Entrepreneurship is hard. Entrepreneurship in the cannabis industry, a new industry rapidly changing on a daily basis, is even harder. Funding sources are different than traditional industry, valuations are a big issue and, due to federal prohibition, banking is might we say - challenged.
Don't like to read? Watch our recent webinar presentation about capital and fundraising.
We know all this because over the last 5 years, CanopyBoulder has made over 125 investments in the 110+ companies that we’ve helped launch. We’ve also helped these teams raise over $100M in additional funding and have seen first hand what it takes to make it as a startup in the cannabis industry.
And since our goal is to help this emerging industry grow sustainably, rapidly and profitably, we’ve decided to put together a guide to fundraising for businesses starting up in the cannabis industry. This is not legal or financial advice, but simply information for you to think about and consider as you make a plan. Here it goes…
Where to start
First things first - are you sure you even need to fundraise? Before you get too far down the path of trying to raise capital, be honest about your goals. The type of company you want to build will dictate what kind of funding you need (debt, equity, etc.), as well as how much, from who and at which stage. Simply put, if you want to build a small business that employs you and a few people, venture capital (VC) is probably not right for you. VC is looking for aggressive entrepreneurs addressing large target markets with unique propositions that will ultimately generate enormous wealth and outsized gains for everyone involved. Is that you? If not, think twice about fundraising, as the rule of thumb is a $1 investment from a VC should return $10 back in less than 10 years. And when we’re talking about five, six, seven or eight-figure investments, the business must have great potential.
Check out the things you need to think about when determining what kind and how much fundraising you need to do.
Instruments and Investors
Investors and investment instruments come in many forms, and each has their place in the grand scheme of finance; but figuring out which type of capital to raise can be a little confusing for first-time entrepreneurs without an extensive financial and business background. And even if you do have that background, the relative novelty of the cannabis industry combined with federal prohibition makes funding for cannabis entrepreneurs different than in other industries.
The first thing entrepreneurs should understand are the various funding instruments, when they’re used, their pros and cons and how each are deployed and prioritized by financiers. Get caught up with our guide that covers debt, equity and the weird little things in between.
But that’s not all - entrepreneurs should also understand the various types of equity investors, their general goals and where to consider each one in the fundraising process. Not totally comfortable with that? Get all the details on who is investing in the space.
You know that saying “there are a lot of fish in the sea”? Well, you know what else there is a lot of in the sea? Garbage. Searching for investment can seem a lot like that. You will need to kiss a lot of frogs. To protect your young company and your vision, it’s critical you find the right investor for your venture. So be sure that, while they’re assessing you, you’re assessing them right back.