While some financial experts argue that investing in the cannabis industry is risky business, there is still a legion of shrewd investors out there who are not afraid to get in on the ground floor of legal marijuana. These money men and women are distributing funds to obvious selections like dispensaries and cultivation centers, while also searching for opportunities in ancillary businesses.
Many investment groups believe now is the perfect time for budding cannabusinesses to actively pursue investors because the market is not as saturated as it will be in the next few years. Troy Dayton, the CEO with ArcView Group, says his investment firm has helped raise nearly $14 million for 28 companies, and he is confident this is just the beginning. “It’s like the perfect time to be raising capital, because there’s a lot of eager money out there,” he said.
There are potentially millions of dollars out there waiting to fund the right business, but the money is not necessarily easy to come by. It is for this reason that investment experts are adamant about the importance of building an effective sales pitch when it comes to presenting your idea to potential investors.
But what is it that investors want to see and hear before sinking money into a cannabusiness?
Well, the folks at Marijuana Business Daily recently sat down with three business owners that have raised $4 million in venture capital for projects after making successful presentations to private investors.
Here are the five tips they say will help you do the same:
Make Sure You Are Prepared
Before meeting with potential investors, it is important to write a comprehensive business plan. The trouble is many people are unaware of exactly what needs to go into this plan to make it more attractive to investors. First and foremost, an assessment of the marketplace is absolutely crucial: costs, risks and financial projections for at least the first five years are all aspects of your business that investors will want to see before considering your project.
“Be able to show what you’re going to do with their funding. Don’t just go in there and say, ‘I’m going to need a bunch of money for this,’” said Garett Fortune of FunkSac, a packaging manufacturer that has raised $600,000 of investment capital through ArcView.
In addition, it is important to establish a relationship with an attorney to make sure all of the legal issues regarding your venture are ironed out beforehand. Investors are more likely to take your presentation seriously if they feel you have a handle on the legal climate of your business, as well as a grip on how investment deals are made.
Also, show up to the meeting prepared to make a slick PowerPoint presentation that will help investors see exactly what you are asking for and what they can expect in return.
Track Records Are Important
Unfortunately, investors are not too keen on putting their money into basic ideas. Most feel comfortable investing in businesses that already have a proven track record, especially when it comes to the cannabis industry. A business that has been up and running for a year or two will be more likely to provide detailed statistics about their company, which will stand out during a presentation.
Investors want to see that business owners have already made a significant investment of their own – be it sweat equity, financial, or both. They want to know that you are able to successfully manage the company you are asking them to invest in, and only need them to help your business grow. In other words, they are not interested in being your rich uncle.
Honesty Is the Best Policy
Once your presentation is complete, investors will likely ask some questions. It is important at this point to shoot straight with these people; answer their questions to the best of your ability, but do not be afraid to admit when you do not have the answer.
Investors are professionals and can smell bullshit from miles away, so do not cheapen your presentation with smooth talk. Not many investors will put their money into a business without doing some homework of their own. The last thing you want them to discover is that they cannot trust you.
Keep It Simple, Stupid
It is not necessary for an investor to hear your life story before they make the decision to put money into your project. If your pitch is 20 minutes long, chances are you will lose your audience regardless of how well your presentation is put together. An investment proposal should last no more than five minutes, with the rest of the meeting allowing for questions and concerns.
“It’s an elevator pitch. Hit those key points: where your marketing is, what your market opportunity is, how much it’s going to cost you, and what your sales are,” said Fortune. “If you can show those numbers and how you have a successful model in five minutes, then you’re going to get those people to come back up to you right after you get off the stage.”
Know What You Want and Do Not Falter
Last but not least, have a clear understanding of what you are willing to part with in order to secure financing – because there is always a trade-off. Some business people have a tendency to get clouded by the possibility of gaining financial support, that they fail to see the big picture. For example, it is best to steer clear of investors who want to give you a large chunk of money up front in exchange for high equity or a management position – some will even offer a lump sum for majority control.
“Don’t give up the house, and never give up more than 49% of the company,” said Fortune. “That’s what we’re seeing, is a lot of these big money guys want a lot of equity.”