Marijuana Business Magazine July 2018

company, which has dual headquar- ters in New York and Los Angeles. How does Smith drum up money? After deciding how much cash he needs for a company, Smith takes a mini-road show to meet with large venture capital firms. Because not all investors are com- fortable investing in cannabis-related companies, Smith looks for VC firms that are institutionally structured but not institutionally backed, meaning they raise private money and don’t take checks from banks or pension funds that have restrictions around where they can invest. “Most institutionally backed funds are not interested in investing in the cannabis space, but we look for insti- tutionally structured funds because they generally are experienced and professional,” Smith said. “We’re very deliberate about who we meet with. We keep meetings exclusive to value- add investors or introductions that we’ve vetted as possible fits.” Asking the Right Questions In LeafLink’s case, Smith has had two experiences in which investment agreements ultimately were scrapped because not all investors in a VC fund were ready to wager on the marijuana industry. “We’ve gotten better about asking the right questions,” he said. First, Smith wants to know whether a potential investor is currently invest- ing in the cannabis space – or is just researching it and wants to learn more. “Half of our job is to get companies that aren’t yet investing excited,” he said. “We’re happy to talk about our industry, but it’s good to know whether they’re investing or we’re just sharing.” Smith asks potential investors other questions to gauge their interest: • Are you investing in the cannabis industry or just researching it and want to learn more? • How big are the investments you make? • Are you typically a lead investor? • Have you made any offers or done any deals with cannabis companies? • Have you funded other B2B com- panies that are doing something similar? “We look at B2B marketplaces they’ve funded before that are doing really exciting things,” Smith said. “We also reach out to other companies who have worked with our poten- tial investors to see what they say about them. Some investors are too involved, and some just write a check. Some are in between.” Perfecting the Pitch LeafLink creates pitch decks that show prospective investors the poten- tial for its business model. Smith said he always starts with how exciting the space is, then follows with achiev- able goals and the dates they will be reached. “We’ll lay out a plan,” he said. “Generally speaking, we’ve achieved what we say were going to in the past. They’ll know what we’re working on. We’re not just making noise; we’re EXECUTIVE SUMMARY Since starting cannabis-focused e-commerce platform LeafLink in 2015, Ryan Smith and Zach Silverman have raised $14 million from investors to help expand the company as more states legalize marijuana. Here are tips that helped the company lure investors already in the cannabis space, as well as those new to investing in the industry: • Build on relationships you already have and use those people to get introductions to new potential investors. • Look for venture capital firms that are institutionally structured but not institutionally backed. • To gauge investor interest, ask potential financiers a variety of questions, including whether they have ever invested in cannabis or just want to learn more about the industry. • Talk with companies that have already worked with your potential investor to determine how involved they will be in your operations. • Don’t raise too much money from small investors. LeafLink’s e-commerce platform links retailers with distributors and a variety of marijuana businesses. Photo courtesy of LeafLink 92 • Marijuana Business Magazine • July 2018