"We are in the service of entrepreneurship." In this episode of Cannabis Capital: The Podcast, hosts, Ross O'Brien and Maggie Kelly take a pause to discuss Ross's recent journal article, "How We VC," and publicly share their firm, Bonaventure Equity's, views on venture capital and the 10 core foundations to which their firm adheres.
"We are in the service of entrepreneurship."
In this episode of Cannabis Capital: The Podcast, hosts, Ross O'Brien and Maggie Kelly take a pause to discuss Ross's recent journal article, "How We VC," and publicly share their firm, Bonaventure Equity's, views on venture capital and the 10 core foundations to which their firm adheres.
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/
www.cannabiscapitalpodcast.com/resources
www.rossobrienvc.com/journal/howwevc
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Maggie Kelly: [00:00:00] Hi, everyone. Welcome to cannabis capital, the podcast. I am your co-host here. Maggie Kelly and I am with sitting with the one and only Raso Bryan venture, capitalist and author of the book, cannabis capital. How to get your business funded and the cannabis economy. We're bringing you a special episode today.
Ross recently wrote a journal on how the. And this particular piece is meaningful to both he and I and our team, because it really, really digs into why we do what we do and how we do it. So, Ross, welcome to another episode.
Ross O'Brien: Thank you, Maggie. It's always a pleasure to be here with you and greetings to all the listeners out there. I'm looking forward to peeling back the proverbial onion sharing a little bit more about who we are, what we are and what we're doing. I think that'll also add some context to the episodes we've had and the ones that we have going forward.[00:01:00]
Maggie Kelly: Fantastic. That's what I'd like to get out of this as well. So, Venture capital. Can you talk to our listeners or speak to what VC means to you? Because I think that the term VC and venture capitalists thrown around a lot in entrepreneurship and an investment. And I think for kicking this off really defining what it means for our intents and purposes here.
If you could do that for our listeners.
Ross O'Brien: Sure. Well, that's easy, Maggie. I mean, venture capital's buy low, sell high, right. That's ever has. It's super simple. All you need to do is just find somebody that's got a good idea and throw a bunch of money at them. I'm being controversial on purpose with this because. Ironically, a lot of people do think about it that simply.
And I think one of the things that we were trying to focus on, or one of the things that we talk about internally a lot is that, venture capital is a strategy and as a skillset is a discipline, right? And it's a discipline that gets influenced and informed with years and years of [00:02:00] experience.
So. Honest basis. Venture capital is a form of financing that is high risk, and it's a form of financing where companies that otherwise don't have access to bank funding or traditional forms of funding need to get the capital , to build the resources they need in order to execute on their. It's become sort of a ubiquitous concept and something that anybody who reads business insider or Bloomberg know venture capital, private equity has thrown around a lot.
Venture capital is a subset of private equity with a specific investment thesis. And let's be clear in the real world or in the non-cannabis world. Private equity and venture capital are entirely different. It's a different skill set. It's a different set of relationships. It's a different check size, which has different dynamics.
And I think that's what I really wanted to focus on is because we do internally, as our team is really focused on like, what is this specifically? And why is venture capital? [00:03:00] What venture capital is, which is, a fund in our case that finances early stage companies and the advice I always give to entrepreneurs when they ask about, oh, well, I just need some money.
Fundamentally, if you can go borrow the money, if you have years of P and L statements and tax returns, that show that the company is profitable over a year, go borrow the money. It's much cheeseburger in terms of cost of capital. As far as venture capital goes, we don't fund companies that typically have five years of operating history that we can underwrite as a lender would.
So we have to bet on.
The operations being successful.
Maggie Kelly: Right. So when you alluded to venture capital is risky, it is risky because you are dedicating capital to a company that is early stage. And therefore doesn't have those five years of P and L statements and bank records and are in a strong credit [00:04:00] history as a functioning.
Ross O'Brien: Correct. That's right. And, and a lot of times we're financing innovation in the unknown, right? We're building something new that wasn't there before. And subsequently that requires. A different skillset than operating a business. That's managing predictable cash flows year over year.
And so that speaks to a lot of scientific development, a lot of disruption. And as much as we like to think we have a crystal ball, nobody does. So it really comes down to
do we have confidence in the teams that we are backing, that they can produce an outcome that is. Unpredictable that there's a plan for some stage in the future. And those future outcomes have some degree of probability of actually happening or occurring the way we think they will.
Maggie Kelly: So this makes me think of another portion of what you wrote and it's speaking to experience and believing in the management team that they can deliver on outcomes that you see are possible. [00:05:00] On the flip side of that, there's an experienced management team that is making that investment. And what you touch on is.
You have individuals in the venture capital space who aren't necessarily coming from an, an operator background or an entrepreneurial background who have been there and done that and experienced the startup life. And I would think it would be a great benefit to our listeners. If you could just explain that a little bit.
