Ever wonder “how to raise capital” or “what is EBITDA?” The EduPod Series take a deeper dive into the business and finance fundamentals discussed in their weekly interviews. On today's episode host Ross O'Brien and Maggie Kelly from Bonaventure Equity provides a beginners guide with five key important takeaways including: assessing your readiness to raise capital, understanding the time commitment involved, managing expectations, assessing your investor market, and the importance of presenting yourself as a Founder who is both knowledgeable and coachable. Visit www.cannabiscapitalpodcast.com/resources for episode highlights and the readiness assessment worksheet. Produced by PodConX Cannabis Capital - https://podconx.com/podcasts/cannabis-capital Ross O'Brien - https://podconx.com/guests/ross-obrien Maggie Kelly - https://podconx.com/guests/maggie-kelly Bonaventure Equity - https://www.bvequity.com/
Ever wonder “how to raise capital” or “what is EBITDA?”
The EduPod Series take a deeper dive into the business and finance fundamentals discussed in their weekly interviews. On today's episode host Ross O'Brien and Maggie Kelly from Bonaventure Equity provides a beginners guide with five key important takeaways including: assessing your readiness to raise capital, understanding the time commitment involved, managing expectations, assessing your investor market, and the importance of presenting yourself as a Founder who is both knowledgeable and coachable. Visit www.cannabiscapitalpodcast.com/resources for episode highlights and the readiness assessment worksheet.
Cannabis Capital - https://podconx.com/podcasts/cannabis-capital
Ross O'Brien - https://podconx.com/guests/ross-obrien
Maggie Kelly - https://podconx.com/guests/maggie-kelly
Bonaventure Equity - https://www.bvequity.com/
Cannabis Capital Resources - www.cannabiscapitalpodcast.com/resources
BV EduPod part 1
[00:00:00]
Ross O'Brien: Welcome to another episode of cannabis, capital, the podcast. I'm your host, Raso Bryan venture, capitalist and author of the book, cannabis capital. How to get your business funded in the cannabis economy. And as always, I'm here with my esteemed colleague and cohost Maggie Kelly. Hi, Maggie.
Maggie Kelly: Hi, Ross. So happy to be with you and our listeners today on this podcast, we interview remarkable founders and influential investors who speak the language of business and finance.
If you're new to the startup world, you may find yourself Googling how to raise capital or what is EBITDA. The business world is nuanced with the language of its own, and we want to arm you with the knowledge to succeed. . If you listen to our podcast is interview with Dan . You would have learned that higher education is where Ross and I met. We taught and coached aspiring entrepreneurs and help build a startup hub that is thriving to this day through our edgy pod series Ross.
And I will take a page from our days in higher ed and dig into some specific [00:01:00] topics related to entrepreneurship and investment in the cannabis economy. Are you ready? Ross?
Ross O'Brien: Oh, Maggie, you know me, I'm always ready for the spotlight, but what was this an edge upon?
Maggie Kelly: And edgy pod.
Ross O'Brien: I love.
Maggie Kelly: up with it feeling pretty clever. Okay. Listeners stay tuned for cannabis capital, the podcast, raising capital part one, the beginner's guide
Ross O'Brien: All right. Welcome back everybody to the first in our educational series that Maggie has christened the EDU pods Maggie and I are very excited to get started, to share some really important basics and fundamentals on how to raise capital today. So we're kicking off with this because this is one of the most important and frequently asked questions by entrepreneur.
How do I raise money? And most often this question can come from a place of inexperience, but before you [00:02:00] get to the, how do I raise money question? There's a number of other things we need to ask ourselves.
Maggie Kelly: Like, why am I raising capital or am I ready to raise capital?
Ross O'Brien: Exactly Maggie suitability for raising capital is one of the most important places to start. So raising venture capital in any market has a very low probability of success. Statistically, the ratio stands at less than one in 300 companies that presented venture investors secure. However, all 300 of those companies are the 299.
The don't raise capital, still think they're good investment opportunities. So why is there this disconnect? And we find this ratio to be accurate within our own firm as well. So venture capital investment continues to be bullish even amongst the global pandemic, uncertainty in some markets will impact this ratio even for the worst.
So how do you prepare. Well, it starts with knowing the basics [00:03:00] as with anything. There are best practices and fundamentals that are consistent in successfully managed financing plan. I go into a lot of detail of these in my book, cannabis capital the impetus for writing the book was largely on providing these resources to entrepreneurs so that they can be more successful with exactly this process.
If you follow the fundamentals, we believe that you can increase the probability of successfully raising the capital that you need now. Many entrepreneurs and investors in the cannabis economy. Not everyone, but some act as though the cannabis space somehow gives them a free pass on the rules of business.
And this is completely false. Now, if anything, we've learned that Canada printers and Canada investors need to hold themselves to an even higher standard. So let's begin with some timely tactics and help you get along that path of raising the capital that you need.
Maggie Kelly: So Ross, if we're getting started here, To start with why, when we're debating any topic, when we're [00:04:00] brainstorming, we always start with our why. So let's begin there. Why are you raising money or why is an entrepreneur raising money?
