prices across the country. Real estate is a time-tested inflation hedge.

Gold and bitcoin are also popular ways to hedge against inflation, and I think this will continue to be the case going forward. Based on the size of domestic bond and stock markets alone, I think we could see fireworks in gold and bitcoin prices in coming years. 

Needless to say, there are risks to this strategy. If the Fed does raise interest rates substantially, gold and bitcoin will struggle. But I strongly believe that there’s no way the Fed can normalize monetary policy now. As I often say, there’s simply too much debt and leverage in the system. We need sustained inflation for more than 5 years to get debt down to more normal levels. 

So I plan to hold my bitcoin and gold investments for many years to come. There will be ups and downs, but overall I think prices are going higher. 

To dive deeper into my thoughts on inflation hedges and bitcoin, check out some of my related articles:

Have a great weekend, everyone.

The post Gold and Bitcoin Are Critical Inflation Hedges appeared first on Early Investing.

Source: Early Investing

The Disruptive Force That Shaped My Life

All startups have an origin story. So do all founders. These origin stories are important. They explain why a startup began. Or why we believe particular founders will be persistent, constantly fight for success and never give up on their companies. 

Whenever I interview founders, I always ask about their origin stories. I need to know and understand who I’m investing in.

Investors have origin stories too. Some people began startup investing because the idea of discovering a company before almost everyone else — and profiting handsomely off of that investment — is exciting and much more interesting than investing in stocks or bonds. Others jumped into startup investing and crypto because they want to build a nest egg for their families. Some started investing to bond with their children or grandchildren (those stories are my favorite). I’ve heard thousands of origin stories from investors over the years. And each one inspires me.

Part of my own origin story passed away earlier this month. And I’m still heartbroken.

Linda Pavich taught both English and Spanish at Troy High School in Michigan. The fact that Mrs. Pavich — I still call her that despite her pleading with me when I was in my early 20s to start calling her Linda — was one of my favorite teachers is no shock. She was almost everyone’s favorite teacher. 

Most of us didn’t realize just how effective Mrs. Pavich was as a teacher while we were in her class. It was only after we went off to college that we understood just how well she prepared us. While our college classmates struggled to write essays, research papers, white papers and even dissertations, Mrs. Pavich’s gang churned through writing assignments with confidence. Because Mrs. Pavich didn’t just teach us how to write. She taught us how to communicate using writing.

Mrs. Pavich taught us how to write clear and convincing arguments. She taught us how to make those arguments using the fewest words possible. She taught us to write using language that was easy to understand. And she taught us how to do all of that under deadline pressure. After all, we had tests to take and exams to pass.

For those of us who went on to write for a living, Mrs. Pavich’s English class was our springboard to success. But none of us knew that at the time.

What we did know was that in a pretty traditional high school, Mrs. Pavich was different. She was demanding, but not a taskmaster. She brought joy to the classroom. She embraced mischief. And she loved gossip. Mrs. Pavich was a disruptive force. And we flocked to her.

Mrs. Pavich let us turn in essays in her mailbox at home. She helped a few of my friends sneak off campus (in her car!) to eat Taco Bell for lunch. She let us plan and execute school pranks and then covered for us when other teachers came to her looking for answers. (The school might still be mad at us for changing all the names of swimming record holders to famous scientists right before the biggest meet of the year.) And when other teachers were failing to teach us, she stepped up and made sure we were prepared to take our advanced placement exams. 

Mrs. Pavich showed us teaching could be different. She taught us that nothing was sacred and to question everything. She taught us that disruption and joy could go hand in hand. And she taught us to enjoy the smallest moments in life.

Mrs. Pavich was 80 when she left us. Her passing was met with an outpouring of emotion and stories from former students. And it became clear that most of Mrs. Pavich’s flock carried her teachings into the world with them.

Disruption and joy are powerful forces. Together, they’re virtually unstoppable. I’ve spent my professional life pursuing them. And it’s no accident that disruption and joy are at the heart of some of the best investment opportunities we’ve spotted at Early Investing.

So today, I thank Mrs. Pavich for shaping my life in ways I’m just learning to appreciate. I hope wherever she is, she gets this message.

