For Karan Wadhera, the strength of a company’s leadership team is the most important factor when evaluating the business. Wadhera is managing partner at Casa Verde Capital, a Los Angeles-based venture capital firm that has invested in 25 plant-touching and ancillary companies.
“It’s all about the entrepreneur and the founders, because we are generally investing (in the) earlier stage. But even if we’re investing a little bit later in the process, we put a lot of emphasis on evaluating the founder or the founding team. How passionate are they about what they’re building? Do they have a strong vision for their business? The ability to be flexible and change – especially in a dynamic industry like cannabis – all those things are really important to us,” Wadhera said.
He noted that founders don’t have to be veteran entrepreneurs to win Casa Verde’s confidence; they just need relevant professional experience and the ability to articulate their vision.
Consider George Mancheril, the founder and CEO of Los Angeles-based Bespoke Financial, which provides credit and financing for cannabis businesses. Mancheril had never founded a company, but he had a decade of financial-services experience as an analyst and executive at firms such as Goldman Sachs and Guggenheim Partners.
“Since Bespoke’s inception, Casa Verde has invested over $40 million across equity and debt into the company,” Wadhera said. “He has really specific financial-services experience in the past and understands the intricacies of credit and the financial landscape and can leverage that into building a business for the cannabis space.”
The vision of a company is also critical. “What we’re trying to extract as we’re evaluating an investment is not just your experience and how relevant that is … but also where do you see this business going?” Wadhera said. “If we were to sit alongside you and dream about the future, how big could this be? And what role would your business play in the industry? In instances where we haven’t invested in businesses, we’ve found the entrepreneur unable to articulate that.”
“Long-term durability” is the second-most important factor for Wadhera.
“What we mean by that is, are you solving a problem that’s going to be ubiquitous for the industry, or are you solving a very short-term, temporary problem?” Wadhera said. “Obviously, if you’re solving something that really goes away with some element of regulation, we’re not as interested. … All our businesses, even though they may be solving a temporary problem, have elements that will make them really enduring over time.”
Wadhera believes “there are a number of businesses that establish a new paradigm for cannabis.” For example, because the industry is new, it’s “not burdened” by legacy software and technology but, rather, has to build those things from scratch.
Consider Casa Verde portfolio companies Leaflink, a Denver-based wholesale platform, and Dutchie, an Oregon-based point-of-sale system that recently acquired Greenbits and LeafLogix.
“Businesses like that have the ability to endure well through full-scale legalization and to be an important cornerstone to the industry. So that’s where a lot of our attention is: Can a business – even in a full post-legalization world – not only exist but thrive?”
As an investor seeking financial return, Casa Verde cares about the valuations companies give themselves and steers clear if a promising company seems overpriced.
“We have a fiduciary responsibility to our limited partners to get them the best return possible. So thinking about the price of the investment, that does sort of fall into our parameters as well,” Wadhera said. Because Casa Verde likes to own “meaningful portions” of each business the firm invests in, Wadhera said he and his team “pay a lot of attention to what our entry prices are for these businesses.”
Traction over financials
Solid financials are important to many investors, but it’s not always a must, Wadhera said. Some companies that Casa Verde invests in are pre-revenue, but they do have traction such as customer traffic. “We want to see that people care about what they’re building.”
Follow the links on this page to learn what other investors look for when making funding decisions.