Venture Capital Expert Michael A. Robinson shares his insights on the three tools every private investor needs before approaching the cannabis sector. Take a look…
As a 35-year Silicon Valley veteran, I’ve worked closely with a lot of promising startups.
I’ve served as a consultant, senior advisor, and board member for various venture capital firms, and I’ve loved having the opportunity to work with pioneering CEOs.
I was involved with early meetings right before the cloud computing phenomenon took off, and I’ve seen firsthand the disruptive power of the robotics revolution.
It’s helped me develop a keen eye for identifying the “next big thing,” and it’s also helped me uncover who will be the early winners in a fast-moving, emerging market. In fact, spotting those future big-name players in an emerging industry is what makes private investing so lucrative.
That’s why, today, I wanted to share what I’ve learned over the last 30 years and apply it to private investing in the one of the most exciting sectors in the market today: cannabis.
Thanks to changes in the law, private investing is no longer reserved for just insiders and the super wealthy. You now have the chance to grab a piece of this potential $1 trillion industry – before the average retail investor.
See, from my home state of California, I get a firsthand look at how this industry is unfolding, and let me tell you: Now is the best time to make your move.
Private Funding Tool No. 1: Seek Expansive Markets
There’s a very good reason why this tops the list of venture capital (VC) tools.
Fact is, VC firms look at hundreds of potential deals a year. Few get funded, in no small measure because the sector they seek to disrupt is just too small or growing too slowly to justify the risk.
Focusing on a large potential market serves as a quick filter to determine if it’s even worth reading the rest of the pitch. The smaller the sector, the harder it is to get other investors interested as well.
Please don’t gloss over that last item. We are, after all, looking for a successful exit in the form of an IPO or a corporate takeover.
It’s a lot easier to get others involved in the deal if the market is worth north of $10 billion and is growing by double digits every year. Ideally, we want to know that the addressable market will double in a decade or less.
Here’s how it works out mathematically: Let’s assume our startup is looking at only a $10 billion segment of the cannabis industry that is growing by 15%, with a 20% market share in mind.
That gives us potential annual revenue of $400 million five years out.
All other things being equal, this is definitely worth pursuing – there are plenty of publicly traded small-cap growth firms that have yet to hit that sales threshold.
In the next three years alone, sales in this sector of the cannabis market are predicted to grow 3,622%. To find out how you can best profit from this, go here now.
Private Funding Tool No. 2: Focus on Scale
Investing in a startup is a bit like buying a yacht – it has the potential to suck gobs of cash down the drain for many years.
Growth firms require massive investments in personnel, marketing, distribution, technology, and sales. It adds up quickly, which is why so many startups need millions in several funding rounds before ever going public.
Scale is important because it means that once the company has built out its franchise, its costs fall sharply and profits start to really take off.
A classic example of this comes outside of cannabis. Facebook Inc. was able to turn a profit about five years after its founding. Today, it has massive scale, with two billion average monthly users.
It’s unlikely we’ll see anything of that scale in cannabis. But we still need to keep this principle firmly in mind.
Let’s say a well-run dispensary is seeking VC money to fund its expansion. If the firm only wants to remain a niche regional player, it’s not likely to pay off.
There’s just not enough upside buying a niche player in a cannabis market that will be worth roughly $150 billion by 2025.
On the other hand, a startup that offered cloud-based supply-chain management software would be onto something.
Just facilitating 10% of that segment gives us a $15 billion target, with the kind of high profit margins that the cloud almost guarantees.
Private Funding Tool No. 3: Hire Visionary Leaders
When you’re funding a firm, you’re basically hiring its leaders to execute its business plans and give you a profitable exit.
By definition, evaluating leaders is the hardest thing to actually quantify. There’s no real formula for measuring those skills.
But they’re vital. A startup needs to work along many parallel tracks at the same time, like marketing, product development, and sales.
At the top of the list, of course, is hiring skilled personnel, without which no startup can grow. The “soft skills” required to succeed here means our execs need to know three main things:
- How to spot talent.
- The resources to hire great workers.
- The personality and incentives to keep them on board and fully engaged in the mission.
Those are really just what I call the “mechanics” of dealing with personnel. And to some extent, they can be learned.
What’s difficult to teach, however, is the most important soft skill of all – the “Big Vision.” We’re looking for leaders who have a messianic view of the company’s role in the cannabis industry.
We want executives who get out of bed every day looking to disrupt the status quo and change the world around them.
These kinds of leaders inspire great loyalty that can make the difference between a mediocre firm and one so successful it’s like they’re actually printing cash for shareholders.
If you are looking to become one of those investors, the best place to start is with the Cannabis Venture Syndicate.
This service was created to lead people like you who are interested in the world of cannabis angel investing to the best private placement deals out there.
And Greg Miller has just completed his due diligence and all the paperwork for his next deal, which you can learn more about here.
Cheers and good investing,
Michael A. Robinson
Venture Capital Expert, National Institute for Cannabis Investors
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5 responses to “The Three Tools You Need to Privately Invest in the Cannabis Sector”
July 08 2019