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Microbiome Startups Are the New Frontier for Investors

The health area I’m most excited about for the next 10-plus years is microbiome medicine. A microbiome is the collection of microorganisms in a particular environment, like soil or the human body. 

One of the most important microbiomes in our body is our gut microbiome. It’s bigger than the average human brain and contains trillions of bacteria, archaea, fungi and viruses. It contains at least 150 times more genes than the human genome. And that means it has a huge impact on our health.

A good primer article from The Guardian explains this further: 

We are filled to the brim with microbes, which form microbiomes on our skin, in our mouths, lungs, eyes, and reproductive systems. These have co-evolved alongside us since the beginning of human history. But the gut’s is the largest and most significant for our short- and long-term health. It is massively complex and its residents vary enormously from person to person…

Gut microbes do things the gut can’t do, liberating or synthesising nutrients from food, especially from plants and their polyphenols, living off non-digestible substrates, producing thousands of metabolites — useful chemicals — and making vital short-chain fatty acids that are involved with immunity, with keeping the gut and colon healthy, with moderating the body’s inflammatory responses and with the metabolism of glucose.

Scientists and health professionals are just beginning to understand the importance of the microbes that live in our gut and elsewhere in our body. I believe that the key to solving countless diseases lies in modifying the microbiome.

There is emerging evidence that “dysbiosis” in our gut microbiome — a disruption to the balance of beneficial and harmful microbes — can cause all sorts of health problems, including depression, obesity and gastrointestinal disorders.

Microbiome medicine is an area I’m truly excited to explore and invest in. If you’re curious to learn more, I recommend checking out these articles:

And keep an eye out for microbiome medicine news and microbiome startups. I think some very interesting investment opportunities will emerge from this space.

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Source: Early Investing

My Favorite Financial Thinkers

As investors, we live in very interesting times. It’s a challenging environment that’s complicated by actors like the Federal Reserve, which can move markets like nothing else I’ve ever seen.

In such a crazy environment, smart, independent thinking is priceless. These are some of the independent thinkers I look to for guidance and ideas today.

Lyn Alden

Lyn Alden is my favorite big picture thinker. I think she has an incredibly solid handle on what’s happening in the markets today, why it’s happening and what’s likely to happen next.

She regularly publishes invaluable insight into inflation, the Fed and alternative investments. For example, in her recent piece “Why Gold and Bitcoin Are Popular (An Overview of Bearer Assets)” she notes the following:

There are remarkably few financial assets in the world that you can hold for a long time without trusting a centralized counterparty to hold it for you.

The vast majority of assets, like stocks and bonds and cash accounts, are held by financial institutions on your behalf or rely on centralized databases listing you as an asset owner.

Also see my “Why the Fed Is Bluffing” piece for some insight from Lyn about inflation. I strongly recommend checking out her work.

Patrick O’Shaughnessy

Patrick O’Shaughnessy is the CEO of O’Shaughnessy Asset Management. He runs my favorite investing podcast, Invest Like the Best. If you don’t listen to podcasts, I strongly recommend giving it a try. You can find some truly amazing info that blows mainstream news content out of the water. And Patrick’s show is an excellent place to start. 

Guests on the show are always top-notch, and Patrick does a great job of keeping things interesting. Here are some of my favorite recent episodes. 

Meb Faber

Meb Faber is the co-founder and CIO of Cambria Investment Management. Cambria has a  unique lineup of ETFs that I like quite a bit (especially EYLD, the Emerging Shareholder Yield fund).

Meb also runs a great investing podcast called The Meb Faber Show. He brings on some amazing guests who dish great investing insights. Here are some of my favorite recent episodes. 

If you’re interested in startup investing, definitely check out Meb’s massive article titled “Journey to 100X.” He shares everything he’s learned by investing in 250 private early-stage companies in that piece.

Lastly, to follow my own insights on investing, the markets and more, you can find me on Twitter here.

Golden Age of Content

We’re living in a pretty amazing time in terms of access to quality information. The internet is truly a remarkable tool for learning.

The information you can access online — mostly for free — is an order of magnitude better than the content on mainstream financial networks. 

