In the strong tradition of technology accelerators like TechStars and Y Cominbator, Patrick Rea has created CanopyBoulder. Unlike the other accelerators, CanopyBoulder is focused exclusively on cannabis startups. Listen to the interview and learn what an accelerator is, how it helps entrepreneurs not only with capital, but also with mentors, office space and more. Learn more at: http://www.canopyboulder.com
Matthew: Hi, I’m Matthew Kind. Each week I’ll take you behind the scenes to interview the insiders that are shaping the rapidly evolving legal marijuana industry. Learn more at www.cannainsider.com. That’s www.cannainsider.com. What are the five disruptive trends that will shape the cannabis industry in the next five years? Find out with your free report at www.cannainsider.com/trends. That’s www.cannainsider.com/trends. Now here’s your program. Building on a strong tradition of accelerators like Y Combinator and Techstars, CanopyBoulder is a new accelerator focusing exclusively on cannabis opportunities. I’m pleased to have Patrick Rea of CanopyBoulder on CannaInsider today. Welcome Patrick.
Patrick: Thank you. Glad to be here.
Matthew: Patrick before we get into what CanopyBoulder does, can you describe to listeners what an accelerator is?
Patrick: Sure no problem. An accelerator is basically a structured deadline driven boot camp for entrepreneurs who want to rapidly progress the creation, development or launch of their businesses. For entrepreneurs it’s a great place to focus on what they want to do, get the support that they need from mentors and others going through the same challenges. To launch as business, it’s not easy as we know. For investors it’s a great place to identify or get some early identification of startup talent and startup opportunities. For an industry it’s a great place to focus that entrepreneurial energy into a place where the startups and the founders are going to be mentored and taken care of. And for a community or a town it’s a great thing to stimulate economic activity and create jobs.
Matthew: And what’s your background? How did you get interested in creating an Accelerator specifically in the cannabis industry?
Patrick: Well I’ve always been a bit of a giver. I just love to help entrepreneurs develop their business ideas because I’ve been there too, and I know how hard it is. I know what it’s like, and I guess I just have a bit of a gift with working with founders and giving them actionable guidance. And I’ve been doing this for years, no matter what job I had. Actually I started my first incubator unofficially out of my apartment after I graduated from college with a couple of friends who were starting up a software company which actually ended up doing pretty well. But if you look at my LinkedIn page I have a pretty varied background. My own entrepreneurial ventures, I worked in investment banking in venture capital. I’ve had advisory roles and you know, done all sorts of executive management roles in corporations as well.
Matthew: Now drilling down a little bit into what CanopyBoulder does, what’s the benefit for becoming a CanopyBoulder investor?
Patrick: Well that’s a great question. For investors the benefits are quite vast and varied. An investment in CanopyBoulder provides investors equity in 20 marijuana industry startups in a one year investment period. Now these startups will be focused in ancillary products and services. So nothing that touches the plant which enables investors to join in from any state in the nation. They don’t have to have residence which is a key a challenge for making investments in businesses like dispensaries and grow operations often. You know, and many investors interested in the cannabis space are not writing checks. That’s been my experience. They don’t know where to jump in or they don’t have time to pursue the opportunities in this emerging industry. So CanopyBoulder gives the investors an ability to invest and play immediately with, you know, some trusted, well connected group like CanopyBoulder that has great partnerships. One with ArcView, the leading investor forum in the industry, and pursuing a proven investment model and strategy.
Matthew: Is there a halo effect to being an entrepreneur in an accelerator? I’ve seen events like Startup Weekend where there’s a tremendous amount of energy around startup ideas. Can you tell me a little bit about that osmosis effect of being around other entrepreneurs that are doing something exciting in the cannabis space?
Patrick: Yeah absolutely. I mean when an entrepreneur can focus on their business and surround themselves with like minded people doing the same thing, you know, good things just happen. And I think through the accelerator models like Techstars and Y Combinator we’ve seen that happen. Not only is there good energy around just the creative forces required to start a business and the mental challenges, but there’s also good competitive forces when you’re involved with a couple of other businesses. And that’s something we want to generate. So think of it as like a three month boot camp course where you need to attend daily education sessions, trainings, meetings, consultations. When you’re doing that with a group magic things start to happen.
Matthew: Now just to reiterate you said that none of these startups will touch the plant, so meaning there will be no cultivation going on at all. That’s great to know for an investor point of view because you can be out of state, but an entrepreneur that touches the plant say hey I might not qualify here. And the converse of that is that if you have some idea that’s ancillary to, you know, growing, this could be a good fit.
