Develop a Concise, Complete, and Compelling Pitch Deck
A great pitch deck is essential to landing an investor and raising capital. Throw out your 100-page Word doc business plans and ill-prepared pitch decks. Investors don’t have time to comb through a long business plan. They need to be able to quickly review key information.
Improve your chances of landing the attention of an investor on the first try by integrating these vital pitch deck components:
- Proven management team: describe your team, who has shown a track record of success (including a qualified accountant and a CEO that is not just a “grower”)
- A good story: define the company’s background, why it was started, and how you achieved your current success (along with describing the key customer problem your company addresses, and the solution you offer to solve that problem)
- List of board members and/or advisors: the more robust your team, the better (and be sure to offer some seats to the future investors)
- Market analysis: provide an accurate look at TAM (total addressable market) and what your share will be during years three to five
- Competitive analysis: here you identify your competition and analyze why you are better
- Potential challenges: define potential challenges you may face, such as whether your competition advantage is sustainable, whether there are any barriers to entry, and how the landscape of your business will change if 280E disappears
- Market plan model: delve into describing your market plan. Remember to include distribution and sales (without making the mistake that you assume any product grown can be sold at high prices)
- Unit economics: include pricing and margins in your business model, as well as revenue drivers and company strategy
- Financial model summary: outline key assumptions, 5-year revenue outlook, EBITDA, and growth projections
- Investor economics: include company valuation, sources/uses of capital raised, ownership size for investment, ROI, and time to payback
- Amount of owner capital invested: assess and record how much capital from the owner has gone directly into the company
- Offer: determine what you are offering the investor, e.g., 20% equity for a $1 million investment. This is one of the single most neglected aspects of most pitch decks
- Traction: line out what you have accomplished so far, such as acquiring licenses and boosting sales
- Legal language: never fire off a deck pitch without having a qualified attorney review the language. Phrases like “formal offer” can cause snags where you least expect them!
Build Out a Bullet-Proof, 5-Year Financial Model
Your financial model must be complete, accurate, and align with the numbers in the pitch deck. Often a model will get updated, but the numbers remain the same in the pitch deck, This can quickly scare off an investor. A good model will be simple and free from massive Excel files. Look to include the following:
- All financial statements: include a balance sheet, P&L, and statement of cash flows (each section should show years one to five, and you can add a tab to show the P&L for year one only broken down by month)
- Key assumptions tab: make sure to have all key assumptions, including production (i.e., plant yield) and reasonable pricing (i.e., price per pound)
- Summary tab: record key metrics and assumptions, as well as financial ratios (investor capital, internal rate of return at year five exit under different valuations, and overall ROI to investor)
- Best and worst case scenarios: depict these extremes to give investors an idea of what happens if your predictions are off by 50% or more (so they can prepare and know what to expect with sales fluctuations)
Comprehensive Capital and Entity Structure
You also need to analyze entity structure prior to capital raise. Is the company a flow-thru entity or a C-corp? Are there many entities or just one? Most smart investors will insist on a C-corp structure for a cannabis startup. The risk and tax rates are lower (assuming there were no dividends prior to exit, which is the plan for most cannabis startups).
Flow-through entities can create sizable tax liability to a minority investor. Assuming no dividends, this is not a good situation for an investor to be in. Also, a business creating many entities to “avoid” 280E is a red flag to investors.
Furthermore, consider the type of equity you’re giving an investor (e.g., convertible stock, SAFE, or direct equity). You also want to look at which component of capital will be funded through debt. If there are stock option plans for employees or other options to take into consideration, an investor may inquire about them.
Determine A Realistic Company Valuation
Realistic company valuations will be part of your business model and deck. They are an extremely important aspect of raising capital. For example, if you are giving up 20% of the company for $1 million dollars, that means the company is worth $4 million prior to the capital raise (and will be worth $5 million once the investor adds $1 million).
Ask yourself these questions: Is this realistic? Is the company pre-revenue? Does it have any real assets other than an idea and a Cannabis license? Company valuations that are based on nothing other than a “made up” financial model will often receive little interest from investors.
More deals have lost steam because of an aggressive, unrealistic valuation than just about any other aspect. Investors know how much your company is worth. Don’t risk them walking away because of a bad valuation.
Determine Your UVP and USP
UVP stands for Unique Value Proposition and explains clearly why your product or company is unique, valuable, sustainable, and desired by the market. We call this having “market acceptance.”
USP (Unique Selling Proposition) explains why your customers will buy from you and not someone else, which is also referred to as “commercial viability.”
These aspects are important to know and discuss in-depth with investors.
Sit back and analyze the steps you have taken to raise capital. If you have an idea, deck, and model, what’s next?
The next step is to secure a license, conduct a test market approach with customers, and then work towards accumulating revenue. Look at the milestones you’ve hit. Then, determine next steps to take.
The more traction you have on the path towards preparing for raising capital, the higher your valuation can be. And that means the less of your company you need to sacrifice in exchange for the capital you’re raising.
Access to Investors
Finally, if you don’t have access to a pool of investors, a great plan, solid products, and a strong team will go nowhere. Do you plan to use angel investors? Friends and family? Cannabis investor funds, or other ideas? Develop a strategy surrounding the who, how, and when of getting in front of ideal investors. Then jump in with this new toolkit on your belt.
Many companies are competing for capital in the cannabis and hemp/CBD space. Many investors have been burned by cannabis investment deals run amok. You can win over even the most skeptical of investors. But, you need to approach them with prepared and compliant records, models, pitch decks, and a competent team of experts.
Want to learn more? Speak with us about how we can help you prepare a compelling pitch deck, vet investor opportunities, and keep your cannabis businesses compliant.