We’re witnessing an explosion of independent content creators. Countless writers, podcasters, vloggers and more are producing high-quality and informative content. There are going to be some amazing investment opportunities in the companies that are hosting this content. Stay tuned for more on that soon. 

Have an excellent weekend, everyone.

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Source: Early Investing

The Inside Scoop on “Outside” Founders

Ali Tamaseb has written an interesting book called Super Founders. Super founders are the founders of unicorns — aka startups valued at $1 billion or more. 

These days, $1 billion is the price of entry to what used to be a very small and exclusive club of enviable startups. It’s not so small anymore. But a $1 billion valuation continues to be the mark of success every founder aims for. 

The great thing about Tamaseb’s research is that it doesn’t always jibe with conventional wisdom. He says, for example, that age doesn’t matter. Founders of unicorn companies come in all ages. But more eye-opening is this finding…

Only 40% of unicorn founders had worked in the same industry they were disrupting. 60% came from outside the industry.

That defies conventional wisdom. It also contradicts one of my long-held views that the exceptionally deep knowledge founders acquire from their own experience in an industry gives them an edge. 

A founder who understands not only the strengths but also the flaws, drawbacks and weaknesses of a commonly used technology or business model can also identify a better solution. These founders still have to bring the technology and/or business model to life. And they need to make good decisions. But their industry expertise puts them in a strong position. It’s no guarantee they’ll win. But it’s much better to be operating from a strong position than a weak one. 

Yet, if Tamaseb’s data is right, I’m missing something big. One explanation the data brings to light is that a strong network is more important than domain expertise. Networks take time and effort to develop. But outside super founders can always hire domain expertise. 

I have another theory. 

Outside Advantages

In my startup investing research over the years, I’ve looked at hundreds of companies led by outsiders. They are customers, patients and frustrated consumers who know there has to be a better way. They can indeed be professional entrepreneurs who may or may not be familiar with the industry they’re disrupting. But they can also be moms, bright-eyed students, artists and entertainers. Anybody can start a company. 

I’ve also examined hundreds of startups led by industry insiders and de facto domain experts. Some of them have a great deal of business experience. And some of them have none. Doctors, for example, are well-represented in biotech and medtech startups. Most know absolutely nothing about operating or growing a business.

One thing I’ve learned is that before they start a company, founders often grapple with problems that are outside their professional expertise. And that outside perspective often helps them come up with a solution that someone from inside the industry might have missed. 

Smart Founders, Period

Tamaseb’s finding that domain expertise isn’t as important as many of us thought is hard to verify, though. For now, we simply lack the data and detailed context to come to any definitive conclusion. In fact, using Tamaseb’s own ratios, you can come to different conclusions based on how you set up the universe of founders. 

But the good news is that data is coming. KingsCrowd (Early Investing is part of the KingsCrowd family) has built a massive data collection that tracks this kind of information on founders (plus more than a hundred other startup data points). It tracks companies from their first raise onward. And it’s gathering more data all the time.  

For now, I won’t abandon my stance on knowledgeable founders entirely. I really like smart founders with deep knowledge of their industry. But I also value smart founders, period. 

Every founder comes with their own unique set of strengths and weaknesses. I try not to prejudge them. I’ve learned that an outsider perspective can be as refreshing and insightful as an insider one. Tamaseb has done us a big favor in adding to what we know about successful founders. 

He has certainly given me food for thought. And I suspect we’ll learn a lot more about what it takes to be a great founder as more data becomes available.

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Source: Early Investing

Alternative Investments to Consider

Last week in Early Investing, I wrote a piece about how startup valuations are getting a little crazy.

As I’ve discussed here recently, these rising prices have caused me to cut back on startup investing. I’m quite picky these days, and I think that’s the right course of action.

I continue to focus primarily on deals outside of the San Francisco area. Silicon Valley is too competitive and too pricey for my taste. I find much better value outside of California.

But still, finding startup deals at reasonable valuations is difficult. They’re pretty rare these days. Compounding the problem is that most other assets — U.S. stocks, bonds, etc. — are also ridiculously priced. 

