CanopyBoulder Brings Accelerator to Cannabis

CanopyBoulder

If you think the marriage of a business accelerator and the fastest-growing industry in America seems like a slam dunk, you’re right. Following the model (and hopefully the tradition) of the Techstars accelerator, CanopyBoulder is set to launch its maiden mentoring program at the end of March 2015.

Ten sets of business founders, chosen from over 115 applicants, will all set up shop in Boulder, Colorado, under one roof to rapidly flesh out business plans, create working demos and prototypes, and basically go through business boot camp. The kicker is that all CanopyBoulder teams will be focused on cannabis-based ancillary industries.

The teams will be guided by an all-star bench of mentors that come from diverse areas like dispensary retail, cultivation, consulting, legal, marketing, software development and process engineering. And steering the ship is Patrick Rea, founder of CanopyBoulder and a longtime industry matchmaker. We spoke with a busy Rea last week, as he works through the final preparations for “Canopy 1.0,” to get his insights on this pivotal arc in the new cannabis timeline.

 

Idea Genesis

Rea approaches his new venture with a veteran eye, noting that his first business incubator was unofficially started in his apartment after college to support some friends with a software idea. After a successful exit from that first venture, Rea found a niche in playing matchmaker between investor capital on one side and entrepreneurs/company leadership on the other, something he thinks represents his strongest skill set:

“We all focus so intently on business models, financial analysis and our visions for the future, but the key elements that drive nascent industries are relationships and connections. These relationships and connections enable us to bridge and pivot into situations where we will find success. I trace much of my success from the connections I’ve made and the relationships I’ve fostered in my network, and I think this has been appreciated along the way.”

Rea and his leadership team are currently in the process of finalizing the initial 10 selections, and the all-important process of matching up mentors and mentees, both of which they expect to have completed in the next couple of weeks.

Each team will have one lead mentor, specifically chosen to best help the individual team based on experience, contacts and background. Additionally, all CanopyBoulder teams will have access to the immense knowledge base and rolodexes these mentors bring, as well as those of Rea himself and the angel investor group ArcView, a strategic partner in CanopyBoulder.

On the importance of the mentor relationship, Rea said:

“I can make connections, and my investors can put their money to work, but the mentors play a most integral role helping our entrepreneurs better understand the impact of their ideas and avoid the mistakes they’ve already made. There’s a reason there’s such a low failure rate for businesses that launch in accelerators—it’s the mentorship-driven community helping the entrepreneurs see what they may not be able to see. Paired up with access to capital, it’s what makes the business accelerator model so successful and appealing in today’s economy.”

 

Investor Benefits

CanopyBoulder recently completed a $1.2 million round of funding with the help of ArcView; $400,000 of the proceeds will go toward the $20,000 seed investment each CanopyBoulder team will receive at the beginning of the program. CanopyBoulder investors get a share of the 9.5% equity stake in each of the 20 companies attending CanopyBoulder in exchange for their participation. There is a second program that will begin August 31 (applications are still being accepted), also with 10 teams, for a total of 20 for the year.

Rea’s goal is to create “investment-ready startups,” and to that end the CanopyBoulder setup is deadline-driven, with a Demo Day at the conclusion of the three month program. Investors can choose to further fund an individual company after Demo Day, whether they participated in the initial $1.2 million funding or not.

From an investor’s perspective, there are tremendous advantages to putting your dollars to work in multiple startups. Your return on investment won’t be overly affected by the fate of any single company, and the success of just a single star can make an investment in 10 or even 20 companies well worth it.

As the investor sees it, the singular question quickly becomes, “What industries have the best growth prospects? Who is growing their pie the fastest?” And it’s hard to find any evidence to dispute the notion that cannabis is the fastest growing industry in America, with over $2.7 billion in sales last year and forecasted to hit over $10 billion by the end of the decade. In a full legalization climate, a market size of $40-$50 billion is likely just a starting point.

 

Expanding the Canopy

While Rea is presently focused on marshaling a successful first CanopyBoulder class, he is setting aim on other markets where the cannabis industry is thriving, like San Francisco:

“We’re happy with how our approach resonated with the investment community. Our first fund was well received and we found ourselves with a surplus of interest. So we’re embarking on a raise that will support CanopySF 2016 and CanopyBoulder 2016.  We can’t thank The ArcView Group enough for creating the investor community they have. Without it, CanopyBoulder wouldn’t be able to capitalize on the timing of this great industry”

 

Inside the Accelerator

Rea wants to promote a healthy balance between nurturing and encouraging his member teams, and inspiring competition through actionable deadlines and milestones:

“Look, we’re at a moment in time where there is a lot of white space in the cannabis industry. There’s no shortage of investment opportunities, so you have to stand out—in the accelerator and in the industry. We’re approaching our classes with a clear portfolio strategy, where synergy exists between the companies, but there will clearly be competition between the teams and we foster that. Collaboration and competition don’t need to be mutually exclusive.”

This has proven to be true so far in the results of Techstars, which ran its first accelerator in 2007. The company’s website shows that nearly 89% of the companies that have passed through Techstars are either still in existence or have been acquired. This data is slightly skewed, however, as many more teams have been going into Techstars in just the past three years (it’s more likely to still be around in a short time frame). Data from the first three years of classes (2007-2010) show that about 32% of companies aren’t around today. That’s still a better rate than the estimated 40% failure rate from the National Venture Capital Association.

All else being equal, we like the odds for entrepreneurs willing to dedicate themselves to responsible success in the cannabis space. A rising tide will lift all boats, except those that leak.

Ryan has spent nearly 20 years analyzing financial markets and investment opportunities for institutional and high-net worth investors. He specializes in determining the size and scope of new markets, changing industry trends and the market potential of new companies, products and services. Ryan has also published hundreds of articles on investment topics, market commentary and macroeconomic analysis.

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