(Reuters) - Venture capital group Palo Santo said it had launched its first psychedelic investment fund on Thursday after raising a more-than-expected $35 million, which has been invested in over 20 companies and could be upsized. The nascent psychedelic treatment market has seen investor demand surge over the last year as multiple studies have shown psilocybin, an active compound in magic mushrooms, is effective in treating depression and other mental afflictions. Billionaire investor Peter Thiel-backed psychedelics startup, atai Life Sciences, a company that Palo Santo has also invested in, debuted on the Nasdaq with a market value of $3.2 billion last month. “Palo Santo is seeing far more unique, high quality investment opportunities than we would have anticipated at this stage of the cycle and is therefore evaluating upsizing this current fund,” said Tim Schlidt, the co-founder of Palo Santo. The company had initially planned to raise $30 million. The psychedelic fund will be an active participant and work with the managements of the companies it invests in, said Schlidt, a former healthcare banker, in an interview with Reuters. The fund will mainly invest in companies that are in the early stages of their fundraising, but could eventually begin investing in the late-stage rounds as well, co-founder Daniel Goldberg said. He added the fund would also look to invest in companies whose operations go beyond just the production of psilocybin and focus on the development of new compounds based on it or its delivery methods.