So I am increasingly looking towards emerging market stocks. I see a lot of value in areas like Russia, which almost no major institutional investors have any exposure to. Some Russian stocks and ETFs I own include VanEck Vectors Russia ETF (RSX), VanEck Vectors Russia Small-Cap ETF (RSXJ), Lukoil (LUKOY), Polyus (OPYGY) and Nornickel (NILSY). 

I also continue to be very bullish on commodities such as precious metals, natural gas and oil — gold and silver in particular. I think these assets will be extremely attractive as the world realizes that central banks are essentially stuck between a rock and a hard place. They can’t “ease up” on quantitative easing and low interest rates.

There are $45 trillion worth of bonds in the U.S., and if inflation turns out not to be “transitory,” I think a lot of that money will move into alternative investments. Getting into these alternative assets now means we can invest while prices are still low — and then ride the growth as other investors make the same move later.

Don’t get me wrong, I still love investing in startups. But it’s difficult to find deals at attractive prices today. So I’m looking towards alternative investments.

Have a great week, everyone.

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Source: Early Investing

How To Deal With Crazy-High Startup Valuations

I saw a pretty interesting thing on Twitter this week. Founders Fund general partner Keith Rabois posted the following.

Keith is known for speaking his mind. And he has a very good track record. Founders Fund has a reputation for not overpaying on deals and somewhat going against the traditional Northern California venture capitalist (VC) culture. (In fact, Keith recently packed up and moved his operation to Miami.)

So what he said is pretty important. “There are no VC funds with pricing discipline. All of us have caved.

This is true from what I’ve seen. I’d estimate that California-based series A deal valuations — where VCs are involved — have at least doubled over the last year. In the case of a hot software-as-a-service deal, I’d say it’s risen 2.5 times or more.

This phenomenon happens primarily in series A deals where multiple VCs have “bid up” the price. Seed valuations are also rising, but they aren’t quite as crazy yet. Most institutional money is invested once companies have found “product market fit,” which often coincides with series A funding rounds. 

High Valuations = Blown Expectations

The worst part of all this is that these crazy high valuations are bad for everyone involved. The founders may think it’s good to raise at a higher valuation because there’s less dilution. But raising at a high valuation sets investor expectations even higher. Unless the company executes near-perfectly, things get difficult. It becomes a major challenge for the company to raise the next round and incentivize new hires with stock. 

The company may have to do a “down round” (where the price decreases in the subsequent round of funding), which lowers team morale. 

Raising at crazy high valuations is not good for either investors or founders.

How to Avoid Ridiculous Valuations

To avoid these ridiculous valuations when considering potential startup investments, try to invest at earlier stages. Go for companies that haven’t met with a ton of VCs. 

Prices are a bit more reasonable at the seed level — though even the seed deals in the San Francisco area are getting a little out of control.

So the next idea is to look for startup deals outside of California, as I discussed a few weeks back. And today, the easiest way to do that is to explore equity crowdfunding sites

You can find deals from all over the country on equity crowdfunding sites. And I promise you the valuations are lower in rural Idaho than they are in Silicon Valley.

Valuations on equity crowdfunding sites tend to be much lower than deals where multiple VCs are involved. However, the average deal quality is also lower. So you have to sort through more deals to find high-quality, high-potential deals.

But make no mistake, there are high-quality deals at reasonable prices that anyone can invest in. You just need to do some serious screening and searching to find them. 

Go for companies that have made a lot of progress and, if possible, are at the early stages of revenue generation. The competition for “proven” series A deals is absurd right now, so prices are much higher for companies that are generating significant revenue. If you invest in a pre-revenue company, make sure there’s real value there. Look for potentially valuable software and engineering talent, for example. 

You will occasionally find a more established startup with great potential and a fair valuation. Sometimes the founder realizes it’s not in their best interest to raise at a crazy valuation. Or maybe the founder doesn’t realize the value of what they’ve got, because they don’t know any California-based VCs. 

Either way, if you see a deal like this, jump on it.

And if you’re looking for some additional guidance on deal selection, check out First Stage Investor. Andy Gordon, Vin Narayanan and I provide regular research on individual deals we think are worth exploring.

