Investor Insight: John M. Torrens, Syracuse, NY
Are you searching for capital that you don’t really need? Do you believe that your business venture will succeed simply because it involves cannabis? Are you solving an actual problem? These are all questions that every entrepreneur in our industry should be asking themselves and the fantastic John M. Torrens of KC Ventures, is the gentleman who’s availed himself to get this important conversation started with all of us.
How did your entrepreneurial journey begin?
As a kid, I would go and buy packs of gum and firecrackers and sell them off in individual units; I would mow lawns, shovel driveways, and do other entrepreneurial stuff kids do. I started my professional career as a speech-language pathologist, but found that I didn’t enjoy working in an institutional setting, so I started my own small solo practice. Over the years I began hiring therapists in other disciplines, added contracts, and eventually grew it to 250 employees and 5 locations before selling it. Along the way, I was involved in other smaller companies and earned a Ph.D. in Business Administration in the process. After selling my company, I became an Entrepreneurship Professor in a top-ranked program and started making small investments here and there. Once legal cannabis started gaining traction I knew I had to be involved in a more meaningful way.
What was the motivating factor for you to invest in the cannabis industry?
Like many entrepreneurs and investors, it’s all about the opportunity combined with a passion for the product/service. The pace of regulatory change and continuous lack of federal policy leadership has created the most opportunity-rich environment I have ever experienced. I feel very fortunate to be alive in a time of such tremendous opportunity and can’t imagine sitting on the sidelines as a spectator. When I pitched a few close friends the idea of raising a fund to invest in legal cannabis, everyone was in! Now, I manage the fund and am having a lot of fun talking to and funding entrepreneurs in the cannabis industry. Sometimes it’s all I think about!
When I pitched a few close friends the idea of raising a fund to invest in legal cannabis, everyone was in!
One thing many first-time entrepreneurs struggle with is raising money. How would you suggest someone to overcome this problem?
My suggestion is to design a plan that can be executed without raising money. The single best form of capital is cash flow from your operations which, interestingly enough, is one of the best ways to attract outside capital. The research on new ventures shows that over half of new companies get all the cash they need to start from a combination of founder savings and cash flow from operations. Some of the largest companies you can think of were started with less than $2,000. They then grow to the point where raising money makes sense, but the harsh reality is that very early-stage, pre-revenue companies without any traction are simply not very attractive opportunities for many investors.
The single largest source of funding for young companies after founder savings, is credit cards, followed by friends and family. So, the best advice I can give is to figure out a way to bootstrap the hell out of your new venture and begin to generate cash flow from operations. Finally, keep in mind that the research shows that 80% of the fastest growing companies in the United States took no venture money at all. If you find you are having trouble accessing capital, I would recommend you re-evaluate the concept. It could be that lack of money is not the real problem.
What is your best advice to cannabis entrepreneurs when they pitch their project to you?
For me, it’s never just about the big idea. If you start out by first talking about your product or service, you have already lost me. I don’t necessarily care what you are selling until you demonstrate to me that you are solving a problem for a real customer. I want to see that you :
- Know your customers and the problem you can solve for them,
- Can do it in a way that is appreciably better than the next best alternative,
- Can deliver it at a price they are willing to pay.
If you can do that, then I am very interested. If you can proceed by demonstrating that you have developed a value-creating economic model, spoken to potential customers, and validated your concept and assembled a team that can execute on your critical success factors, then you have a winning pitch that will get you a more in-depth meeting with me.
Can you share your thinking on how to identify a company as a great opportunity?
Of course it’s never a sure thing and it’s not always easy to determine that during the diligence process. I am not a large VC fund manager, so I think my criteria are a bit different. If a company has some traction and a sales history (even a small one) and is selling all they can sell with their current resources, but are missing out on larger market potential due to under capitalization, then that is an attractive opportunity for me. Additionally, if I can add value through my background, contacts, connections, and experience, then that is helpful in my decision making as well.
Chemistry with the founder is exceptionally important to me. It could be a great opportunity, but if I don’t feel a connection with the founder, then I know it’s not something I should get involved with.
What are the key ingredients in building a successful start-up?
Start with the basics: Opportunity = Problem + Solution + Differentiation. You have to start with a sound concept that solves a problem in a way that is better than current alternatives. I am often surprised at how many entrepreneurs get so enamored with the idea that they think everything else will just fall into place. Beyond that, it’s assembling the best possible team and finding the grit and determination to do what you need to do to break even.
How does the role of the founder evolve as a company goes from seed to early growth to later-stage scaling?
It depends on the founder, but in general they will either need to commit to developing themselves as a professional CEO, or get out of the way and hire a professional CEO and let her take over. In my experience, the things that make a successful entrepreneur often don’t translate into effective professional management. Be honest with yourself about your abilities and weaknesses and keep the well being of the company in mind.
Be honest with yourself about your abilities and weaknesses and keep the well being of the company in mind.
What is your new knowledge in regards to investing in the cannabis industry?
On one hand, it’s just like investing in any other industry. On the other hand, it is way more fun and way cooler than any other industry I am aware of.
As an investor, what are some of the key things you wish cannabis entrepreneurs knew?
Cannabis alone does not make a great opportunity. All the other pieces need to be in place as well.
What needs to happen in order to create a billion-dollar company in the cannabis industry?
I suppose that is what I am trying to figure out. If anyone has this answer, private message me!
How do you decide between shutting down, keep funding, or selling your start-up?
Great question. I start by taking emotion out of it as much as I possibly can and remember my goals that were set at funding. Shutting down is, of course, the last resort, but making that decision too late can be costly. If I see potential in the concept, company, and team and feel optimistic about the macro trends that exert their influence on the company, then continued funding is a great option to consider. However, an honest evaluation of why I am at this decision point in the first place is critical. If the company has a strong balance sheet, favorable valuation, and a willing buyer, then selling becomes an attractive option. However, I think there is wisdom in holding a company for a longer period of time in order to create more value. Many investors want and need the liquidity event. The advantage of being a smaller, niche investor is that my horizon can be much farther in the distance. Building value over time in order to get a larger exit later, or a strong distribution stream, is preferable to me.