The story of "US" - How to get investors to listen Many early stage cannabis companies need money to reach the next level. Unfortunately, the process of raising cannabis capital is confusing, time consuming and very difficult. Kerry Jordan Co-Founder and Managing Partner at Supercritial joins Dan Humiston to clarify some basic fundraising concepts. She explains how her team works with companies to help them select the best fundraising vehicle, identify the correct investment partner and make introductions to interested investors. Produce by PodCONX https://podconx.com/guests/kerry-jordan https://supercritical.agency/
The story of "US" - How to get investors to listen
Many early stage cannabis companies need money to reach the next level. Unfortunately, the process of raising cannabis capital is confusing, time consuming and very difficult. Kerry Jordan Co-Founder and Managing Partner at Supercritial joins Dan Humiston to clarify some basic fundraising concepts. She explains how her team works with companies to help them select the best fundraising vehicle, identify the correct investment partner and make introductions to interested investors.
https://podconx.com/guests/kerry-jordan
https://supercritical.agency/
[00:00:00] Dan Humiston: Today in raising cannabis capital, we are joined by Kari Jordan from critical Carrie. Welcome to the show.
Kerry Jordan: thank you so much. It's a pleasure to be here.
Dan Humiston: Well, I know a lot of our listeners are going to be really happy that you're on the show today because super critical advises cannabis companies on a number of topics, but we are going to be focusing primarily.
On raising money, super critical helps clients get the maximum value for their company. And I don't want of them common misconceptions from people outside the industry is that every cannabis company is just rolling in dough. We can't make it fast enough. It's so easy the truth is cannabis.
Like any other business is tough. And especially when it comes to raising money, if you've never done it before. It's hard. It's hard. There's tons of uncertainty and that's where a team like the team at super critical comes in care for today's show. I'd like to really focus on the early stage aspect of raising money,
what are some of the first steps that you'd advise your clients to [00:01:00] take?
Kerry Jordan: The first step is to identify your value proposition, understand why you're uniquely qualified to be in the marketplace and what solution you're bringing to a particular problem. The next step is to understand what your story is and how you're going to tell that narrative. And it's really important at this point to bring yourself as the founder, as well as your potential investor, the backer into that story.
So it becomes the story of us and how together you're going to solve these problems. The next step after that is to identify. What you need to get, do to where you want to go. We like to break that down into milestones into easy digestible pieces for an investor to understand. Once you have that pathway set, you're going to want to examine.
[00:02:00] How you're going to raise the money and what type of money you need. in startup capital, you can have essentially debt or equity and then different variations within each of those. But it's important to understand what your needs are, what your timeline is and how you're going to repay that funding if necessary. And then once you get to that place, You have to go back to the beginning and prepare your due diligence, everything from your presentation, materials, to your elevator pitch, to getting all of your financial documents in place to securing and understanding all of your obligations going forward, whether they be leases or employment contracts, whatever you have, because investors are going to want to understand where all the money is going and how it's being spent.
Dan Humiston: I like what you said about the story of us. I think that's so important. I know people are reluctant early on to be asking their friends and their family for [00:03:00] money. And what they'd miss on that whole process is.
You really hone in your story because your friends beat you up if you mess up. But, whereas as investors it's no, we're onto the next one. Your friends are like challenging you on some of the, so that's why I think it's really good to do that.
Even though it's hard doing that friends and family round really helps out, but let's talk about what happens next.
Kerry Jordan: It is very challenging. And I think every founder or. Would be founder needs to understand that money just doesn't roll in the door, you have to earn it. And you also want to partner up with. Your ideal investor, like as closely as possible to what you want. So if you have a skill set, say you're really good at finance, or you're really good at branding and marketing, you need to fill out your team to add insight and add expertise into those areas that you don't have covered.
So when you're looking for investors, [00:04:00] make sure that they are complimenting your skills, not overlapping.
Dan Humiston: yeah. That's, especially when it comes to later rounds, it's so important that you have , these groups on your cap table, because they will really be helpful as you get into the next rounds.
Kerry Jordan: Yeah, absolutely. And going back to the ideal investor, really making a determination as to whether you want someone that is very hands-on, that's going to be continually pushing you and challenging you, or are you looking for someone that is more of a silent partner? Because that's critical too.
If your personalities don't. Match up or they don't agree. You can have a lot of friction. And once you do accept someone's money as an investor, you're hinged and you need to continue to work that relationship. It's not that easy to exit.
