How I Lost $5 million In Four Simple Steps

This isn’t a story about paper losses. About not selling when I should have. Not even a Nigerian Prince story. It’s pure liquid cash down the drain due to my own stupidity, and here’s how it happened.

I was writing in my journal a few months ago and was prompted to write down my three biggest financial mistakes. I thought hmm, maybe by writing down my mistakes I would realize what I’d learned and think of them as learning opportunities, not just me being a dumb-ass.

I’ve made a lot of dumb-ass financial decisions in my life, from investing in cannabis despite not liking cannabis, to not buying a home in Toronto for years because ‘this market has to cool down sometime’, to buying individual tickets for rides at a theme park instead of the all-day pass. Then came the big one.

It started with me investing in psychedelics in 2019 as it started becoming obvious that they were going to transform the world of mental health. I had had my own success with personal exploration using psilocybin, and I just knew it was the next big thing. I’ve been investing in startups for years, and have made over 80 investments, about half through my venture fund, 500 Startups Canada. In 2018 I began investing in psychedelic startups, all private, because investing in startups is what I know how to do and I’m good at it.

I put $1.5mm (all figures $US) into one of those very early stage investments, Field Trip Health, and they went public in 2020. I had made $6mm in profit by early 2021! I sold enough to cover my investment and let the rest ride, aka ‘a smart financial decision’, the last one I ever made in psychedelics.

In parallel with this boon, I got a call one day from an advisor to the company ATAI Life Sciences, that I could get in on some pre-IPO shares of the company. ATAI was the darling of the psychedelic industry. The best-capitalized firm, with the largest drug pipeline, with the best executive team. I’m not into drug development, so wasn’t a fan of the company, but a pre-IPO deal sounded great.

I also don’t invest in public or soon-to-be-public companies, but I gathered that I was getting this call because I was known in psychedelics circles as the guy behind the Nikean Foundation, funding research into psychedelics for mental health, which kind of made me an insider, and trading on terms others can’t get is a pretty good source of profit.

So, despite not believing in the company and not understanding how IPOs worked, I agreed to invest $1mm in ATAI through a special vehicle being put together.

I believed in Field Trip’s clinic model. The advantage of investing in things you believe in is that if it doesn’t work out financially, at least you did something personally meaningful. Frankly, most investment decisions most people make aren’t going to work out. The best you can hope for is that your wins are bigger than your losses.

When Field Trip went under, I felt bad for the people who worked there and for the lost opportunity, but I didn’t for a moment think my investment decision was a mistake. Mental health clinics offering psychedelic therapy are part of our collective future. I still have investments in several of them like Enfold (Canada), Holos (Costa Rica) and Beond (Mexico) that thank god, haven’t gone public.

During the paperwork process leading up to purchasing the ATAI stock, I was asked how much I’d like to take of the pre-IPO allotment. Knowing I’d get cut back on whatever I asked for, I asked for $3mm, hoping I’d get $1mm. In itself, that wasn’t a mistake, I was being smart. The problem started with the next request, when I was told that if I upped it to $5mm, I’d get what I wanted for certain. Sure, whatever, it was just a request right?

Then I got word that because I was influential in the psychedelic space and I was a ‘good’ investor, I had been approved for the entire $5mm investment. My blood ran a little cold —  I didn’t have $5mm lying around, but it was a sure thing right? The IPO was around the corner, and I’d double my money, worth taking out some leverage right?

Let me write down all the reasons this was a stupid decision.

1. I would be massively over-indexed into psychedelics, lack of diversification.

2. I had no clear idea when the IPO would happen. And as an insider, I would not be able to sell my shares at the IPO date, but would be locked in for at least 3 months.

3. I was investing more than I planned, and more than I could easily afford to lose.

4. I would be borrowing against my other investments, one of which was Field Trip, also in psychedelics, meaning that if psychedelics went down as an industry, my investment would be crap, and my collateral would also be crap. ‘Shitstorm’ would be an appropriate description of that scenario.

Of course, after some hemming and hawing, with my ego on the line, I told the organizers, “Yes, I’ll make the investment” and they assured me I’d be able to sell at least half my shares within a few months of the IPO.

They lied. I mean, they were mistaken. Whatever, I was locked in for 6–12 months. ATAI went public in June 2021. My pre-IPO price was about $12. It went as high as almost $23 the day after the IPO. I could have bought $5mm of the IPO on the open market and made a few million. Instead I was locked in, and you can guess (or look up) what happened next.

On the day my lock up expired, the stock had fallen to $2.70, a loss of $4mm for me. I sold about half, and the rest languishes around $1.60 as I write this. When the whole psychedelic industry crashed in November 2021, I crashed along with it, having to sell a bunch of good investments and real estate assets to cover the margin call that came when both Field Trip and ATAI crashed at the same time, a completely forseeable future.

I dealt with some serious anxiety six months ago. Meditation and IFS therapy helped and now even though my finances haven’t particularly recovered, I’m not anxious any more.

I made a lot of mistakes, but one of those mistakes was bigger and more avoidable than all the rest, and that was the decision to invest $5mm instead of $1mm. Ego and greed gave me a one-two jab to the chin and my financial glass jaw shattered. Even now I feel a little sick as I admit this to the world, but hey, if I can save somebody else making the same dumb-ass move, my karma will be in good shape.

Fortunately, I continued making lots of small private investments in tech startups and some of them have done incredibly well, so overall I’m doing ok, albeit with much less liquidity than I’d like. And the real silver lining? The journaling and writing down what I learned worked to ease my anxiety.

Final point — and this comes from having made those 80 investments and realizing over $100mm in gains for myself and for investors in the 500 Startups Canada fund. You cannot predict who the winners are going to be. I don’t care how smart you think you are or what your track record is. You cannot predict the results of any given investment. Your best strategy is to invest the same amount every time, and double down on the early winners.