(Part two of a four-part series)
See the previous story in this series: EXCLUSIVE Insider's Peek At Mammoth Of Psychedelics VCs, Palo Santo's Investment Fundamentals & Specificities
The Palo Santo venture fund invests in private companies. As such, public market movements are not as relevant to them. Nonetheless, these market generations have an effect, but fortunately, the fund holds significant capital to deploy and their portfolio companies are building themselves now.
“It’s really a matter of financing, and that’s really what we look at, the risk of financing for these companies. So we don’t really see the market generations as a huge factor rather than it is helping us to decide," said Palo Santo co-founder and long-time investor Daniel Goldberg. "With our remaining capital to deploy, valuations have come down a bit, so that’s very helpful. From the investor’s side, it’s a more favorable market. The real issue is that everyone has taken a much more sober view as to the ability of these companies to finance.”
Looking at the next round, the Palo Santo founders are trying to determine which one of the companies has the chance of raising serious R&D in this new environment. That’s where they hope their portfolio is better positioned than most, because of their progress and potential.
“Horizons this year were very different from last when everyone was bright-eyed, companies were getting funded whether they really had a clinical path or real funding, they could get funding in the future… Those days are over, and there are a lot of Canadian penny stocks and companies that we took passes on. Everyone’s been hurt, but I think the winners in the space are gonna be the ones that can weather the storm and have enough capital to deploy to both support their current portfolio companies but also invest in new ones with a better valuation,” Goldberg said.
The co-founder considers the current market situation as a focal turning point, one that everyone’s paying close attention to. A company needs to prove a considerable 18 months of runway now to be credible, or in a plan to get that financing. Luckily, he said, their fund is well capitalized, as most of its companies are, “and that’s really the big differentiator.”
Next up: EXCLUSIVE Insider’s Peek At Mammoth Of Psychedelics VCs, Palo Santo: Investment Focus
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