MyDx chief Daniel Yazbeck, whose company has landed $7M+ in investments, shares tips for attracting big money
by Joseph Peña
MyDx was a true startup when founder and CEO Daniel Yazbeck began assembling his team.
He seeded the first year with $200,000 of his own money. He ran operations from his home. And his young employees worked for equity until Yazbeck could afford to pay them.
Over the next couple of years, Yazbeck completed a successful crowdfunding campaign before securing more than $7 million in Series A and B investments. Today, MyDx trades on the over-the-counter market.
The San Diego company, founded in 2013, produces handheld chemical analyzers that allow consumers to check the potency of marijuana strains they eat, drink or inhale. In June, MyDx struck a deal with Arrow Electronics, a Fortune 150 company, to help manufacture its analyzers and provide other services as well as a credit line.
MyDx first pitched to cannabis investors in 2014. It was a tough sell.
“The greatest challenge we had was listening to the wrong people,” said Yazbeck, who previously worked with Japanese electronics maker Panasonic and pharmaceutical giant Pfizer. “Who you listen to is probably the most fundamental influencer of the success of startups. Every decision you make will catch up to you, and you will either be dealing with the cleanup of that decision or celebrating the results. Listen to the right people and follow your gut.”
In large part, Yazbeck and his team succeeded at attracting big money because they developed a detailed plan and demonstrated market demand for their product.
Yazbeck shared five tips for other ancillary MJ startups seeking investors.
1. Use crowdfunding sites such as Indiegogo
Successful crowdfunding campaigns demonstrate market demand, build loyal followings
and create buzz.
MyDx kicked off its Indiegogo campaign just four days before it launched its Series A funding round and wound up raising more than $39,000 from 187 backers – double its goal.
Yazbeck offered three tips to execute a successful crowdfunding campaign:
- Build an active, internal social media team to reach out, attract and respond to backers. “To win the crowd, they have to believe in your mission and want to help you,” Yazbeck said. A critical component is communication throughout and after the campaign. MyDx updated backers on Indiegogo during the campaign and followed up via email afterward.
- Most companies that crowdfund produce videos that showcase their products. The videos are shared on the campaign’s landing page and on social media. “The video is the most important element for success,” Yazbeck said. A successful crowdfunding campaign must include a video that inspires a feeling. Thoroughly vet your videographer’s archive of work, and structure your financial agreement so that 50% of the retainer is due after you approve the video.
- Be prepared. MyDx attracted 187 backers and shipped about 220 beta units to supporters. Yazbeck’s team had a year after launching the crowdfunding campaign – and, simultaneously, the Series A opportunities – to deliver the product to backers. Meanwhile, MyDx was preparing to go public and trying to educate consumers about its ancillary cannabis product. Ultimately, MyDx missed its target ship date for beta units, but its communication with backers helped avoid catastrophe.
“The goal is to become a profitable business that can invest in itself so that you don’t need to raise money, or so that the type of money you raise then is much bigger money,” Yazbeck said.
2. Create a “massive action plan”
A “massive action plan” means you’ve identified multiple paths to success, or at the very least you have a primary strategy and a backup plan.
Two examples:
- MyDx kicked off its Series A investment opportunities the same week it launched its crowdfunding campaign. Hectic? Absolutely. But the risk of running simultaneous campaigns guaranteed a path forward. “If we would have blown it out of the park (with the crowdfunding campaign) and raised a million dollars in preorder revenues, we would have skipped Series A,” Yazbeck said. “Instead, we raised $40,000 from crowdfunding, and the balance we needed to get us to the next round from our Series A investors.”
- Yazbeck’s team was also working with two sensor developers before launching the product. Why? At least one would provide the technology MyDx needed for the product.
Multiple paths to the same end might seem redundant but, more often than not, they’ll save you from scrambling for a Plan B when Plan A fails.
3. Provide investors with a detailed plan and a clear exit strategy
In your pitch, leave very little to the imagination. Map out what you’ll achieve and when, and solve every potential challenge an investor might see.
Yazbeck offered three tips:
- Use timelines to set deadlines and create a detailed slide deck that’ll wow investors. For example, in the deck Yazbeck used to pitch his first investors, he created a slide that outlined roughly 100 milestones for four departments in the first year. He set specific goals for the hardware, software, data and algorithms departments that fall under R&D’s umbrella.
- Sophisticated investors will look closely at your profit and loss forecasts and balance sheets. Again, be detailed, Yazbeck said. “Show a three- to five- year projection model calculating projected revenues and how you arrived at those numbers, as well as projected expenses. Realize also that most investors typically believe everything takes twice as long and costs twice as much as you originally anticipated, so make sure you position your cash flow for delays in your plans, which are quite common for most companies and CEOs.”
- Provide a clear, realistic exit strategy. “No investor, in my opinion, will invest unless they understand what the exit strategy is,” Yazbeck said. Whether you’re planning to pay investors back, sell the company or go public, you must demonstrate to potential investors that you have thought through the strategy, have developed a plan and that you can realistically execute on it.
4. Join investor groups and attend conferences
Yazbeck joined a group for cannabis investors the year before he launched the Series A funding for MyDx. The move allowed him to network with other investors interested in the marijuana sector, giving him valuable contacts when he went to raise money himself. It also helped him build early buzz with the investment community, paving the way to present at one of the group’s pitch events. One of Yazbeck’s first investors, Lori Ferrara, is a member of the investment network – called the Arcview Group.
Joining these types of groups and attending marijuana business conferences will help you get farther faster, Yazbeck said.
5. Hire a closer
Good closers win wallets.
Closers are industry vets who know how to appeal to investors and secure funding. They create a sense of urgency around investments without being too pushy or abrasive. They can navigate complex negotiations and know when to tell investors that the time to say yes is “now
or never.”
They can’t finalize deals alone. The excitement and energy for your product has to be evident. In the end, however, an effective closer’s calculated approach is what seals deals.
When it comes to a closer communicating with investors, “you need someone who says you’re in or you’re out,” Yazbeck said. “That’s a closer.”
Whom do you partner with? Yazbeck is happy to refer good closers to viable businesses.
“If someone’s business is viable, I’ll be happy to make the connection and support (someone else’s) success,” Yazbeck said.
