Q&A with a general partner at Arcview Venture Fund
By Lisa Bernard-Kuhn
Longtime venture capitalist Jeanne Sullivan spent nearly three decades investing and raising millions for tech startups and investment funds in New York before making the switch to cannabis four years ago.
“The social justice issues are what really pulled me over to the cannabis world, then it took me about five seconds for the economic opportunities to reveal themselves,” said Sullivan, who recently joined the Arcview Venture Fund as a general partner after launching her own investment and advisory firm, Sullivan Adventures, in 2014.
As the marijuana industry blossoms, Sullivan said, she’s watching “history repeat itself,” with investors flocking to the growing market.
“I see so many parallels between the tech industry and what’s happening in cannabis,” she said. “New investors, new entrepreneurs, lots of excitement and some uninformed pricing models.”
What’s the biggest mistake you see investors making in the cannabis space?
The biggest mistake is not cutting your losses when the company is failing and when the team is not meeting the metrics. It is hard to stop investing, to stop building – and it takes hard discipline to learn this lesson. It is also important to figure out if the company can take what they have built and morph it into something different or better. Can they scale? These decisions call for tough strategic thinking and analysis.
What are some other most common mistakes?
Improperly thinking the company should have an over-the-top, high valuation in the early days is a big mistake. Not raising the right amount of financing early will also cost you. The company ends up struggling instead of thriving as a business.
What’s one cannabis company you’re investing in or currently advising that you’re excited about?
Growcentia. We’ve been working on packaging their story because it’s a great one. The company was founded by three scientists (soil microbiologists), and they’ve created an additive that makes the bud grow larger.
What’s a cannabis investment you wish you had made, and why?
Mary’s Medicinals, founded by CEO Lynn Honderd. Lynn has created a full line of wellness cannabis products. She has expanded her line to Mary’s Nutritionals – an impressive lineup of CBD products in a variety of form factors. Lynn founded Mary’s Medicinals in 2013 as she saw the opportunity up close – being both a Colorado resident and involved as a finance professional with a line of wellness vitamins.
She bootstrapped the company in the early days, and it is now distributed in 10 states – impressive and hard to do. She contained the amount of financing and had reasonable valuation and is now at an attractive top-line revenue run rate.
What’s your top tip for judging the credibility of valuations?
The single most important metric for a proper valuation is the forward progress and vision for scale of the company. I always ask these important questions:
- What is the status of the product or platform? Is it built?
- Are there any customers yet? Has one customer paid $1 for this product, further confirming customer interest?
- Is the team in place? What are the qualities and capabilities of the CEO?
- Does the company have a “go-to-market plan” in place?
- What does the financial plan look like in terms of revenue, operating expenses and pricing model?
- What is the revenue build over time, and has the company figured out the revenue drivers?
- What is the future exit and possible liquidity of the company? It is important to understand what the future cash-on-cash returns might be – and if they are not convincing, it is important to walk away.
What products, states or sectors are you most excited about?
I am enthusiastic about the agritech, infrastructure and software plays in cannabis. If you look at the amount of funding that is pouring into the cannabis industry, investors are funding license holders for cultivation and retail. These businesses need the best practices, products and services that will help them scale. This includes next-generation seed-to-sale platforms, the order-entry platforms, the sensors, the lighting, the water systems and extraction companies. There is much innovation happening in these segments, and I am looking at these companies on a daily basis.