By Tony C. Dreibus
More big-money investors are looking at the cannabis industry as public perception sways in favor of legalization and the overall risks subside.
Everybody from savvy business pros who’ve pumped millions into mainstream industries to the types of celebrities you’d expect to invest in marijuana (Snoop Dogg and Tommy Chong) are jumping on the cannabis bandwagon.
But landing big money – $1 million or more in the nascent marijuana industry – is still difficult, and only a small number of cannabis companies have done it successfully.
David Dinenberg, a former real estate developer originally from Philadelphia who’s now in Los Angeles, is one of them.
He has raised a total of $2 million to fund his startup Kind Financial, a financial services company that will soon launch a merchant services product for the cannabis industry. His biggest investor is Lindy Snider, the founder of a skin care company and a member of the family that owns the Philadelphia Flyers.
How did you find initial investors for Kind Financial’s first funding round?
We were in the right place at the right time. There was a very smart group of people who had made several investments in renewable and sustainable companies, and they were looking for something in cannabis when I met them and introduced them to the product I was working on.
They met me and saw my vision and they shared it.
Your second round of financing was a large investment led by Snider. How did that come about and how big a challenge was it to convince her to invest in a cannabis startup?
I was introduced to her through a mutual Philadelphia relationship. She’d already made investments in the space so it wasn’t foreign to her.
One of the best parts about meeting Lindy is that she was aware of the pitfalls and barriers and understood the importance of banking to the industry. She’s a very sophisticated investor – we were vetted by a team of people and I guess we passed the test.
It seems that knowing people is key to finding investors. If a young entrepreneur doesn’t know anybody in the industry, how should he or she go about meeting people?
Go to the conferences. At the Marijuana Business Media conference in Las Vegas there were plenty of people walking around with business plans trying to talk to investors. (Editor’s note: Marijuana Business Media is the parent company of Marijuana Business Daily)
It’s not much different than real estate conferences except they’re smaller. I found the Las Vegas conference to be a microcosm of any other industry, just on a smaller scale.
It all comes down to networking, but you have to have a good product, you have be different, and you have to be good at selling something and selling yourself.
What is the best piece of advice you can offer to would-be business owners seeking investors?
When you’re out trying to raise money the best thing you can do is be aboveboard with investors. Make sure everybody understands the risks they’re getting into, and that’s even more important in this industry.
Also, the most important person in your life, other than your family, is the law firm you hire.
As of today cannabis is federally tolerated, but it’s federally illegal, so the most important first move you can make after you write your business plan is to hire the right counsel.
I’m not a banker, I’m an entrepreneur with a solid business background, so I realized I had to surround myself with qualified individuals, and I believe that’s very, very important.
Does seeking a big investment require a different approach than looking for a lesser amount of money?
Whether it’s $50,000 or $1 million dollars, it takes the same amount of work and the same amount of effort, and I’d go about it the same way.
The ask is less, but the presentation, your team, it still clamors for legitimacy and needs to be taken very seriously. It shouldn’t take as long but from a presentation standpoint, I’d take the same approach.
What is the biggest mistake entrepreneurs make when seeking investment money?
A lot of people – not people who have been in industry for a while, but people getting into the industry today – don’t spend enough time doing research and learning about state laws, and they don’t understand how you can or cannot raise money.
Attitude is also very important. You’re going to get more no’s than yes’s and you’re going to get discouraged.
But when I hear no, I want to know why that person said no and I want to change it. When someone says no to you, the next question should be “can you tell me why you’re passing?”
You have to eat, sleep and breathe what you’re doing – your name is on the door, you have to make this your life, and it’s very difficult. The startup world isn’t for everybody. You have to tighten your belt, and you have to learn what you can live with and what you can live without.
Tony C. Dreibus can be reached at firstname.lastname@example.org