Ten Tips For Raising Start-Up Funding In The Cannabis Industry
How To Pitch Your Canna-Business Start-Up To Investors
As we’ve previously discussed, investors have taken an interest in canna-business start-ups in recent years. Venture capitalists (VCs) and angel investors are recognizing the industry’s profitability and have begun funding legal cannabis companies.
This phenomenon holds especially true in the case of ancillary businesses that don’t “touch the leaf,” such as those that offer security services, software solutions, and vaporizers. In fact, many angel investors, like those in the ArcView Group, prefer to only invest in ancillary businesses. With that said, Medicine Man Denver recently became the first dispensary to receive ArcView funding.
“Pitching in the marijuana industry is not and should not be different than pitching in any industry.” – Jason Levin
Regardless of your company’s focus, it will require adequate start-up capital to get your business running and reach sustainability.
Jason Levin, CEO of UpToke, is no stranger to this process. UpToke has been an ArcView company member for a number of years. After years of hard work, networking, and pitching investors, the company is preparing to release their highly anticipated Spyre portable vaporizer.
Despite the stereotypes afforded to the cannabis community, Jason insists that raising capital in this industry should be treated no differently than anywhere else. With that said, he offered the following tips for entrepreneurs seeking funding.
1. Master Your Elevator Pitch
What good or service do you sell? What’s the elevator pitch for your company? This is the most obvious question you’ll answer, but answering it effectively requires preparation.
“If you can’t explain it simply, you don’t understand it well enough.” – Albert Einstein
Albert Einstein said, “If you can’t explain it simply, you don’t understand it well enough.” This continues to hold true for start-ups as much as relativity physics.
VCs and angel investors see hundreds, sometimes thousands of pitches. Don’t assume they have technical or domain expertise.
Be comprehensive, but trim your pitch until only the essential remains. Less is more, because your audience only retains 20% of your presentation. Ensure the best is remembered by eliminating the excess.
What problem(s) are you going to solve? Convince your audience of an unmet need, and dazzle them with your remedy. If you’re succinct, and the problem is big enough, the next question on an investor’s mind is whether you can execute.
2. Practice, Practice, Practice… Then Practice
You’ll pitch many times, and each time you’ll improve. But don’t let that be an excuse to extemporize. Practice early and often. Be over-prepared. This will smooth your presentation, eliminating “uhms,” “ahs,” and unintentional pauses. You’ll develop a sense of timing, which is important, since many presentations are timed.
“Most of your emotional communication is non-verbal, and investment is an emotional decision.”
The first few practices, you’ll revise and optimize. As you get comfortable, the words and numbers become automatic.
Practice until they flow effortlessly, so your mind can focus on tone, timing, body language, and audience. Maintain awareness of these.
Most of your emotional communication is non-verbal, and investment is an emotional decision. When words, tone, timing, and body language are polished, you’ll be free to make eye contact and react in the moment, making you more communicative and engaging.
3. Highlight What Distinguishes Your Team
Your team, including yourself, is a fundamental factor in whether someone decides to invest in your company. For a start-up, investors are actually investing in you. Sell yourself.
You started your company because you are passionate about a problem. Allow that passion to shine. It’s contagious. Showmanship is great, but the confidence to be genuinely passionate is what inspires.
“Investors are actually investing in you. Sell yourself.”
Steve Jobs once said that his model of management was the Beatles. Each band member balanced the others out, and kept them from indulging their bad tendencies.
Their chemistry was greater than the sum of their parts. Knowing how to balance bad tendencies starts with awareness of them.
Be up front about your weaknesses, and highlight how your team complements each other’s shortcomings and strengths. Don’t be afraid to talk about areas where your team still has gaps. Self-awareness is the first step to filling those gaps, and investors know this.
You can certainly list degrees and job history, but investors want to know how that translates to domain expertise and product insight. They want to see examples of relentless execution.
That is vastly more indicative of success than an academic or professional track record. Determine what skills are important to execute on your idea, and use examples to candidly explain how your team is balanced with those skills.
4. Know Your Market Size
Market size statistics are a common top down approach to evaluating your potential growth, but they don’t convey much useful information alone. Investors are more interested in a bottom up analysis.
Multiply the price of your widget by the number of customers who will truly be called to action. Consider the breakdown of early to middle adopters and what it will take to achieve activation energy as you grow through that bell curve.
Seek out competitor data to draw inferences from, and continually get feedback from investors and mentors in the space. The more thoughtful and realistic you are about your customers and growth, the more faith an investor will place in you. Better to under promise and over deliver.
5. Show How Much Traction You Have
Your traction can make or break a deal. You must demonstrate that people actually want what you’re offering. When you speak about product, you’re telling a story about an unmet need and a value add. Traction shows, instead of tells that story.
“Any traction helps, and you should do whatever it takes to generate it.”
You don’t need a fistful of purchase orders to show traction. Any traction helps, and you should do whatever it takes to generate it.
