Nootropics: Investment Worthy or Snake Oil?
On my latest grocery trip to pick up steaks to celebrate the start of spring and grilling season, I walked past the wide array of supplements that populate the aisles of Whole Foods.
I was intrigued by the growing amount of real estate taken up by supplements promising increased focus and cognitive ability. As a former avid gamer whose reflexes aren’t what they used to be, I was tempted to learn more about these supplements to determine if they truly offer cognitive enhancement, or if they’re just snake oil for a new generation.
Nootropics, supplements marketed to boost brain metabolism, memory, attention, and cognitive ability, were once reserved for the dusty corners of small health food groceries and body-building supplement stores. Now they have been thrust into the limelight of private investment.
Recent eye-catching headlines (including Biohm Health’s $7.5M cash infusion and Odyssey Wellness’s $6.3M series A capital raise) suggest investment in the nootropic space is going strong despite recent interest rate hikes.
The global nootropic market was recently valued at $10.7B and has a forecasted compounded annual growth rate of about 14% through 2030, with projections outpacing the pharmaceutical industry’s growth threefold.
Success breeds popularity, as exhibited by the Natural Products Expo West recording 57,000 attendees and 2,700 brand showcases and included involvement from some of the largest names in grocery including Kroger and 7-Eleven, broadening the audience beyond the patchouli-scented audience of yesteryear. In comparison, Chicago’s Sweets & Snacks Expo, which features major brands like Mars Wrigley and Mondelez, garnered only a third of the attendance. These large trade shows suggest that not only are there a lot of players in this space, but there is also a high degree of interest and engagement from brands, distributors, and consumers alike.
With this popularity comes the legitimacy of science as well. Recent studies show promising evidence that Lion’s Mane mushroom, a common ingredient in many nootropics, has properties that build brain cells and promote neuron growth. A 2000 study on Rhodiola rosea (a medicinal plant found at high altitudes used in traditional Tibetan medicine) showed statistically significant improvement in the participants’ physical fitness, mental fatigue, and neuro-motoric tests. Animal studies have shown that ginseng can modulate stress, fatigue, and learning. America’s favorite and best-studied nootropic, caffeine (yes, Virginia, caffeine is a nootropic), has encouraging links to reduced incidence of cognitive decline among daily coffee drinkers. Coming out of COVID, a record number of American adults are being prescribed Adderall (the most prescribed synthetic nootropic, prescribed more often than “Z-Paks” in 2022), suggesting a high demand for cognitive enhancement despite the risk of abuse. As shortages and long lead times plague the pharmaceutical industry’s ability to supply Adderall, more Americans may turn to natural nootropics and other natural solutions to address their needs. As research funding and availability increase, the industry is poised for tailwinds.
When science catches up to bold claims made by marketers of “natural” nootropics (i.e., food-based unregulated supplements), there is a potential catalyst for massive growth. The question is, who will own these brands if science catches up? Can the private industry stand up to the level of scrutiny and regulation that the pharmaceutical industry faces? Will founders cash out? Looking to the recent acquisitions - Onnit, a fitness brand marketing body-builder-oriented Alpha BRAIN (the Joe Rogan backed supplement blend that claims to improve memory and mental speed) sold to Unilever in 2021 for over $100 million. That’s not a shabby return on investment for a company that started with an $80,000 loan.
The last significant piece of supplement regulation was the Dietary Supplement Health and Education Act of 1994, which mandated that the FDA regulate supplements as food rather than as drugs, allowing for the proliferation of supplements including nootropics. The act itself has been widely criticized for allowing untested products with unsupported claims to hit store shelves. Since then, the industry has been predominantly self-regulated and influenced by class action lawsuits. A recent example of this is the evolution of kombucha claims. Mass market pioneer GT Kombucha printed claims that the fermented beverage helped slow the spread of the founder’s mother’s cancer. A series of lawsuits lead to the company’s removal of the claim from their bottles.
Since 1994, congressional regulatory appetite has waned and waxed over the years, most recently culminating in 2022’s failed bipartisan proposed act to establish product listings for supplements. Across the pond in the regulation-heavy EU, nootropics operate in a gray zone that has allowed the supplements to flourish in a similar capacity to their US counterparts, and the industry has seen 6% year-on-year increases in the number of patents being granted to nootropic manufacturers. In the short term, it seems unlikely that either the US or European nootropic industries will face many regulatory growth headwinds.
High-profile investment, increasing consumer demand, and scientific advancements combined with under-regulation will make nootropics a fascinating field to follow. Perhaps supplements once found in science fiction books that allow humans to navigate the cosmos without the use of computers (any Dune fans in the audience?) are closer to reality than we realize. I expect to see the prevalence of nootropics increase as taboos surrounding supplements are broken, just as sports betting gained popularity once granted legitimacy by advertisers and celebrities.
About the Author
Adam Sidor is a senior associate at Strategex. He works with Private Equity clients to mitigate transaction risk and accelerate value creation post-close. Before joining Strategex, Adam worked as a strategist consulting Big Tech & FinTech companies, designing custom market research studies, and helping organizations seize new opportunities & grow market share.