Ross O'Brien: You're So right, Maggie, this is exactly where it begins, is asking the question. Why, what is the purpose? I'm sure most of our listeners, have already read Simon's DeNOx excellent book. Start with why, and let's use that and start there.
Raising capital is one of the hardest and most stressful things that a founder needs to do as they launch their business. There's always a sense of urgency when raising capital by nature of the process can feel frenetic, especially when companies are under the threat of losing revenues or market share or in some stage of distress.
Remember though that investment capital is not a good substitute for missing sales targets. Many companies raise money. Their why is because they're not achieving their sales projections. When you miss revenue targets, this frames, any financing as rescue capital for distress, business and investors don't award high [00:05:00] valuations to distress companies revenues.
One of the core metrics used to value any business. This has the compounding effect of lowering any valuation might consider reasonable and also therefore increasing the cost of the equity that you're selling. So you need to have a solid understanding of what the investment is that. It's always surprising to us to see how many companies don't have a specific ask for an investment or just use very high level categories.
A well thought out use of proceeds should identify very specifically what your cash needs are. This is your why, why am I raising capital? Do I have a line of sight to growth in my building more value in the business? Can I do more faster, stronger. If I secure this outside capital to help me scale the business. It is more important than ever to have a clear plan on how the investment will be used and where it gets the company. What is that next milestone, those next set of plateaus and understanding how that [00:06:00] translates to shareholder value, strong correlation to what you can expect to happen in your market, and what resources are needed to succeed in the near medium term is the basis of all the investment discussions that are happening today.
Maggie Kelly: So listeners, step one, start with, why am I raising capital? Find your why? The next question to ask yourself is my company ready for investment?
Ross O'Brien: Oh, Maggie, this is the million dollar billion dollar question. And one of the most challenging for a founder to ask themselves, it's hard to step outside of your own viewpoint and assess from an outside perspective, if your company's ready and justifies managing external. Investors will be looking to understand certain key elements of your business To evaluate your future prospects for success.
For us, this always starts with the management team as an investor. We look for a team that can execute execution over ideation. Always. [00:07:00] I want to know who makes up the management team, have they been successful in the past? What does each member bring to the table? What is the team doing to navigate through new threats and disruptions?
Because they're sure to have. Before talking with any investors, you should assess your company and bring together your core advisors and help you do the same, a great processes to help them scrutinize your plans before talking to anybody else, I call this friendly fire. By the time you meet with investors, there shouldn't be any unforeseen questions that will support.
Maggie Kelly: To help you with your internal analysis and further understand the areas critical to an investor. We've provided an assessment worksheet to review and score your areas of competency and readiness. To access this worksheet, please visit cannabis capital podcast.com/.
Ross O'Brien: Thanks, Maggie. I hope everybody takes advantage of that. And look, this brings us to the resource conversation, right? As a practical matter, raising capital means that you have to [00:08:00] not only run a professional process, but execute within your business at the highest possible level during that. So it's a full-time job.
It's a full-time job for the founder for advisors and a second full-time job, because you're also running the business that you start.
Maggie Kelly: So sourcing the right investors alone is a full-time commitment.
Ross O'Brien: Well, not only that, but building relationships with those investors is a full-time commitment. Due diligence is a full-time commitment.
And if you don't have the bandwidth for this process and are not able to sustain this massive undertaking, you could end up with a struggling company that's worse off because you halfway went into a process.
So proceed with caution and full.
Maggie Kelly: Awareness. That's a great segue to your next point, which is to maintain awareness and manage expectations.
Ross O'Brien: Yeah, managing expectations.
can really help calm the forensics of seeking investment. I mean, all too often entrepreneurs. I believe that if they can just get in front of that one perfect [00:09:00] investor that will see everything the way they do that, they'll be just fine. They can just convince that one person, they will absolutely make an investment.
. However, this is really shortsighted and doesn't take into consideration all of the signals that you'll be getting from other investors that you're talking to, , who declined the investment, as we've said before, but also it's not about trying to convince investors to see your view of the world. It's up to you to understand their view of the world and show them how your business opportunity fits. And this can be a long process and take months, or even years of relationship building and doing the hard work to present all the facts to the investors, such that they can make an informed investment decision.
Even in the best of times, distance time, space, they're never good for a sales process or closing business deals. And while we're growing accustomed to fewer in-person meetings, it's incumbent upon the founder to keep stoking the embers and keep the fire burning.
Maggie Kelly: So managing expectations is not only about being realistic about outcomes, but [00:10:00] the results of those outcomes.
Ross O'Brien: exactly and realistic about what those results will be. Most investors are going to tell you, no, you have to be prepared and have thick skins. Take a lot of notes. Don't be afraid to get to know and be prepared to learn from it and move.
Maggie Kelly: So this reminds me of our episode. I believe it's episode number two. It's with Paige and Chang co-founder and CEO of T check listeners. , if you haven't heard that episode, please go back and listen. His outlook on declines is the absolute right way to process.
Ross O'Brien: Oh, Maggie, you read my mind. I love patients' responses and how he frames this whole question, when he received a no, he would always ask himself and his team, what can I do better? Is this the best outcome? No, they said no, but maybe I can keep this relationship warm. Could they one day be an investor and turn it into a yes.