Ross O'Brien: Well, I think it comes down to, as an investor, investing in anything you should invest in what you know the most about. . So if you're investing in public companies, I say, pick the companies that are you a customer of the product, do you buy, like, I I'll have all apple products, right? So, that gives you a different level of understanding that apple, is a business that, that you believe in because you are a customer.
And so where this maps to venture capitals. We are investing in a portfolio of early stage companies. [00:06:00] These are companies that don't have enough time, don't have enough resources and, , they certainly don't have all the information that they need, and we're still gonna build something where there wasn't something there before.
If those are the quote unquote assets that you're investing in is my belief that you need to have experience running and managing those types of assets before you can make an informed investments. All right. So this is you can engineer financially and investment outcome on a spreadsheet, but at the end of the day, somebody, some group of people needs to go every day and try to deliver a building.
Something that wasn't there before, unless you have done that. And candidly, unless you have done that unsuccessfully, it's difficult to be able to inform an investment decision based on. Not having the crystal ball that I just spoke about.
Maggie Kelly: Well, I love that. You just said that because that's a great segue to the 10 core foundations that you call out in this particular article. And [00:07:00] it kicks off with the first one being, we are veteran operators and you and I both as people who have, run young companies, we know the struggle of making the decision.
Okay. It's Friday. It's. I have a team. My cash balance is not where I need it to be and making those hard decisions. I've personally decided to pay team members and not pay myself. And I know that, that same fee.
Ross O'Brien: Oh, I know I've lived it. It's what gives us, I think, , a degree of empathy with the entrepreneurs. Like I can sit at a table with the founders that we work with and speak with. Extensive experience about being in similar situations. And just having those. Set of experiences and having access to bench strength that has those set of experiences.
I wish that I had that when I was starting some of my companies early on, and at the end of the day, we're here in service of the entrepreneurs. This is all about, being a, a source of [00:08:00] financing, which in turn also brings resources, which should in turn, make the company more successful as a result of our involved.
, we get up every day thinking about, delivering, value to the relationships and the entrepreneurs that are out there because we respect what they're trying to build and we know it's difficult and the reality is this something that's going to go wrong. It always does.
And it's probably going to go wrong over and over again. And, for those entrepreneurs listening, I mean, you should really just think about having that bench strength beyond, the people that are in the boat with you that are all. You're all trying to get the water out of the hall , there might be some helicopters floating around that could help you, have a different outcome.
Maggie Kelly: So that's great because that gets to your second foundation. Everything we do is in the service of entrepreneurs. And you alluded to the third one, which is flirt with failure. What do you mean by that?
Ross O'Brien: when we talk about these foundations that we're intentionally being public about, I want to really put out there, what are the things that [00:09:00] we hold ourselves accountable to? How are we going to hold ourselves accountable? And what do we expect of the entrepreneurs that we invest in, in turn?
What do we expect of ourselves? Because we shouldn't expect anything out of the entrepreneurs that we invest in that we otherwise wouldn't expect out of our own. And the way we operate, one of those is having a high tolerance of risk, I wrote another article about this.
It's not that simple, but the point is, is that entrepreneurs tend to drive into the unknown and it has to be okay to fail. Otherwise you won't create the experiences or the knowledge from those failures that will help you navigate. And again, in the future. And so we feel like we're always, I certainly, I feel like I'm always flirting with failure and somehow every time we live to see another day, we'll live to fight another day.
And there's a whole new set of tools that come along with that.
Maggie Kelly: That's absolutely right. I think that's, I think you've said it before, but that's where the true learning happens and that's where other opportunities reveal [00:10:00] themselves. And then sometimes you just get lucky and that's your fourth point? That luck matters. And you quote Barry. When you walk with purpose, you collide with destiny.
And this reminds me of guy Ross at the end of each of his, how I built this podcast. His one standard question that he wraps up with is how much of your success do you attribute to luck or. Being, very good at a given skillset or the hard work. And I would say most of the time people are like, well, it's 50 50.
So how do you feel about that? Like, luck does matter, right?
Ross O'Brien: Oh, without question, but I think it's about putting yourself in a position to capture the luck. I mean, if you're not out there in the world trying to pursue some purpose, . And with this goes back to something, we were talking about the other. I think so many businesses are started just simply for financial gain or for ego.
. And those are the [00:11:00] businesses that end up in the headlines and the businesses that we're seeing documentaries about now that, are, scams essentially. But there's people that have a lot of personality and people that have some level of intelligence , and are able to create something around an ID.
But when the purpose for that idea is to enrich themselves. That's rarely a company that survives the founder or as a company that's able to build for the long-term. So those companies that are building for the long-term. Are the ones that those founders that are building with some purpose are going to continue to push on that focus and expand the surface under which they will be able to collide with, which is why I love , that quote with the lock, that will be , the game changer for them.