Patrick: Yeah absolutely. I mean we’re focused on tech software, media, data but even grow tech. So people that have unique solutions for growers or even unique solutions for any level of the value chain from extractors, manufacturers or dispensaries. People that are going to develop startups and businesses that service those key parts of the value chain, that’s who we want to talk to. And the reason we want to talk to them is that those types of businesses aren’t regulated in the same way. They’re not restricted. They don’t have interstate commerce restrictions. You know, ancillary products and services can benefit from IP protections like patents where businesses touching the plant cannot. And you know being able to serve the entire country, these businesses have immediate scale. So if it’s a startup in the planning stages that has high margins and high growth opportunities that’s solving a unique need in the industry, we definitely want to talk to them.
Matthew: Now you and I’ve both seen entrepreneurs that have a really good idea and seem like they have a good ability to execute, but they lack the ability of putting themselves in the shoes of an investor. And it’s often said that the pain of loss is four times greater than the pleasure of gain. Can you give a little bit of guidance about how an entrepreneur can be investor friendly?
Patrick: Yeah, no it’s a great question, and it gets to the core of one of the primary reasons we wanted to start an accelerator. The accelerator is solving three problems. CanopyBoulder strives to solve three problems in the industry. One, a lack of investment ready businesses. I’ve been researching startups and interacting with them for well over a year. Partnered up with ArcView, the investor forum, primary investor forum in the cannabis industry. And what we see is just not completely prepared a company’s pitching. And you know it makes it difficult for an investor to write a check. These companies, they need to have the mentality of growth, accountability, opportunistic tendencies, aggressiveness, but also being smart, thoughtful and pragmatic about their approach because investors are sitting on the sidelines and that’s the second problem, right. There’s a lot of investors that are interested, but they just don’t know where to jump in. So we try to solve that problem as well. And the third problem that we solve is valuation. You know one of the big issues are unrealistic valuations out there, especially at this point in the industry when it’s less than $3 billion in sales, legal sales in the United States. The opportunities are great, but right now at early stages a lot of companies are putting too high valuations on them.
So we work with the companies to make sure that their finances are in order and that their valuation is correct. So you know, be investment ready which is what we strive to get all of our startups to be, means sitting in the shoes or sitting in the seat in the mind of the investor and understanding what their needs are as well as the needs of the business and trying to find some sort of complementary relationship there that will give the startups the opportunity to raise even more capital and be successful in this market.
Matthew: Great point. So you know, the seed round, Pre-A, whatever you want to call it, that’s just the beginning of the road for many people. It’s not the end. So it’s good to keep that in mind and have mentor and guidance on, you know, the subsequent rounds of funding. What ownership or what equity stake will CanopyBoulder take in the startups, and how much equity, how much capital do they get in return?
Patrick: So there’s hard capital that we provide each startup, and the hard capital is designed to enable the entrepreneurs or the founders to come to Boulder and spend three months focused on their startup. You know, it’s a small amount. It’s $20,000 in seed capital that we provide. And then on top of that we provide office space, a long roster of mentors who are open, interested and willing and want to help these startups. We provide all sorts of events to generate interest around the businesses and these startups and the accelerator. And we also provide an investor forum for at the finale the grand finale pitch slam or sometimes they’re called demo days where the entrepreneur gets up on stage in front of a large crowd of investors and the mentors in the community and people that are interested in what’s going on to get their idea out there, to get their startup some traction and hopefully raise more capital.
Matthew: Now there might be a lot of potential entrepreneurs out there listening that say I have a good idea, but I’m too young, I’m too old, I don’t have the connections, I don’t understand finance, all these different possible obstacles in their mind. What would you say to somebody listening that has some of those obstacles in mind?
Patrick: you know I would say an accelerator is probably perfect for you. It is a safe place to come to get the education or the experience or the contacts, the exposure that you need. We help you round out that business plan, round out that strategy and get it in front of the right people. I mean the mentors and investors in CanopyBoulder are the icons of the industry. These are the people that have the rolodexes, the connections. They are the pot barons. You know, they are the people who you see on TV, and they want to have a long term impact on the industry shaping its future by helping the entrepreneurs in ancillary products and services today. And I think that’s an enormous value for people that are looking to get in this industry. Whether they’re in the industry and they have an idea, that they see a void that needs to be filled or they’re people from outside the industry who come with great expertise, but don’t know the industry or they are experienced professionals who’ve never launched their own business. That’s what business accelerators are for.
