Raising Capital For A Cannabis Business: Essential Tips On Timing, Value, Audience, Execution And More

By Noah Miller, CEO of Black Dog LED.

Cannabis entrepreneurs, like those in other businesses, face a multitude of challenges including product development, building a team and acquiring customers.

Yet, one of the most significant hurdles is raising capital to help your business scale – something I’ve recently gone through myself.

As more institutional money pours into cannabis, entrepreneurs are being held to higher standards of professionalism than ever before. And today, with COVID-19, the pool of investors is shrinking while the need for funds to weather the storm has increased.

As such, the competition for capital has never been greater. Investors expect well thought-out business plans, clean, polished pitches, and an understanding of basic venture finance and capital structure.

Many first-time cannabis entrepreneurs often make mistakes; the most common being, treating the cannabis sector as if it were any different than any other market. Cannabis investors are no different than other investors in that they are looking for the same thing: solid businesses with excellent leadership, experience, market fit, and understanding.

When developing your pitch to investors, or when presenting, don’t forget to answer the four most important questions that you’ll need to answer to satisfy you’re your audience: Why, What, Who and How.

Why are you seeking capital now?

The most basic question that you’ll need to answer is why you’re seeking capital.

Is it for a build? A major product launch? Do you need money to launch a large-scale marketing program, or break into a new market?

You’ll need to give a much, much better reason than simply saying “because we need money.”

Every business can use more capital, and that will be viewed as a lazy answer: investors know that throwing money at a problem won’t make it go away.

Instead, showcase a well thought through gameplan on why the capital is needed, where it will be allocated, how it will allow the company to grow, and what sort of return the investment will bring if the money is properly deployed.

What is your value proposition?

Investors essentially want to know what makes you different or unique.

For example, if you are a cannabis cultivator, do you have a patented strain that only you are legally allowed to grow? Have you developed a more efficient process or product?

Let’s take well-known companies as examples of what this looks like in practice.

Salesforce, who helped popularize Cloud computing, could highlight the ease of deployment of their software solutions which can be downloaded over the internet versus a disk, saving time or money. Uber could highlight their unique approach to hiring by unleashing the gig economy - something that hadn’t existed before, or at least to some extent.

Who is your audience?

Before the first conversation with any VC, study the venture capitalists in your region. A VC’s website tells the basics: the VC’s target industries and stage of companies.

Try to find investors who are relevant to your business and have experience, connections, and strategies to help you capture customers that fit with your company like a glove. In my case, my customers are primarily cannabis growers, so I focused on meeting investors who are interested in this type of sector to grow the business.

Be curious. If there’s a VC fund you believe is a good fit then research the companies they’ve funded, reach out and ask those entrepreneurs what they’ve learned about the VC. Find out what their post-funding experience has been like.

Will the fund invest in pre-revenue businesses or take a chance on a first-time entrepreneur? What’s their track record on exits? Is the VC adding value beyond capital? Most importantly, would they source capital from the VC again if they had a chance to do it all over?

How will you execute?

Once you’ve established responses to the above questions, investors will be looking for you to go about executing your strategies. Highlight company growth and where you’ve achieved success, but also the areas that have given you trouble and the approaches you’ve already taken to solve them.

This will showcase your ability to execute, which is where the rubber meets the road, and shows your investor that you’ve already done your homework and are looking for their capital and expertise to take the business to new heights.

Noah Miller, Black Dog LED's CEO, has been engaged in the legal cannabis industry since its inception and is a cannabis cultivation technologist and LED lighting pioneer.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Lead image by Ilona Szentivanyi. Copyright: Benzinga.

Original publication: September 22, 2020