Have a great weekend, everyone.

The post How To Deal With Crazy-High Startup Valuations appeared first on Early Investing.

Source: Early Investing

Why CPG Startups Cost More Than Pharma Startups

Editor’s note: Our friends at KingsCrowd produce a ton of data on startups. This week, they created a fascinating chart (see below) exploring the relationship between product type and funding stage. We’re sharing this chart with you because it provides useful insights that can help you assess a startup’s valuation. We hope you enjoy it.

To read their full analysis, visit the KingsCrowd website here.


In order to help evaluate risk, KingsCrowd categorizes every startup by its product type. The four categories we use are: hardware / CPG (consumer packaged goods), services, pharma (pharmaceuticals), and software.

This week, we decided to take this data one step further by drilling down into funding stages. This data includes all active and closed startup funding rounds that raised capital via the online private markets on or after January 1st, 2021. We chose to only examine Regulation Crowdfunding rounds. Additionally, we combined pre-seed and seed stage companies together.

To read the full analysis on this chart, check out the article on KingsCrowd here.

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Source: Early Investing

Why the Fed Is Bluffing

The Federal Reserve is in quite a pickle. Inflation is heating up, as evidenced by May’s 5% annualized inflation rate (according to dubious official numbers).

Economists assure us that these price hikes are “transitory” — i.e., not permanent.

And Fed officials claim that they’ll start raising interest rates in 2023. 

Federal Reserve officials signaled on Wednesday that they expected to raise interest rates from rock bottom sooner than they had previously forecast and that they were taking baby steps toward reducing their vast bond purchases —  tweaks that, together, demonstrated their increasing confidence that the economy would rebound robustly from the pandemic.

So the Fed is thinking about maybe raising rates in two years. And The New York Times says this demonstrates their growing confidence that the economy will rebound from the pandemic.

That’s the official story. Here’s my take on what’s actually happening.

Feeling the Heat

The Fed is feeling pressure from rising inflation. It should be raising interest rates right now. But it can’t, because there’s too much debt and leverage in the system.

So it says it’ll raise interest rates in 2023 — when there will be trillions more dollars in debt on the pile. 

I’m not buying that.

I think the Federal Reserve and U.S. government need inflation. As I’ve covered here many times before, inflation is the easiest way to deal with a huge pile of unpayable debt.

If inflation runs at 10% for five years, all of a sudden our debt looks a lot smaller compared to our GDP.

This is about the same strategy that was used in the 1940s. A lot of money was printed to pay for World War II, resulting in inflation. At the same time, the Federal Reserve “capped” interest rates at artificially low rates.

One of my favorite writers, Lyn Alden, shared a great chart that shows the yield on 10-Year U.S. Treasury bonds against inflation during the 1940s. Despite the crazy fluctuations in inflation, the yield for bonds was essentially a flat line.

Who got hurt most? Bond owners. 

Another fascinating chart from Lyn shows how bond owners were devastated by inflation in that same time period.

Where the nominal growth on these 10-year bonds should have been a positive gain of around $2,400, in reality bond owners actually lost $2,700.

This is one reason why I really don’t like bonds and don’t own any. They pay nothing and are extremely vulnerable to inflation. And if interest rates go up, they lose tons of value.

Will the next decade play out like the 1940s? It’s certainly possible. The Fed cannot realistically let interest rates rise. And government spending is a worse problem than ever. This period could be the 1940s on steroids. 

The alternative is 1970s-style rate hikes, which are essentially impossible today. There’s too much debt. The system would implode, a third of companies would likely go bankrupt, and a 1929-style crash would likely ensue. 

The Path of Least Resistance

Inflating away the debt is the path of least resistance. Even if inflation gets out of control for a while, I think the Fed has to stay the course. The alternative is basically 1929 — but much worse. 

One important caveat. At times, I suspect the Fed will “attempt” to raise rates and reduce quantitative easing (QE). And the stock market will not react well to that. 

After stocks tank, the investment world will demand the Fed throw gas on the QE fire and send rates back to near zero. While a pretty nasty correction might happen first, I think the Fed will eventually oblige.