Maggie Kelly: Plotted this out. It's like one foundation leads , to another to another. So like literally structurally, if you were looking at what you actually put together, it is the [00:12:00] foundation from which Bonaventure is built. Your next one being that focused, facilitates creativity. So.
you're colliding with luck, but you're doing it with purpose. And when you put those blinders on and give yourself some sort of constraints, You can get creative within those constraints and really, really source the opportunity.
Ross O'Brien: So Maggie, this makes me think of the Fosbury flop. Are you familiar with the Fosbury?
Maggie Kelly: I am not.
Ross O'Brien: So there was a high jumper in the Olympics that invented the technique by which everybody to this day competes in the high jump, which is the back first had first flop over the high bar. Until that time, the technique was a scissor kick and nobody thought to try a different way in which to get over the bar and then Fosbury won the gold.
If I recall correctly. And [00:13:00] my point is, is that after years of competing in the high jump , and using the incumbent technique, which was the scissor kick, he was in a position to think about a new way to complete. The competition and the equipment changed and he was there to see the equipment change took advantage of it.
And to this day, it's how the high jump , is it's the technique by which everybody uses in the Olympics to this day. And he got himself a gold medal, what is my point? My point is that because. He was focused on the high jumping competing. He was able to think be there when the equipment changed, be there when the rules were up to it and be able to think outside of the box and create a new technique.
So if you stay focused, is my belief that the symptom of that focus is that your aperture will readjust or your peripheral vision will readjust and encapsulate space that others won't be able to see as a symptom of being focused.
Maggie Kelly: Is it just me, or does the idea [00:14:00] of picturing someone doing a scissor kick to get over that bar? Just seem incredibly painful. Not something I would do either. Right. But moving on. Russ, you talk about being accessible to your network. And this is something that we also talk a lot about just amongst us and the team, and we really try to be there for each other and support each other, checking in not necessarily when we have to, but because we want to could you share your perspective on that?
Ross O'Brien: this discipline and vocation of venture capital is 24 7 and you are always on call. We are stewards of capital for our investors. A day doesn't go by where we don't have to be available for some unplanned, experience or events. And our entrepreneurs have to know they can count on us to be there.
You don't want to have a partner or a board member that interlopers and just shows up when it's [00:15:00] convenient for them. That's not the job. You need to know that you can rely on people and that their network is ready, willing, and able to step in on a moment's notice to grab an opportunity that might present itself, because like we just talked about if you're staying focused, you're expanding , that space by which you can find the luck that is going to transform your company.
There are times when, I mean that, that doesn't have a life expectancy or a shelf life of more than a moment in time. You need to be able to rally the troops and all the resources in order to double, triple, quadruple down and capture that.
Maggie Kelly: Which speaks perfectly to the next point, which is making sure that. And the firm have that compatibility, but moving on to the next two, they kind of go hand in hand to me. And that.
is continual learning and look for know to get a, yes, those both seem to go hand in hand.
Ross O'Brien: yes. The, no, to get to, yes. Is part of the job, right? , we see thousands of opportunities, [00:16:00] countless, whatever the number is, day in, day out. And as a practical matter, we have to, sift through that and find the ones with the best fit for us, which speaks to the other point on compatibility.
So it's our job to find every reason to say no for an investment. And we can note at the moment we can no longer say no, then we get to, yes. And. The lens by which we will filter opportunities to get to an answer a yes or a no is largely built around. What we think is compatibility between us and our team and the entrepreneurs.
I think one of the things that entrepreneurs miss a lot in raising capital is they don't do enough diligence on their investors and they don't love. Look at the process as much as two way streets, somebody has the money and , they need it for the company. But at the end of the day, it's really about building a symbiotic relationship and being disciplined enough to say no to capital where we're disciplined enough to say no to opportunities.
And it comes down to an alignment of focus and alignment of principles. This is why [00:17:00] we're going out publicly with all of this and putting it out there in the world to, for an accountability standpoint, this is how we operate. We expect everybody that we invest in to operate and fundamentally at the end of the day, There is there are going to be challenges, significant challenges.
There's going to be money and reputation and livelihood at risk, and we need to make reasonable well-informed decisions. And the people that we make the best decisions with are the ones that want to be collaborative with us.
Maggie Kelly: And to that end Ross, we think and plan for the long-term. Well, listeners, that's been a lot of information. We tend to do that to you when it's just Ross. And I talking here waxing poetic on all things, venture capital, but in summary, what we're trying to get across here is that we are authentic in what we do and want to be transparent on how we feel about VC and our day to day and what our firm accomplice.
We are in the service of entrepreneurship. And we look at everything as a [00:18:00] resource that can be made publicly available to help entrepreneurs be more successful in their endeavors. We think of our playbook as one specific recipe, unique to. We want to be held publicly accountable for operating in alignment with our guiding principles.
It's what we ask of the founders we invest in and we hold ourselves to those same standards. Again, this was a lot of information today. You can get more details in the show notes and you can find additional information@cannabiscapitalpodcast.com slash resources. Thank you for listening today, and we'll see you next Thursday.