The cannabis business is expanding. Studies show that around 3.5 billion dollars found investments in the booming industry in 2017. And, these doubled 2016’s investment figures. With the adult-use legalization of marijuana in California and international trade between Europe and Canada, 2018 was the industry’s biggest year ever.
Cannabis entrepreneurs seek to face many challenges when it comes to business establishment. Some of the most popular ones are developing a sound business plan, acquiring customers, and building a team. However, even more critical is the process of raising capital for your business. Instead, business tycoons consider discovering and deciphering quality cannabis opportunities for investment as everyday issues.
However, now that you’re starting a marijuana business, here are some things you need to consider to attain success. Let’s get going with discovering what these are:
Know your Audience
As more excellent money is pouring into marijuana, the entrepreneurs seek higher standards of professionalism. Seasoned entrepreneurs, on the other hand, track records of different industries. They then consider waking up and smelling the money trees.
Also, as competition continues to soar, investors need better actions. There must be well-laid upon business plans, clean, polished pitches, and a clear understanding of the capital structure and venture finance.
Investors need to understand their paradigm shift through many unattractive deals before finding the capital they’re able to commit to. The chances are excellent that they’re already looking for opportunities. Thus, the entrepreneur must be able to explain the capital they’re seeking. Also, the money that entrepreneurs will use for. And, they must also specify the duration in which they’re looking forward to generating returns for the investor.
Know that the investor will not take your deal seriously if it isn’t simple enough for a non-specialist to understand.
Moreover, not all investors work on the same lines. It is vital to qualify as investors to attain efficiency in the fundraising process. Before pitching an investor, know their investment structures. For instance, some investors prefer equity, others debt, and only some do the seed stage. Make sure to ask before starting with the “dating” process.
Date Before You Choose One
Capital raises are all about finding a great strategic partner and capital simultaneously. The frequency at which the marijuana fund managers compared the multi-million fundraising process seemed odd. However, the comparison made sense. For instance, the term for private equity investments is 5-10 years. And, the hold-up, that is, the marriage lasts for around eight years in the United States.
Asking for finance from friends and family, development funds, loans, and equity stakes are some of the most popular finance raising methods. However, the experts at Cannabis Industry Financing recommend loans to be the ideal source.
The investors today are betting on the jockey and not the horse. It is because of the challenges that the cannabis business environment poses. Thereby, investors want to consider courageous, committed entrepreneurs that have a record of excellent execution. Also, since the jockey holds importance, the investor’s diligence process includes taking time to understand the entrepreneur personally. Entrepreneurs, too, must take the investor screening process seriously.
State your Motive for Seeking Capital
One of the most fundamental questions to answer is your motive behind seeking capital. Do you need money to build your business, or is it for a product launch? Decide!
Also, know if you need money to launch your large-scale marketing program or break into a new market. Never give your investors the reason, “we need money.” Instead, state the reasons for finance requirements. Every business needs more capital to function in the best manner. However, the investors know that just throwing money at a problem won’t solve it. So, state reasons with due diligence.
Present clear views on the capital requirements through a game plan. Also, explain where you’ll allocate the same, how the company will grow, and what return the investment will get if you properly deploy the money.
Have Well-Researched and Realistic Valuations
Most investors aim at evaluating the early-stage ventures in the emerging canna- industry. Thus, they expect the entrepreneur’s financial projections to be wrong. Also, the investors must pay close attention to the rationale and assumptions behind the forecast of the entrepreneur.
For instance, if the cannabis dispensary startup doesn’t account for the downward trend for wholesale marijuana, the prospective investor gets a signal. And, that is, the entrepreneur doesn’t have a clear understanding of the business dynamics.
The market experts say that entrepreneurs shouldn’t go into valuation as they raise money. It is because the valuation proves to be worthless if the canna-business doesn’t survive at all. Thereby, it is wise to lower the valuation for getting funding as the key to survival. Once done, make sure to thrive and earn the requisite valuation.
Patience, Persistence, and Process is the Key
Early adopters say that the majority of marijuana venture investors lack cannabis experience. Unless they’ve immersed themselves in the community well or haven’t been entirely canna-focused, they don’t appreciate the culture completely.
Therefore, as an entrepreneur, preparation is the key to educating and setting a good example in front of the cannabis community. Also, be ready to hear “no” and never take rejections too personally. Instead, seize every opportunity and receive feedback to redefine your pitch. Know that not every business model is a good fit for venture capital.
The options for fundraising to reach your goals are many. One such option for cannabis entrepreneurs is equity crowdfunding.
Fundraising is a full-time endeavor, which can take several months. Embrace the daunting fundraising process with courage and creativity. Ensure having the necessary resources, capacity, and support for keeping the core business running smoothly. After all, it would help if you devoted your energy and time to woo business investors.
Schedule time for wellness, restoration, and self-care. Furthermore, the burned-out entrepreneurs don’t inspire much investment from the investors.
The Bottom Line
Now that you’re aware of the essential tips for raising capital, know that investors will begin looking for you to execute strategies on their own. Make sure to highlight your company’s growth and how you plan to achieve success. Also, state your ways of solving the trouble areas.
These steps will showcase your execution abilities and show the investor that you’ve already done your homework. After all, you’re looking out for capital and expertise for taking your marijuana business to new heights!