Matthew: And can you give us some of the details as far as how you apply, what the deadline is, you know, things like that?
Patrick: Sure. Everything is available on www.canopyboulder.com. So I’d suggest everyone go there, check it out. Our intention is to run two classes of ten startups in 2015, one in the spring, one in the fall. So go to www.canopyboulder.com. Our deadline is in early January 2015. So there’s still time. And we welcome all applicants, and we pledge to give every applicant feedback on their application and their business so we can have our own impact on the development of the industry even with startups and individuals who don’t get selected for the accelerator in 2015.
Matthew: That’s very generous of you, and that’s good for people to know that if they do submit an application even if they’re not approved, someone’s going to respond to them and let them know what’s going on.
Patrick: Yeah I mean there’s, again, the accelerator, our vision is to have a lasting impact on the future of the industry, and really help as many people as we possibly can. We have to make a selection of… there will be 20 companies that we run through accelerator in 2015. But, you know, great ideas that don’t get accepted in this first round could get accepted in the second round, could get accepted in the subsequent rounds. And we do have plans to expand the accelerator across the country where hubs of the industry crop up like San Francisco, Seattle, Chicago, New York, Las Vegas. As more states come on board we will have accelerators in those cities, and try to make sure that the industry grows up as it should.
Matthew: And what about investors? Are there opportunities to invest in CanopyBoulder still?
Patrick: Absolutely. Absolutely. We are still amidst the raise for CanopyBoulder 2015 as of December 3rd. We’re raising $1.2 million that will fund the accelerator for 2015 and give investors a 9.5 percent equity ownership stake in each of the 20 startups. So for their investment, you know, they will get great exposure to ancillary products and services. And I think that’s a real distinguishing factor for individuals who want to get involved investing in the industry. Of course everyone has to be accredited, but it’s very different to sit on the sidelines and read the news and look at business plans. It’s a very different thing to get behind the curtain and have exposure to the businesses and operations and the challenges they have. The learning curve increases dramatically, and I can say that with experience having gotten involved and behind the curtain with a number of startups in this last year. It’s just night and day, and I would encourage people that are serious about becoming part of this movement, becoming part of and trying to benefit financially from the growth of this fastest growing industry in the country. If they are looking for a first step that is a facilitated first step where they aren’t required to do their due diligence, they don’t have to negotiate terms and they want to get in and play, CanopyBoulder is the solution.
Matthew: Now you talk to a lot of entrepreneurs in this space and see a lot of pitches. What do you see right now that excites you? I mean, I see a lot of competition in things like vaporizer pens. There’s some extraction equipment, but maybe something that we haven’t seen that you thought was exciting.
Patrick: What I’ve seen that is exciting is data opportunities. The businesses that really excite me now are those that are in tech and software that are going to take the data and help businesses be run better. That might be a dispensary app that is going to take the data and help those dispensaries target the best price points and the best inventory for their highest return. It might be a grower journal app that is helping growers get better and more efficient at their growing processes and improve over time. And then that data can be extracted out and presented to help others in aggregate make better decisions that will move the industry forward. Again, our vision is to have an impact on the industry and we want to get involved with businesses that share that vision and through their business.
Matthew: So this brings up a question. What if I’m a potential applicant to CanopyBoulder, and I have really strong software development skills, can I have a partner that I apply with?
Patrick: Absolutely. You know, every startup we want to bring the founders in and usually that’s somewhere between one and three people. We like to see two to three partners on a team come out to Boulder to be part of Canopy. You know, it’s just hard to do it on your own, and I applaud everyone who’s jumping in and figuring it out, but partners that complement one another that have proven that they can work well together and make progress, that’s definitely a positive when we’re looking at applicants.
Matthew: In closing Patrick, how can both investors and entrepreneurs find out more about CanopyBoulder?
Patrick: You know go to www.canopyboulder.com there is a lot of information there. We welcome all levels of interest; applicants, investors, mentors, volunteers, even people with just general questions. You know go to CanopyBoulder, all the contact information is there and you can reach out to me directly.
Matthew: And just something as simple as filling out an application if you feel like you have a great idea is very easy to do, but the regret of not doing it can weigh on you for years. And if you have a spark, if you have some great idea, I think this is a potentially incredible opportunity, especially get in early and hear about accelerators like Techstars and Y Combinator that has spawned such businesses as (19.02 unclear) B&B and you can be getting in at the ground floor. I am super excited about this Patrick and thanks for being on CannaInsider.
Patrick: Thank you very much Matt. Take care.
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