There are nine key things cannabis investors will look for when considering whether to invest in your cannabis business. No, you don’t have to satisfy all of these criteria. But the more of them you do, the better the chance they will say “yes” to your funding request. And whether you are interested in a marijuana dispensary license, are considering cannabis cultivation, or getting involved in one of many other cannabis business ideas, understanding your cannabis business like an investor will help you operate more effectively, even if you are not interested in working with one.
#1: They Like You
Believe it or not, this is really important. No matter how good your venture is, if the cannabis business investor doesn’t like you, they generally won’t fund you. So, build rapport with prospective investors and give them the respect they deserve.
#2: They Feel Good About the Venture’s Genre
Even if the investors like you and even if they think your company can be a huge success, they need to like what the venture is all about. For example, they may not feel comfortable investing in marijuana business because of risk factors. So, either find investors who have an affinity for the type of venture you’re operating, or make your venture a safer cannabis investment, legally, financially, and otherwise.
#3 They Feel a Void
If an individual is an ultra-successful business person who is currently running multiple operations, they are generally not going to invest in more ventures. Since, they don’t have a void; they have all the excitement in their daily life that they need. Conversely, a person who feels they might be “missing out on the action” will be more motivated to invest in you. If you want to escalate that interest, improve the look and feel of what you do so your marijuana business looks as valuable as it is.
#4 They Feel There’s Good ROI Potential
This is obviously important. Even if investors like you, the type of business, and they feel a void, they generally want to believe that investing in your marijuana business will result in a nice return on their investment if they fund you. Your financial model needs to show how cannabis investors will profit when you succeed.
Does your marijuana company have a strong potential to achieve significant annual revenues? In a truly scalable business, you can multiply your sales without having to greatly increase your resources. Scalable marijuana businesses grow more rapidly and can reach an exit (whereby the investor gets their return) faster.
#6: High Barriers to Entry
Barriers to entry are those things that make it difficult for another firm to compete against you, such as patents or proprietary technology, a unique location, strategic partnerships, and long-term customer contracts. Barriers in the cannabis industry are increasing significantly as California gets ready for cannabis licensing in 2018, competition increase, and products become more sophisticated. The stronger and/or more barriers to entry your marijuana investment has, the more likely you are to succeed, and the higher expected return on investment (ROI).
#7: Worthy Management Team
Cannabis investors must believe in both the founders and the key operating personnel of your company, because even the best idea will fail if the team isn’t good enough. Spending time creating effective work flow, management structure and consistent metrics will greatly increase your productivity and chance of success.
#8: Your Exit Strategy
Your “exit strategy” or method in which you will “exit” your business, is generally to sell it or go public, with the former being much more common. As such, it’s good to think about your exit strategy early. Who might want to buy you in the future, and why? Even if you are not interested in selling your business, planning for a good exit strategy also means that you are allocating more business tasks to others, allowing you to focus on other things or taking
more time off work. Since investors can’t realize their investment until you exit, be sure to prove to them that such an exit is viable.
#9: The Right Price
Finally, investors will only invest in your cannabis business when the price is right. If you price your equity too high, investors may not have the potential to reap significant enough returns and will not invest. We see this on the show Shark Tank all the time. The entrepreneur says, for example, that for $400,000 they will give up 10% of their company. The sharks always laugh at percentages like this and say they will need at least 40% of the company or more for that dollar amount. While the sharks are much more sophisticated, and shark-like, than many “angel” investors, you need to price your equity fairly (give them a fair equity stake for their investment) if you want them to fund your marijuana investment.
Knowing these 9 things that investors want will help you identify and convince the right investors to fund your cannabis business! To find out more about how BeGreenLegal can help you unlock your business potential, review our Discovery eBook and online services brochure.