By Patrick Rea, Co-founder and Managing Director of CanopyBoulder
Three out of four new businesses fail. A simple fact. So if your dream business is more likely to be unsuccessful than successful, why even try?
The formula for launching a successful cannabis business is complex, but everyone needs to start somewhere. Usually this means raising capital, either from friends and family or outside investors. As an investor who has listened to hundreds of pitches from cannabis industry startups, I have distilled a list of seven elements I like to see in investment-ready businesses.
So what does it take to raise capital in the cannabis industry?
1. Founder, Founder, Founder
Our first, second, and third criteria for investment is founder. You must be intelligent, driven, inquisitive, hard working, and you must absolutely possess low ego and take advice, suggestion and expert guidance very well. You will also need to share a vision with your investor of creating a best-in-class business supporting the cannabis industry today, tomorrow and well into the future. Your investor will now be your partner, and with time they will expose you and your team’s underlying culture. If that culture is one of stubbornness, inflexibility and arrogance, you will find yourself wasting your time and your investor’s time.
Don’t go it alone. Talk about your idea with people you respect and folks who you think will “raise the game” at your company. Launching a business is quite simply 3x as hard, will take 3x as long, and will cost 3x as much as you think it will. You will need help. And frankly, if you can’t sell your idea to another person, how can you reasonably believe that you can sell it to investors and ultimately customers? A co-founder goes a long way with us at CanopyBoulder and most other investors.
3. Keep it simple … and wildly lucrative
You don’t need to solve every problem in the industry, or even every problem in your niche. Keep your business idea simple, preferably elegant by design. Think about Google’s homepage. Simple. Follow the minimum viable product (MVP) approach that will give you and your business the opportunity to have another opportunity. With time, this MVP will allow you to solve more problems, and gobble up more market share. Why? Investors are looking for reasons to say “no” to your investment and the more ideas you present, the higher the probability climbs that you will hear a “no.” Make it easy to demonstrate, explain and show how it makes money. Tie it to your larger vision, and you will certainly get their attention.
4. Make progress
Investors like to put fuel on a fire, so don’t ask for money without pre-orders, a beta, established customers or nothing more than a plan. Unless it is a business accelerator, like CanopyBoulder, you have little chance of convincing anyone to invest in your business. Why? Your business will be a “problem” and not a “solution” to an investor who wants to reach his or her goal, which is making money.
5. Aim high
When you step up to the plate, swing for home runs. Doubles and triples won’t do it for you or most investors. Why? Investors want a 10x, not a 3x, return on their money. They know only 1 in 10 will yield a 10x, but there is no reason to invest in a business that doesn’t have a chance to be that 10x.
6. Bring real data
Do your research. Data equals validation. Have figures to back up your assertions for every slide you present, because experienced investors will poke holes in your plan. Maybe not a first, but certainly before they make an investment. Going to market and getting the right data demonstrates that you have the awareness that there is a problem to be solved, but real data is needed to validate the solution, thus substantiating your idea. So get out into your market and talk to customers, vendors and industry thought leaders about your ideas. Set a goal of 10 conversations a week to gather data and/or consider running a survey through Google Forms or Survey Monkey.
7. Prepare, prepare, prepare
Practice your pitch so many times that you can give it on a moment’s notice in whatever form asked. Talk about the basic building blocks of your business. What is the product/service and how does it solve an undeniable market problem or need? How will your team change the world? Focus on power statements that confidently support your thesis. Pitch to your friends, your parents and your kids … anyone who will listen. In fact, pitch to your grandmother. If your grandmother can understand what you’re doing, you are in good shape. If not, you need to simplify.