Looking to raise cash for your startup? With most banks out of the picture, find out what your realistic financing options are.
6 min read
This article is part of Entrepreneur’s series on How to Start a Cannabis Business. We seek to promote financial inclusion through marijuana. In previous articles, we’ve looked into numerous aspects of getting into the marijuana industry, including questions you should ask yourself before jumping in and factors that could determine your success.
Although we’ve written about where and how to find funding, this is a very complex issue that requires an even deeper dive.
What makes it so complicated? First of all, since banks and traditional financial institutions don’t generally offer loans to cannabis businesses, many cannabis entrepreneurs have to fall back on family members and friends for seed capital—and this is probably the best choice. However, not everyone is surrounded by affluent people willing to make risky investments. And, even among those who are, many would rather not mix their personal and professional lives.
Below you’ll find some other common funding alternatives for the cannabis industry, which might come in handy when raising seed capital or when looking for additional funds for your business after a friends-and-family round.
Outside of family members and friends, another recurring source of capital for cannabis businesses is family offices. A family office is a private wealth management firm, similar to a hedge fund, but serving just one or a few very wealthy families and high-net-worth individuals. However, getting their attention isn’t easy; everyone wants their hard-earned money, but few are considered worthy of it.
If you decide to go this way, try to attend family office-focused events. While most of these are invite-only, googling can lead you to some events open to the public. An intermediary firm with connections in the family offices space will facilitate introductions, help you with pitches, and get you invites to the right events.
Some firms that fit this bill:
Funds, Angel Investors, and Individuals
You might also find support in specialized investment groups that work with cannabis startups. First you can look into specialized venture capital funds, angel investing organizations, and private equity firms like:
You can also check out industry-specific holding companies like:
Among the remaining options are mentorship-driven programs, also called business accelerators or incubators. Some of the top cannabis business accelerators and incubators are:
In addition to these specialized incubators, you might want to consider traditional accelerators like:
All three of these accelerators have admitted cannabis businesses before, and might be willing to do so again, as the marijuana industry continues to move toward the mainstream.
As you might imagine, each program has different requirements and offers very diverse forms of support. Nonetheless, accelerators and incubators often accept and fund ventures that are not as mature as one would expect; the idea behind many of these programs is to find good entrepreneurs and help them form and execute on their vision.
Another financing option is the crowdfunding route, where you get a little money from each of many smaller backers. In crowdfunding, businesses register on a crowdfunding platform and ask the general public for money in exchange for one of two things. The first is material rewards, like merchandise or a product. You might be familiar with some platforms offering this service, like Kickstarter, Indiegogo, and GoFundMe. The second is equity in the company. Limits on the amount that can be raised vary depending on the crowdfunding categorization, ranging from $1 million to $50 million.
Related: 4 Rules for Successful Crowdfunding
Some crowdfunding platforms operating in the cannabis industry include:
As you can see, there are no easy solutions to raising capital for a cannabis business. So be sure to carefully consider which option is best for you before you take the plunge.
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