Cannabis Venture Capital: Do You Have The Right Leadership Team To Pursue It?

This article was originally published on Cannabis & Tech Today and appears here with permission.

Having the right leaders in place is crucial as cannabis companies move from bootstrapped operations to startups funded by cannabis venture capital (VC). 

Seeking cannabis funding may present challenges founders aren’t accustomed to, including working with outside investors who may not be familiar with the industry and finding VC firms amenable to cannabis funding. 

Hiring the right leadership to address these challenges, with experience working with venture capital firms in other industries, can help get your business the money it needs to blossom and grow. 

Understanding the characteristics and qualities that will appeal to cannabis venture capital companies, so you’re hiring for the right personality fit and skillset, not just prior experience, can lead to success.

 It’s also important that cannabis leaders know how to leverage funding to make the most of their partners’ investments. 

Challenges To Seeking Cannabis Funding

Venture capitalists understand that funding any bootstrapped startup represents risks. 

But putting venture capital into cannabis poses unique challenges that are unlike in any other business. “Perhaps the biggest difference is we’re still against federal law,” says Andrew DeAngelo, cannabis activist and leader. “It’s one reason why a lot of ambassadors are not in the space right now.” 

While some VCs see this as an opportunity, others perceive cannabis to be riskier than other ventures for that reason. “A lot of people choose to invest in a packaging company, or a tech company, or any company that’s not actually growing, transporting or distributing cannabis.”

That doesn’t mean it’s impossible to secure cannabis funding; it just means leaders need to know how to tell the story of their company well, along with the history of the industry, and give the right investors a compelling reason to take a chance on them. 

Chris Finelli, Managing Partner at Phoenix Distributors, a sales and marketing as a service company for the cannabis industry, said that cannabis companies may have more success pitching high net worth individuals, family members and those in their network who are already open to cannabis investment. 

“The fact that cannabis is still classified as a Schedule I substance shuts off a lot of traditional investment outlets, so you have to [work harder] to find one that is open to cannabis investment,” he said. 

DeAngelo pointed out that, unlike other disruptive industries where they are producing innovations never seen before — such as new tech, cannabis has a centuries-long history of use and regulation. 

Conveying that history and best practices can help inform funders so they can make wiser investment choices. The right leadership can help make that happen. 

Build a Diverse Leadership Team 

“Leaders that are curious, flexible, have the ability to pivot and have the ability to listen are really important qualities in the cannabis industry,” DeAngelo said. 

Beyond that, he said that a combination of people from mainstream industries and from cannabis backgrounds can bring the best of both worlds into a company, and VC firms will see that the company has all areas covered. 

“Legacy cannabis people like me need help from mainstream people,” he said. 

Start With a Business Plan and a Full C-Suite

Cannabis startups do have one advantage over some other startups — a market in a period of rapid growth. “Client acquisition is going to be easy to come by,” Finelli said. “And that’s not always the case.” 

A rock-solid, well-detailed business plan and a robust financial model can help show investors that your company is in a position to manage and leverage this rapid growth. 

Finelli pointed out that any cannabis company should have its bases covered with a leadership team that checks all the boxes investors want to see. “The CEO, the legal team, the CFO, the head of product and the head of marketing should all be in place to execute the bullet points of your business plan.” 

He added,  “I think that’s one of the most glaring things a lot of operators in the cannabis business lack.” 

What Investors Look for in Business Leaders 

If you’re getting ready to step up from bootstrapped startup to seeking first- or second-stage funding, make sure the leaders you have in place fit the perception of what VCs want to see in good business leaders. 

“Investors want to see that the founder is highly educated with some sort of advanced degree,” Finelli said, pointing out that most VC firms prefer serial founders. But if that doesn’t describe your company, you can fill in by hiring others into your C-suite who possess that experience. “They want to see that this isn’t necessarily your first venture, and that you’ve taken a company from formation to either a successful exit or profitability.” 

How your C-suite puts their knowledge and experience to use is crucial. 

“If I’m an investor, I want a team that understands the product, understands how to raise money, and understands how to deploy it so it’s not being wasted,” DeAngelo said. 

Choose Leaders Who Know How To Speak to Investors 

DeAngelo and Finelli agreed that many legacy cannabis experts may not understand the best ways to interact with the VC firm, and having a few people from a mainstream background on board can help bridge that gap. But, as a founder, it’s up to you to manage VC expectations and steer the conversation appropriately. 

“I think there are a lot of people in the industry over-promising and under-delivering,” Finelli said. “When you’re talking to a founder, walk them through the step-by-step process of how you’re going to get the business cash flow positive. It’ll lead to a better relationship down the road.” 

Some investors require a bit more hand-holding and communication than others, and it’s important for leaders to understand what different personalities need in terms of insight and transparency. “I want a team that will pay attention to me, the investor, a little bit — and maybe more than a little bit,” DeAngelo said. 

Hire the Best Fit for Your Company 

While it’s important to choose a team with at least some individuals who can interact well with investors, Finelli warned against choosing your C-suite just because they look good on paper to investors. 

“That’s not necessarily going to drive a healthy business,” he said. 

He suggested bringing on people in key roles, including the heads of your marketing, finance and legal departments, in a consulting capacity first to see if they are a fit within your organization. 

“It’s very hard to get a real sense of whether or not the person will be successful in your organization or who they are as a person within a couple of one- or two-hour interviews,” he said. 

An executive search firm like Y Scouts can help you choose the best leaders for your cannabis company with our unique process that pairs performance-proven and purpose-aligned leaders with your firm for long-term success.