Investor Insight: Randy Shipley, Chicago, IL
His first investment was in himself and that turned out to be a very well-played move on his part as that led him to develop CannaFundr, a revolutionary crowdfunding platform for cannabis businesses. His name is Randy Shipley and he was gracious enough to give us a peek inside the twists and turns that make up his intellect and have left behind quite a track record of success.
How did your entrepreneurial journey begin?
My first endeavor was in 1988 when I invented a board game called Crosswords that sold over 50,000 copies and was turned into a game show on CVN, a home shopping network. I became involved in numerous startups in the telecom industry, becoming the first sales manager and first sales hire with Williams Telecommunications where I assisted in launching 4 different product lines. In 1998, I became Chief Revenue Officer for Carrier Access Corporation and led them from pre-IPO revenues of $6M per quarter through to their IPO quarterly revenues of $48M in 18 months. I have had involvement in many companies in their early stages and enjoy building organizations and revenues.
What was the motivating factor for you to invest in the cannabis industry?
I was fortunate to have been involved early on in industries that saw high growth: Telecommunications deregulation and the internet; actually was using the internet at Western Union for electronic mail in the early 80’s, before Gore even thought about inventing it.
I was one of the first to launch software for building crowdfunding platforms and as I looked for an industry that I felt had an opportunity to be a dominant crowdfunding player in, the cannabis industry was a very logical choice. So, my first investment was in myself and I launched a company in the industry. I am actively seeking investment personally in states that are not yet fully developed in their regulations and laws. I am not interested in dispensaries as a stand-alone investment, but feel they are excellent as one component in an integrated model.
I am actively seeking investment personally in states that are not yet fully developed in their regulations and laws.
One thing many first-time entrepreneurs struggle with is raising money. How would you suggest someone to overcome this problem?
Work hard and don’t be afraid to boot strap your company. If, as an entrepreneur, you can build a company to a stage where you have a product and customers that are buying it, it is far easier to raise capital at a much better valuation. You also have to be aware of your strengths and your weaknesses and build a team of founders/partners that offset any weaknesses you have. Investors will invest in strong teams that have an ability to execute across the many various functions of the business – so make sure you have your bases covered.
What is your best advice to cannabis entrepreneurs when they pitch their project to you?
Be prepared, have a realistic business model, and have a realistic understanding of your market and your ability to scale. I see so many pitches where the revenue growth forecast is ridiculous; it may look good in your spreadsheets, but it is an early warning sign when I see companies projecting millions in revenues in their first year.
Can you share your thinking on how to identify a company as a great opportunity?
It starts with the people and their ability to identify and articulate a solid market opportunity. They must not only understand and articulate how the company will make money, but they must also show the investor how and when they believe they will create a return on investment for the investor. I also spend a lot of time learning about the founder’s track record, ability to lead a team, passion to succeed, and aptitude to take action in challenging situations.
What are the key ingredients in building a successful start-up?
Hard work, long hours during the infant stage, dedication, ability to work with others, and the ability to learn from mistakes and listen while learning from others. Building a successful company starts from the top and is a domino effect from there all the way to the bottom. The founder has to continuously motivate and push the team to stay on track of the company’s vision in order for success to prevail.
How does the role of the founder evolve as a company goes from seed to early growth to later-stage scaling?
First, I think most successful companies have more than one founder. There may be a key founder, but successful companies typically evolve from a team working together. Second, most people need to realize when they have reached their limitations, they need to let loose with authority and responsibility and delegate as well as they can. This starts from the seed stage and stays true throughout.
What is your new knowledge in regards to investing in the cannabis industry?
This industry is VERY different and requires the investor and the entrepreneur to look at it differently than any other opportunity. The industry as a whole is a lifestyle business that can create exceptional cash flow. So instead of thinking about “exits”, everyone has to plan around cash flows.
As an investor, what are some of the key things you wish cannabis entrepreneurs knew?
Entrepreneurs need to know how to properly value their company and take a realistic look at their market opportunity. An example is this: Recently, I came across a company that had a single product they were selling. There was no intellectual property for the product and very little barrier to entry for others to compete. They had done a great job scaling revenues to $1M+, but their product was not much more than a rice steamer for pot and they wanted a valuation of $50M. I could start a product line in competition of them with a $500K investment and own it all. Another company that crossed our bow was a company that had been in business for 4 years and had seen revenues decrease each year since their start. They wanted to raise $1M and had projections to grow from less than $400K to over $10M in their next year; even though they had never done more than $700K previously.
What needs to happen in order to create a billion-dollar company in the cannabis industry?
In the restaurant industry, I think they say you should start with 2 billion dollars. I prefer to think of what it will take to get a company to $100M valuation – or a 10X growth from current valuation. For more companies to reach valuations like $1B, we need to have regulatory relief at the federal level to allow more companies to go public at earlier stages. This has started happening with the JOBS Act that I hope will continue over the next few years. As we move closer to having marijuana declassified as a schedule 1 drug and combine that with companies being able to raise capital for expansion and use their public valuations for acquisitions, we will see companies reaching that valuation. I saw this in telecom, where I was fortunate enough to be involved with a great team at Carrier Access where we had a $2B market cap on the NASDAQ.
For more companies to reach valuations like $1B, we need to have regulatory relief at the federal level to allow more companies to go public at earlier stages.
How do you decide between shutting down, keep funding, or selling your start-up?
All of these are pivots – changing the course of your business. Shutting down is the easiest – it usually happens to businesses as they simply run out of capital. Keep funding – a company should always be in funding mode whether it is external or internal investment. Deciding when to sell may be the toughest, but it is usually easier when you can count how many islands and private jets you can buy. Seriously though – selling is tough, but more enjoyable than shutting down!