Dan Humiston: Yes. For sure. That's for sure. There's a number of different vehicles that you can take early on, especially maybe we can, touch on [00:05:00] some of the different options that people can use.The early rounds specifically.
Kerry Jordan: yeah, the startup industry likes to use a lot of acronyms and they're very easy to understand if you Google any of these, you can find out a lot more information, but you basically are going to have equity or debt. Or some combination of the two, such as a convertible note, but the primary mechanism is by which funding gets started is to have an agreement where in exchange for cash, you give that investor a percentage ownership in your company that's referred to as equity.
Alternatively, if you go the debt route, the investor will provide you with capital and in exchange you pay that investor interest at a certain rate for a certain period of time. Often in startups, we see instruments referred to as a safe note or as a [00:06:00] kiss or a convertible note. They're similar. Each one is very different from the other, with respect to the technical parts of it.
So for example, convertible note, we'll for sure have an interest rate assigned to it. And a maturity date, a safe is not going to have either of those. It's just going to be an agreement for future equity. When you want to determine which of these structures best suits your company, you want to understand when you think you're going to be able to go out and do your first real round of fundraising, meaning a seed round or a series, a. Oftentimes in the conversation, you'll hear, oh, we raised our series B C, or you stay series. Those are just all additional Adam financings. The most important part about that is to understand you're always going to want to be increasing the valuation of your company. So you don't want to have a down round.
That's a term where the [00:07:00] valuation of your company goes lower from the prior funding
Dan Humiston: Okay. Yeah. , it is a little bit daunting when you hear the different acronyms and I think. People get tripped up because they're like, I have no idea how much my company is worth. The point of those different vehicles, is you can skip the valuation process.
Is that correct?
Kerry Jordan: I would say that in the early days, the value of your business is what you and the investor agree. It is. It's definitely more art than science at this point. And formulas for identifying what. Your pre funding valuation is they call that pre money and then your post money, the best way to look at it, in my opinion is through a milestone achievement basis.
So you're a founder of a company. You have had a previous exit from another company. That's good experience. A potential investor will give you credit [00:08:00] towards that. If you're in an industry, that's. High growth industry like cannabis is that'll get you a digital traction with investor money. So you go through these series of milestones in that can get you to where your pre-money valuation should be.
Once you secure funding from an investor that comes in, and then you have your post-money valuation, the combination of the pre money, the investment equals the Postmates because. Startups don't want to have a down round occasionally and more frequently, they will enter into a note structure like a convertible note.
And the benefit of the convertible note is that it delays the actual valuation that you have to assign to your company because it's not equity, it's just debt financing at that point. And you can put specific terms into the note structure that will give you protection about the valuation rising too much.
So you [00:09:00] don't have to worry about dilution of your equity investment as future investors come on. So those are important things to consider as well.
Dan Humiston: And that's where a team like the team at super critical is so important because if you've never been through this before, . It'sconfusing. And it's so nice to have somebody to lean on and through this process and to help you.
I noticed one other thing I did. I almost forgot it to say this. . Is that in addition to helping line up the process you also help introduce companies to potential investors, is that correct?
Kerry Jordan: we do. We make capital introductions and I think this is. Really helpful for any startup to think about. It's who do you want to work with at super critical? We're really focused on raising the level of ethics and integrity in the cannabis industry. We want everyone to have high standards of professional conduct and keeping that in mind, we want to [00:10:00] introduce.
Startups with investors that have those same ideals so that as we go forward in this process, everyone is operating from a place where we want to continue to do well and to do good in the world, especially in cannabis, because much of that industry was built by people that are now still imprisoned for what they did.
And we have a bifurcation here of. Some legal activity and some illegal activity, but we want to advance the whole industry to a place where it's all above board, legal, compliant, and ethical.
Dan Humiston: I think that's so important. And I'm so glad you were able to say that today because I know our listeners find that is that's essential for people that they want to work with. And speaking of that, I'll have all super critical information in the show notes, along with Carrie's contact information.
So if, if you just want to talk about fundraising or even [00:11:00] like other things, like go to market strategies, Reach out to the team at super critical advisors and click the link. And I'm sure somebody from Carrie's team will be glad to help Carrie. I wish we had more time. This is good.
We're going to have you back on because we have a lot of things that I didn't have a chance to touch on, but thanks for being on the show today.
Kerry Jordan: It was my pleasure. I love speaking with you, Dan. Anytime. Thank you.