The CEO of dispenser maker Patron and co-founder of Freyherr talks business opportunities in Macedonia and Slovenia
As investment opportunities in the cannabis industry ramp up, venture capital and private equity firms are preparing to deploy millions of dollars into startups and early stage companies poised to grow.
Among them is WelCan Capital, a New York-based venture firm that focuses on seed-stage and Series A investment opportunities across the industry. So far, WelCan has invested $15 million to fund a growing portfolio that includes:
- Front Range Biosciences
- Ag Gas
- Sanctuary Medicinals
WelCan managing partner Vikas Desai said that, over the next 18 months, he expects to expand the investment portfolio to include up to 15 firms.
Marijuana Business Magazine spoke with Desai to get his insight on the changing investment landscape in cannabis and top considerations that investors entering the space should keep in mind.
What has been WelCan’s guiding investment strategy?
We’re very focused on early stage companies that are past the point of proof of concept. We’re not funding ideas, we’re funding business that already have traction and can grow as we come in and add value by leveraging our networks and relationships inside and outside of the industry.
What’s the makeup of your investor base?
It’s a mix of family offices, high-net-worth individuals and folks within our close networks. We’re all private investors who see the opportunity.
Among your portfolio companies, can you offer some insight into what’s driving success?
It’s the management teams. When we make investments, we’re really investing in the execution capabilities of the core management team to be able to scale the business and vision.
What are your top tips for judging valuations?
Valuations are so tough in this industry, because most firms aren’t profitable. If you’re investing in a company that’s raising at a certain value based on future production, they have to be able to walk you through why this makes sense and how they’re going to execute the strategy to get there.
What are some of the common red flags that cause you to pass on an investment?
It’s extremely important for a management team to understand and be able to articulate what it’s going to take for them to execute their plan and how they will adapt as the business transforms over time. That’s certainly a red flag if that doesn’t come through in their pitch. You also want to make sure you’re investing with people and managers that are flexible and open to outside advice and are coachable.
What’s the biggest investment mistake you see being made in the industry?
There are a lot of good opportunities in this industry, and there continues to be more every day. But you have to execute some form of discipline, because you can’t invest in everything that comes across your desk. It’s a fast-moving industry, and you have to have a disciplined approach to identifying the companies that are truly poised for success.
What products or sector are you most excited about?
We’re still bullish on the ancillary side of the industry. Access to data and information will continue to be of interest because there’s still a lack of transparency in this industry. As the industry continues to grow, there is going to be a need for more and more information.
This interview has been edited for length and clarity.