Have any articles been written about your company? Reach out to bloggers and reporters in your space. Is there a measurable online buzz? Start promoting across social media. Do you have email sign-ups, pre-orders, or sales?
There are many ways to show traction. Choose what’s right for your company in this moment.
6. Have A Short-Term Strategy
Your short-term strategy for entering the market is one of the most overlooked areas. Investors must believe you understand your industry and where it’s going, as well as your customers and what they want.
“Strategy requires taking a step back and looking at broader trends.”
Use this as an opportunity to highlight your domain expertise. How will you acquire customers? How will you make it painless for them to adopt your widget?
Strategy requires taking a step back and looking at broader trends.
What direction is your industry headed? What predictions can you confidently make about your industry in a year? In 3 years? Have you boxed yourself into a niche if your predictions are wrong?
Don’t underestimate the ability to pivot. The only certainty in life is uncertainty.
7. Prepare A Long-Term Plan
A long-term plan speaks directly to a return on investment (ROI) path. Investors rightfully want to know how they will earn a worthwhile return.
Will your company IPO? Are you working toward an acquisition? Who might acquire you and why? Will you generate returns with disbursements? Given the market and your strategy, will you grow fast enough for the return to justify the risk?
Again, it’s important to be thoughtful and realistic. Everyone knows your long-term plan is unlikely to unfold as you predict. Investors only want to see that you’ve thought through all the angles.
8. Provide Detailed Financial Estimates
It’s said that no battle plan survives the first encounter. The same is true of financials. It’s okay to be wrong, provided you reasonably justify your conclusions. Investors care about your assumptions and reasoning as much as your conclusions. Focus on being detailed and plausible.
“You will re-write your financials dozens of times…”
If building a car, an investor would want to see every nut and bolt accounted for in the budget.
Details show thoughtfulness. Be as detailed as possible, perhaps not in a presentation, but in your spreadsheets.
Vet your financials early and often. Acquire mentors to help revise on a regular basis. You will re-write your financials dozens of times through the course of raising money and launching. Expect your spreadsheets to be living documents.
9. The Ask: Know Your Value
It’s ironic, but many entrepreneurs craft careful presentations yet fail to make a firm ask. You can’t get what you don’t ask for.
Determine how much you need to raise, then ask for a little more. Overrun is certain, deals change, and you don’t have to raise the full amount. Your cash is your runway. Plan to have a little extra.
“Your cash is your runway. Plan to have a little extra.”
Raise enough to reach sustainability. Asking for too little can be more hurtful than too much.
If an investor doesn’t believe you’re asking for enough to get the job done, they’ll question your other conclusions as well.
You’ll normally be questioned on your company’s valuation. All investors want to buy at a low valuation, because it earns them more money. Your job is to set a fair valuation and defend it.
Help yourself by arriving with prepared documents, at least preliminary ones. Consult an experienced M&A attorney to help structure a valuation and investment mechanism (loan, convertible note, equity). You’ll be ready to move a deal forward, so it’s less likely to be strangled by red tape.
10. Follow Up: It’s All About Relationships!
Once you’ve made your pitch, follow up with interested parties and promising connections. Send thank you cards, write e-mails, share updates, stay connected, and be nice.
Accept rejection and criticism gracefully and graciously. It’s never personal. “No” can turn into “yes” with time, or a promising referral. Follow up is key in building relationships.
“Investments are made because relationships are built.”
Ultimately investments are made because relationships are built.
You’re asking someone to trust you with money. Not just that you won’t lose it, but that you’ll earn more with it. That’s a lot of trust. It takes time and communication.
Build a network one brick at a time. Use online platforms like AngelList and Gust, join angel investment groups, contact VC firms, and tap personal contacts. Talk to everyone. Meet everyone. Ask if they know potential investors. Be relentlessly proactive.
Find an ambassador to help connect you. It can be someone you’ve known a long time, recently met, or cold e-mailed. The more you network, the sooner you’ll find ambassadors who can make solid intros.
It doesn’t hurt to live in an area with start-up culture. If you’re not getting results locally, change your tactics or move. You’re already prepared to work tirelessly and make sacrifices. If relocating to a start-up friendly area is what’s necessary, then do what it takes.
Article written by Jason Levin. Jason Levin is the Chief Executive Officer of UpToke, a vaporizer company that is set to release their highly awaited Spyre portable unit. Prior to his work with UpToke, Jason was a content developer for Kaplan Publishing and consultant for research non-profits such as the Machine Intelligence Research Institute (MIRI).
Jason Levin is the Chief Executive Officer of UpToke, a vaporizer company that is set to release their highly awaited Spyre portable unit.Prior to his work with UpToke, he was a content developer for Kaplan …
UpToke is the designer of a new vaporizer. They implement innovative technology to replicate the simple and satisfying experience of smoking tobacco in a healthier, more modern, and fully portable way.UpToke began taking pre-orders for …