You’re ready to scale your cannabis business, and to take it to the next level; you need investors. But not just any investors — you need cannabis investors, people who understand the industry, your business, and the nuanced challenges you face daily. Getting seed investors is one thing, but moving onto Series A (or B) investors is an entirely new ballgame. Here’s what you need to know before you grow.
Signs You’re Ready for the Next Round of Cannabis Funding
Getting investments in a fledgling business is a nerve-wracking yet rewarding process. But jumping from angel investors (or bootstrapping) to a Series A investment can make you feel like you’re standing at the edge of a cliff, parachute unknown. How do you know if you’re ready for the next level of cannabis investors?
You’ll want to hit a few benchmarks before seeking Series A funding (or Series B, depending on where your business is.)
If your business:
- Is generating enough monthly revenue (between $80,000 and $100,000)
- Has doubled or tripled your year-over-year income
- Can maintaining a sustainable, scalable growth pace
- Has a defined business plan, including a financial plan with customer acquisition costs and market research
- Has insurance in place (including policies beyond the average coverage, like D&O insurance)
You may be ready to pursue Series A cannabis investors! On the other hand, if you’ve hit some but not all of these milestones, it may be more important to focus on the foundation of your business before scaling your investment opportunities. But the choice is yours; the answer is always no if you don’t ask!
Develop a Solid Funding Strategy
You know you’re ready to pursue more significant investments in your business — great! Just as you need a business plan to start a company, you need a solid funding strategy to attract investors. You can have the best startup in the world, but if you don’t have a clear-cut plan attracting investors and explaining how they’ll benefit, you’ll quickly run into a wall. The next step is understanding how an investor can support your business and creating a fully fleshed-out funding plan.
Your funding strategy should include a few points, such as:
- A clear understanding of your industry and your market. This approach doesn’t mean just understanding the cannabis industry but diving into your niche within cannabis. If you make beverages, do you know the trends of canned drinks? What does the tech market look like next year and the year beyond if you’re building an app? Who are your current customers, and who are your potential ones? Can you speak to an expansion plan? Your customer acquisition costs (CAC) are essential to highlight, as is your scalability.
- An explanation for how you’ll use raised capital. It’s one thing to say you’re seeking a million dollars — but you’ll need to explain why. Do you know how you’ll use the money to grow your business, lower your CAC, and increase profits? Are you looking to expand your product processing or increase your community givebacks? Understandably, investors want to know where their money is going — specifically, not in general terms.
- A research plan to understand what investors want. This article is a great starting point to understanding what Series A and B investors are looking for, but it shouldn’t be the only research you do. You’ll want to talk to investors and people who work with investors for the most up-to-date and industry-specific information. The best way to do this is by talking to people, which brings us to the last point.
- A detailed game plan regarding how you’ll network. Have you heard the saying “it’s not what you know, it’s who you know”? This cliche is as true in cannabis as in any other industry. The best-laid plans always come second to taking action. Networking with investors and people who work with investors is the most crucial step in creating your funding plan because nothing beats talking to the people who may want to give you money. Every opportunity to speak to an investor is a networking opportunity — you never know their motives or who they know.
Fine Tune Your Business Narrative and Pitch
There’s nothing more compelling than a good story and nothing more important than a first impression. If you can nail your business narrative and pitch, you set the tone for the entirety of your interactions with investors.
To do so, you must understand the difference between your business story and the story of your business. One is a compelling narrative that draws people, while the other is more like a history lesson. It can be tough to flesh this out on your own, so bring in other people from your team or your personal life whose opinions you trust.
Your business story should center around people and a mission, something that is inherently human at its core because this is where the connection stems. But there needs to be a balance between humanness and business. Highlight your management team, experience, and the change you see your business making in the world. Your business story should also include KPIs and financial information because, without these, no investor can get a clear picture of what you’re asking or what they’ll get in return.
The nuances of your business story and the impact of getting it right can’t be overstated. Practice, practice, practice, and stay open to feedback. View each opportunity to share your business story as practice. Sometimes it will land well, and sometimes it won’t (that’s just the law of probability), but each opportunity takes you closer to finding the right cannabis investors.
Attracting the Right Cannabis Investors
You don’t want just any investment in your business — you want to find the right cannabis investors who understand the challenges and opportunities you face. It’s not enough to cast a wide net and see who finds your pitch attractive. Get specific with your investor criteria — as straightforward and in-depth as you got with your business and financial plan.
How can you find these elusive unicorn investors? As mentioned above, networking is crucial. But it’s not just venture capitalists (VCs) you should be networking with. Start talking to other business owners who have received venture capital and get their stories. What did they enjoy about the process? Was anything frustrating or unexpected? Talking to people who have received investment has another benefit; you never know who they know and the introductions they can offer.
It may feel like seeking investments is a one-sided relationship where you do all the work, but that’s not true. You want an investor who will mesh well with your company and vision, not someone with a lot of money and ideas that derail yours. If you have an investor in mind, do your research. Look at their past investments and their level of involvement.
. The right cannabis investors will:
- Have goals that align with yours. Your business story can go a long way to setting the stage for what your goals are, and who does and doesn’t fit that. Nailing your elevator pitch sets the stage for finding an investor who’s the right fit.
- Have complementary skills. The right VC can provide capital, experience, and skill set that helps your business grow like a weed (pun intended). Many VCs are interested in assisting entrepreneurs in developing and cultivating long-term, mutually beneficial relationships.
And most importantly, be yourself. Investors want to talk to respectful humans, not business robots. They don’t want to deal with arrogant, self-indulged business owners who are just in it for their name’s glory and fame.
If you’re totally at a loss for where to start, here’s an (incomplete) list of cannabis investors:
- Halley Venture Partners
- Green Growth Investments
- Cannabis Capital
- Blast Funding LLC
- The ArcView Group
You can find more investors here.
Protecting your high-growth cannabis company can seem confusing; however, we’re a full-service insurance brokerage working with carriers worldwide to offer you the best coverage possible. We’re here to help! Please reach out to us today by emailing [email protected] or calling 646-854-1093 for a customized letter of commitment or learning more about your cannabis insurance options.