Chances are good that one day you will find yourself in front of a Venture Capital Firm attempting to raise capital for your Cannabis business.
Here are 6 tips for success:
- Prep like crazy
- Understand who you’re pitching
- Practice, practice, practice
- Tell a great story
- Be confident, not cocky
- Don’t be right. Be honest
As an active cannabis venture capital firm, we receive new investment proposals every day. Only a handful of those proposals are suitable for us to explore beyond the initial outreach. We estimate that we reviewed more than 350 proposals before we made our first investment. And my firm is not alone.
In traditional venture capital, less than one in every 300 companies that pitch to investors actually raises capital.
This means that, statistically, 299 companies believe they are a good investment opportunity, when in reality, investors disagree with that premise. So how do companies capture the attention of the investors they are pitching?
It starts with submitting a professional proposal that includes a cover email, an executive summary, and a management presentation, known as a “pitch deck.” Most investors will read the deck looking for who the founders are, what the company does, the opportunity, what financing is being sought, and some financial projections for how the company expects to grow and scale. If there is interest in learning more, the investors and founders will arrange a meeting to go through the presentation in more detail.
These are high-pressure meetings with a lot riding on the outcome, so preparation and professionalism is paramount. Investors see countless pitches over their careers. The pitches that achieve funding share the fundamental facts about the business that investors need to know but also differentiate the entrepreneurs and the opportunity in a way that stands out. Here are some tips for how to prepare and how to present.
1. Prep like crazy
When building your pitch deck, focus first on the standard required sections along with the unique aspects of your business that you believe will differentiate you from your competition and drive your success. In my book, Cannabis Capital, you can find a sample presentation table of contents:
- Cover Page
- Disclaimer & Confidentiality
- Executive Summary
- Management Team
- The Opportunity
- Product or Service
- Business Model
- Sales and Marketing
- Regulatory and Compliance
- Transaction Overview
Every business is different, so this list is a framework you can start working with and customize for your specific opportunity. You should, however, hit each of these topics in the final order and outline you use.
Build your story slide by slide—make sure each slide makes a key point and only move on when it’s clear that the investor understands what you are trying to convey. Don’t be sloppy, and pay attention to the details. Mind your spelling and page numbers, have clean graphics, and cite any data you present.
2. Understand who you’re pitching
The challenge lies in balancing your assumptions about what investors look for in evaluating an investment. It is not about convincing an investor that you have all the answers and they need to see the opportunity from your perspective, but rather understanding their perspectives and demonstrating how your company fits that. Investors want to make money, but the way that is accomplished in a private company is by backing a team who has the ability to grow a business and build value from where it is today into an enterprise that is worth significantly more to other investors or acquirers at some point in the future. They invest in good operators and leaders, and the pitch is your opportunity to express how you see that trajectory, and how you will shepherd the company and the team to that desired outcome.
The single biggest mistake that is common in almost all the pitch decks we see, in particular in cannabis, is spending way too much time on highlighting the market opportunity. One slide is sufficient to summarize that the cannabis economy is new, large, and growing. The investors you will be presenting to already understand that because they’re listening to your pitch. The fatal flaw in the vast majority of presentations is going into way too much detail or lengthy arguments about how big the market will be in the future. Venture capital investors look for large and growing markets, with novel and sustainable solutions that underpin the reason for creating a company. You can check the market-opportunity box quickly. The emphasis is demonstrating how you will build a great company.
3. Practice, practice, practice
Preparation is paramount. You should practice presenting to as many people as you can to get feedback. Everyone will have an opinion, but with enough feedback, certain themes should come to light. In the past, when I was raising money for one of my ventures early in my career, we would identify qualified friends and contacts to present to and ask them to be highly critical of our presentation. We called this process “friendly fire.”
Test your presentation by asking if you have clearly answered these following questions:
- Is it clear what the company does? Have you effectively communicated early on what your product or service is?
- Have you established early on that you are credible and experienced enough to manage the business?
- Is it clear how you make money? Have you shown a clear understanding of who your customer is, and how to market and sell to them?
- Have you identified the need and the solution?