Now that, that type of thinking of pivot, Mises, the types of founders that we like to work with and listeners do go check out, is that. So in summary, managing expectations [00:11:00] by anticipating declines and having a plan to professionally handle those as a fundamental element of raising capital.
Maggie Kelly: Ross, we touched base on relationship building, which leads nicely into knowing your investor market venture capital is obviously our space, but that's not always the best fit for a startup. So can you go through the stages of a company and the types of investment available and educate our listeners on that aspect of raising.
Ross O'Brien: Yeah, I think this is one of the most important, raising.
capital fundamentals to understand which is the types of capital that are available the lifecycle of the companies and which types of capital investment are appropriate for businesses at those life cycles. So for example, seed stage early stage, that tends to be friends and family financing, early stage, mid stage series a.
Now you're starting to talk to angel investors, a different type of investor, moving on to series a series B you get into venture capital, which is a specific type of [00:12:00] investing. And then onto, hypergrowth growth phases, exits phases. You get into private equity, public markets and debts. So let's start with the first group, which is friends and family.
And as the name indicates, these are your close contacts. That'll want to see you succeed, but these relationships are likely not going to really scrutinize your business plan at the same level that other investors will. They just really want to see you be successful. Moving on to angel investors, similar to friends and family, and that they're writing checks themselves.
They're taking their own personal capital risk, but there are a lot more sophisticated in their approach. Many cases they'll have their own investment strategy based upon their expertise and special interests. Well, angels typically invest smaller amounts than a VC.
What is important to remember that they are still investing their own capital and expect the same level of professional investor relations and communications, and typically look for very similar terms they'll expect to return and [00:13:00] some cases be very hands-on. Now when you get to the later seed stages series a series B, this is when you're typically in a go to market stage or ready to expand the company where you really are running up against the hurdle.
That more capital is the impediment to grow. This is one venture capitalist, like. Just like the one in 300 ratio success, venture capitalists also have a ratio of success and many investments fail. It's a very risky form of investment. Mostly. Private companies and early stage companies fail, but if you get it right, it has the potential to provide significant outcomes. And these types of investors tend to be hyper-specific in their investment strategies and are notoriously, discerning of their investment decisions. There's other investors also in the market, family offices, high net worth individuals. But I would say if you're able to chin the bar and meet the due diligence and scrutiny of a venture capitalist, you will meet the criteria [00:14:00] of all of the other groups of investors that will be available to you at an early stage.
Maggie Kelly: Okay. So that was a lot of information listeners. That general breakdown will also be included on our website. Ross, as we wrap up this episode, what's the final fundamental you'd like to share with our listeners who may be embarking on their capital.
Ross O'Brien: Oh, that's great. Maggie and thanks everybody for tuning in today, in a world where in-person communication is becoming more rare than it was before, having a general awareness of your communication style and how you're perceived is really critical. And this goes back to the suggestion of friendly fire and trying out some things internally first, before you go out to speak to investors
what you really wants. Every investor you speak to, to believe that. Easy to communicate with you communicate Well, And that you're receptive to feedback doesn't mean that you always have to agree, but you should be open to hearing the hard stuff and putting that into corrective action or raising capital is not about convincing an [00:15:00] investor.
Your view is right as I had said, but it's understanding their perspectives and show you how your business fits into their worldview. This goes for pre and post. If I make an investment and then I find you unresponsive to feedback, difficult to work with. Do you think I'll participate in the next round?
It's probably unlikely. And the lack of in-person meetings today means that nonverbal cues can be missed. So it's very easy to come across as defensive or worse, uncoachable demonstrating a know it all attitude is a major turnoff investors. So you have to strike that balance between being ambitious, being focused and convincing investors, that you will be the right steward of capital and the right person and team to run the business with showing some humility in the process.
Maggie Kelly: Well, thank you, Ross. That's a lot for our listeners to unpack as we mentioned, but it's a great start for educational series to recap this episode. Raising capital part one, step one, start with your why, why are you raising capital and complete an honest [00:16:00] assessment of your company and your management?
Team's readiness to raise capital a worksheet to get you started can be found on our website, cannabis capital podcast.com. Step two, ask yourself if you have the time it takes to raise capital, it's a full-time commitment. Can your company and your management team continue to Excel while you are funding.
Step three manage expectations. The right relationships take time to build and declines are likely to be many mentally. Prepare yourself for all possible outcomes. Step four, know your investor market. Don't waste time approaching the wrong investor. Do your research know what you need and who to ask?
Step five, your communication style says a lot about you knowledgeable high-achieving coachable founders, separate themselves from the crowd in the coming weeks, be on the lookout for raising capital part two, where we explore the diligence process and what to expect.
In the meantime, we'll keep [00:17:00] delivering you interviews with movers and shakers of the cannabis economy on cannabis, capital, the podcast. Goodbye.
Ross O'Brien: Uh, Goodbye, Maggie. Hey, before we go, what does.
Maggie Kelly: It's how I describe you to people,
Ross O'Brien: What a great edge you pod. I love it.
Maggie Kelly: controllable movement and energy.