6 Things to Keep in Mind When Fundraising for Cannabis
Separating the merely curious from the genuinely interested is a bigger chore in cannabis than other industries.
Fundraising is one of the most difficult tasks any CEO will face. In cannabis, it can be even harder.
Other industries, such as technology, have a built out infrastructure to help entrepreneurs with contacts, education and know-how. The cannabis industry is still very young and still in the process of developing many of these support systems. Combine that with the fact that nearly 60 percent of cannabis founders are first-time entrepreneurs with no fundraising experience, and you can see the makings of a perfect-storm.
Here are some tips from cannabis CEOs who’ve successfully raised millions. These are brass tacks, practical tips, that you can put into action immediately:
1. Don’t waste time on looky-loos.
Let’s face it. There are a lot of potential investors out there who are cannabis curious but have no real interest in writing a check. While a more educated investor pool may help the industry long-term, it is not in an entrepreneur’s interest to spend time on investors who are not "real."
Adrian Sedlin, CEO of Canndescent, who recently closed a $13 million Series C, thinks you need to quickly assess if an investor is looking to write checks or just browse
“Simply put, if someone doesn’t return emails timely, move on. Bottom line, real investors express interest early, define their process and follow up timely. Most investors can tell you their target investment and give a preliminary Yes/No after one or two calls. The rest should be due diligence,” Sedlin adds.
Sedlin recommends being direct and cut those who do not show signs of commitment. This creates time and space to invest in the right prospects.
2. Timing is everything.
Fundraising can easily take several months (or much longer) of full-time endeavor to get checks in the door. However, the devil lies in the details. That timeframe can stretch if you’re not managing the process.
Sedlin recommends setting and executing a timeline. “Generally, a round takes four to six months from inception. When I have about 65 percent of the funds, I pick a date about 30-45 days out and start sharing that with prospects. As you near the finish line, you should make statements early on with new prospects such as, “We’re about 85 percent subscribed and will likely close in 15 days. I understand if that’s not enough time for your process.”
3. Show momentum and activity.
Investors look to identify trends, act quickly and then others will follow.
Once you sign an investor, especially a "known name," share that name with others (with permission, of course) to show momentum. Adam Grossman, CEO and founder of Papa & Barkley, suggests entrepreneurs provide frequent updates during the fundraising process, including key names of investors who are comfortable with that information being released.
“The cannabis market is still considered new and exciting and that brings a powerful “currency” to attract higher profile investors," Grossman said. "Sometimes mentioning a participant in the investment round who has a strong profile as an investor or entrepreneur can spur other investors to make the decision.“
4. Keep it personal.
No one likes to be part of the faceless masses, especially when you’re the one writing a check. If you’re asking someone to write a check, they deserve a personal engagement. Take the time to write one-on-one emails.
Kyle Sherman, CEO of Flowhub, has successfully raised more than $8 million from investors including Phyto Partners and Green Lion Partners. He advises that personal messages trump an email blast to 100 investors at a time.
“Batch and blast tactics don’t work with investors,” explains Sherman. "The weekly newsletter or sending regular mass emails will be overkill. Take the extra effort to craft personal messages at natural touchpoints and use their preferred channel of communication. There’s no set schedule or rules for texting your friends, why should those rules exist with investors? The key is to earn their trust and nurture the relationship in a human way. You’ll be tying the knot in no time.”
5. Dot your i’s and cross your t’s.
When you’re fundraising, you’ll write hundreds of emails to multitudes of potential investors. Many of these emails will be written in a hurry to catch a flight, on your way to your next meeting or in the moments before a phone call. You’ll make a lot of mistakes. When your communications are sloppy, so is the perception of you and your company.
Try Grammarly. It’s an app that ties into most email programs and browsers. There are tons of other tools as well, like Grammarly, that serve as that gatekeeper to prevent you from hitting "send" on a messy message. Before Grammarly I had no idea how many commas, hyphens, typos and other mistakes I was making.
Try it. Once you get used to it, you won’t send an email without it.
6. Listen first.
This was a lesson it took me a while to learn. Every entrepreneur bursting at the seams to tell their story forgets the old adage, “We have two ears and one mouth, for a reason.”
Before you say a word about your amazing idea, make sure to learn about who the investor is, their goals, their background, their investing philosophy and other similar investments they’ve made. Then, tell your story. Always ask questions first. This approach shows you sincerely care about who they are and are not just "selling" them. Plus, learning who they are will help you focus your pitch on what they might actually be interested in.
If you lead with questions, you’re more likely to finish with a real relationship and hopefully …. money in the bank. Good luck out there and please feel free to reach out to me with any stories or fundraising tips I can include in future articles!