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Individual investors or guinea pigs? – Tech Crunch

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There is a paradox when it comes to retail investors: many startup-related deals are beyond their reach (partly for their own good). Yet lay people have also become the target of new programs hoping to attract their bets and savings. Are retail investors taking on more risk than they should? Let’s explore. — Anna

Opium for the masses

I am by no means a stock market expert. But while writing about cannabis and psychedelic startups for TechCrunch lately, I’ve discovered that some startups in these verticals are listed on commercial markets I’ve never heard of. I mean, I had heard of “pink leaves” – in “The Wolf of Wall Street”. I just didn’t think over-the-counter titles were something startups would ever use. It seems that needing money to do drugs makes you creative!

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I have nothing against innovation, even when it comes to fundraising. But the fact that publicly traded cannabis companies — many of which went public with budding earnings more reminiscent of start-up metrics than mature company results — saw their market capitalization plummet is probably no coincidence. And when you consider the period of hype surrounding their public debut, it’s hard not to wonder how many retail traders have been burned.

We don’t just discuss the more obscure exchanges either. Nasdaq-listed cannabis companies like Akanda and Tilray have also seen their value plummet.

My perception that we’re seeing a new generation of companies, those focused on psychedelics, following in the footsteps of cannabis companies is not just speculation. “There is an unwarranted rush by founders to list their cannabis and psychedelic companies on the stock market,” VC Bek Muslimov said.

Muslimov is a co-founding partner of a specialized investment company leafy tunnel, and he sees a danger in rushed announcements. “In this pursuit, founders and management teams are bypassing private funding markets that consist of professional and diligent investors such as VCs or growth capital funds,” he told me in a E-mail.

The problem here is not that private investors are losing juicy opportunities. The problem is that they would have refused to invest in the first place. Not because they don’t invest in cannabis – few do. But Leafy Tunnel is one of them, which means his perspective here matters.

What Muslimov opposes is seeing cannabis and psychedelic drug companies go public when they would not have met venture capitalists’ criteria for funding. “Unfortunately, this can lead to a situation where companies with poor business fundamentals and an insufficient level of maturity are listed, allowing them to tap into funds from retail investors.”