Until then, the Fed continues to bluff about how it plans to handle inflation. I think these bluffing periods can be excellent buying opportunities for inflation hedges such as gold and bitcoin. 

In fact, you could say we’re in one of these Fed bluffing periods right now. A lot of people actually believe that the Fed is going to normalize in 2023. So they’re selling gold and silver and bitcoin. If you haven’t developed a hedge yet, now is an excellent time to start.

Check out my other articles below to learn how I’m hedging against inflation and where I think we’re heading.

Enjoy the weekend, everyone.

Good investing,

Adam Sharp

Co-founder, Early Investing

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Source: Early Investing

How Startups Are Joining the Battle Against Addiction

Many Americans prepared for their July 4th festivities last week. But for thousands of Americans, celebrating was the furthest thing from their minds. Instead, it would be another weekend of coping with opioid addiction.  

As COVID-19 finally shows signs of winding down, America’s other pandemic — the opioid crisis — continues to play out in hospitals, rehab centers and courts. In fact, the pandemic made the opioid crisis worse. There were more than 81,000 drug overdose deaths in the U.S. from May 2019 to May 2020 — the highest number of overdose deaths ever recorded in a 12-month period, according to the CDC.

Last week, Johnson & Johnson settled on a $230 million payment with New York State for its contribution to the opioid epidemic. It also agreed to stop distributing its opioid drugs anywhere in the U.S. But progress on the judicial front does little to help those who are already suffering from addiction. 

Startups to the Rescue

The good news is that startups are stepping into the breach with a wide range of solutions that include therapy, community support and telehealth. A Crunchbase survey found that venture-backed companies focused on addiction treatments and service offerings have raised more than $1 billion in funding over the past few years.

Crunchbase identified 21 startups in the addiction space that have raised money in the past couple of years. And most conducted raises in the seed or early stages, with a focus on telehealth solutions that are more accessible and less expensive than traditional treatments. 

Some of these companies offer treatments for multiple categories of addiction. Others focus on one area, such as opioids. Groups Recover Together and Bicycle Health are two telehealth-focused providers of medication-assisted treatment for opioid addiction. 

But my favorite is Phoenix PharmaLabs, a startup developing an entirely new kind of opioid drug. (I introduced Phoenix PharmaLabs to First Stage Investor subscribers back in January 2019. If you’re not already a member of First Stage Investor and you’d like to learn about exciting startups like this on a regular basis, click here to sign up.) 

Phoenix PharmaLabs’ opioid drugs are non-addictive. They only partially stimulate the brain’s Mu receptor (the type of nerves that opioids target to reduce pain). Aggressive stimulation of the Mu receptor causes euphoria and leads to addiction. Partial stimulation avoids those side effects.

Pre-clinical tests show Phoenix PharmaLabs’ opioids don’t cause euphoria, withdrawal or dependence. And its drugs are up to 100 times more powerful than morphine in dulling pain. 

The tests show that Phoenix PharmaLabs’ opioids work on animals, but it will take another three-to-four years to test on humans. But the company’s early progress is excellent. The drug has passed multiple safety and efficacy tests with flying colors. And the considerable amount of opioid testing data on animals and humans shows opioids have similar effects on both. 

The technology is very promising and could represent a huge breakthrough in treating both pain and opioid addiction.

Reason for Hope

Phoenix PharmaLabs’ drug is just one of many promising technologies now being applied to the addiction space. Another up-and-coming technology is psychedelics-based treatments. Berlin-based Atai Life Sciences is researching psychedelics-based treatments for opioid addiction, among other ailments. It went public in mid-June, securing a market capitalization around $2.3 billion. 

New York-based MindMed is another psychedelic biotech company developing therapies to address addiction. It recently began trading on the Nasdaq at a valuation around $800 million.

This is what startups do — address our most stubborn and damaging problems with new ideas and innovative technology. They don’t always work. But when they do, both the country and the investors who back these companies benefit. 

Addiction remains a widespread problem in America. The battle is far from won. But the fact that more and more startups are attacking the problem gives us hope — and reason beyond hope — to believe the tide is turning in our favor. 

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Source: Early Investing