- Have you communicated the core base assumptions on which your business is based (e.g., approvals of licenses)?
- How you will run the business? The reason to start a business is not just because there is a new market developing; it’s that you know how to manage all the aspects of running the business, building the team, and building value for you and your investors.
- Have you identified your competition? And, yes, every business has competition; to say otherwise raises questions about how much research you have done and usually indicates a lack of experience.
- Have you detailed where the financing you need will get you in terms of milestones and growth of the company?
4. Tell a great story
Great founders are also great storytellers. Passion and vision for how to capture an opportunity and build a viable business are the minimum criteria for securing the investment capital you need. How you present your story at the outset is a critical early step in raising capital. It is your opportunity to tell your story exactly how you want it. The challenge is being able to balance your storytelling with the facts and merits of your business that investors want to see.
Personally, I like to hear about how the founders have validated customer adoption and converted to sales. There is a lot of market research available, but primary, or direct, research really resonates with me. It’s one thing to say you have identified a handful of customers who are clamoring for your product or service. It’s another thing altogether to empirically prove that. A customer who might buy from you is very different from actually securing a signed purchase order or contract. Saying that consumers are hungry for your product is insufficient on its own. Do the extra work. For example, I like hearing about founders who have done customer surveys directly themselves. Go talk to your potential customers, learn from them, and come back with the facts. This is great for an investment pitch, but it’s also a critical business tool you should be doing anyway to help inform your business decisions.
5. Be confident, not cocky
When interviewing other investors for Cannabis Capital, a common theme when we were discussing advice for entrepreneurs asking for investment was to temper being confident with bravado. Investors respond positively to self-confidence, which is demonstrated by conveying facts and talking straight about what it will take to be successful in navigating the challenges that lie ahead. Speak to the facts and risks but do not boast. Entrepreneurs who come across as argumentative, evasive, and defensive when asked the difficult questions rarely make it to a follow-on meeting after the presentation.
And don’t exaggerate. It is very common when an investor asks a question like “How much money do you have in the bank?” for entrepreneurs to try to read more into the question and answer with something like “Well, no one is taking any salaries,” as if selling that point will distract from the real answer.
6. Don’t be right. Be honest
My perspective as an investor is that I am not looking for the right answers, but rather that the pitch highlights the business decisions that the founders have made up to this point, right or wrong. I am looking to understand how they have managed the company when they have most certainly been short of resources. Entrepreneurship is as much about making business decisions with imperfect information and without the luxury of adequate time. From my perspective, it’s less about making a perfect decision and more about showing the thinking behind those necessary decisions.
Remember that investors are professionals, and they almost always have more experience in business and investing than you do. It is your job to give them the facts they need to make an informed investment decision and prove why you are an entrepreneur worthy of managing a company they have risked capital to finance. It is not, however, your job to tell the investor how much money they will make. Demonstrating an exit strategy or how you anticipate to create value for all shareholders is important, but stay away from presenting numerical returns such as IRR (internal rate of return) expectations. You never want to put in writing a prediction that you can’t guarantee (and there are never guarantees in venture capital investing).
Your goal with the pitch is to get the investor excited to move forward in learning more about your business. Prove to the investors that you can run a successful company. Nothing ever goes according to plan. Many investors talk about experience as the litmus test for entrepreneurial acumen. I agree, but I also like to take that one step further and learn about the failures you have had in the past, because we all have them. How you managed through a crisis and what you learned from it can be a leading indicator of future decision-making when unanticipated challenges arise. And they will. When they do, these are the moments that define great entrepreneurs and great investors. When the investor-and-entrepreneur partnership is truly aligned, companies not only survive adversity—these can be inflection points that can turn into long-term prosperity.
Investors should feel comfortable with the research you have done, the infrastructure and business plan you have, the way in which you will deliver on the business plan, and build a leading team to do so. They never make the decision to invest on the spot. Your goal then is to get them excited about working with you and learning more. If you are successful with your pitch, you will have an opening to move forward with the investor into a process that could result in an investment. There is still a long way to go, so now the hard work begins all over again!
About the Author: Ross O’Brien is the Founder and CEO of cannabis venture capital firm Bonaventure Equity.