Investor Insight: Patrick Rea, Boulder, CO
He’s not just an investor, he’s a business accelerator. He will not be found sitting back with his feet popped up, rather, you’ll find him on the ground, doing all that he can do to make your idea the best it can be. Meet Patrick Rea of CanopyBoulder, the avid investor who is taking the game of business growth to the next level.
How did your entrepreneurial journey begin?
I “incubated” my first start-up when I allowed a few friends to occupy my apartment right after I graduated college. I had a job at an investment bank and venture capital firm, so I could afford the apartment. They were a web annotation software company that eventually would sell to Microsoft. This was my first experience seeing the entrepreneurial spirit and mentoring the founders. I guess you could say that I have a knack for it.
That was 1997 and I’ve been mentoring entrepreneurs and founders ever since and I personally founded CanopyBoulder in 2014. CanopyBoulder is a seed-stage, mentorship-driven business accelerator for the cannabis industry’s ancillary products and services sector.
What was the motivating factor for you to invest in the cannabis industry?
Legal cannabis is the next great American industry. It helps a wide range of people – folks who have very acute medical conditions like MS, Cancer and Epilepsy; people who have less acute health conditions like insomnia and anxiety; and also individuals who prefer to unwind with marijuana instead of alcohol. It is dramatically understudied. In fact, the DEA controls the research licenses awarded to study the plant and they’ve been historically very stingy on handing these out. It’s already a $50 billion black market, so what we are seeing is a transference of an existing market in many ways.
I think that many in the industry, including myself, feel they would be missing a great opportunity if they didn’t invest their money and time in the cannabis industry.
It’s already a $50 billion black market, so what we are seeing is a transference of an existing market in many ways.
One thing many first-time entrepreneurs struggle with is raising money. How would you suggest someone to overcome this problem?
Surround yourself with people that can help you. Many entrepreneurs fail at raising money because they approach it in all the wrong ways. Specific questions must be answered, that is a given. But more importantly is how the story is told. Do you set the stage and highlight what is happening now? Do you present a problem? How do you introduce your solution in a unique way that grabs the investor’s interest? Do you qualify how and why you will be successful? And do you demonstrate how you will generate a return for the investor? And this is just a start; the biggest part is access. How do you gain access to investors who will be interested in your idea? At CanopyBoulder, we have partnered with The ArcView Group, the largest investor forum in the cannabis industry. They have 400 accredited investor members interested and investing in the cannabis industry. You just can’t do better than that.
What is your best advice to cannabis entrepreneurs when they pitch their project to you?
Practice your pitch, do your research, and come prepared. There is nothing worse than an entrepreneur who doesn’t sound polished. Practice is easy if you’re passionate about achieving your goals.
Doing your research means that you have built your models, know your idea is good and know that it can compete, and have verified your claims. One of the big mistakes founders make in the cannabis industry is making assertions about market demand without verifying or testing this demand. There are thousands of opportunities in this industry – make sure yours is one of them, don’t just assume it.
Come prepared for any eventuality. It’s a mental state, really. You don’t know if you’ll get kicked out of the room or if someone will whip out their checkbook and hand you a check. I’ve seen and experienced both! Be ready to roll with whatever situation you’re presented with and you’ll not only feel better about the result, but you’ll also present better.
Can you share your thinking on how to identify a company as a great opportunity?
It is all about the founder at this point in the industry’s evolution. If the entrepreneur isn’t sound, the business won’t do well because that entrepreneur is going to be the chief sales officer, the visionary, and the head janitor for some period of time. How the founder thinks, moves, or performs affects the entire team’s morale, so it is very important for the driver of the company to be on top of things. The entire team needs to understand that they chose to be a part of the founder’s vision. If any of the members are in doubt of the company’s direction – then it needs to be addressed and situated, otherwise, it will be a burden to the company’s growth. Having high drive, consistency, commitment, and hard work is key to becoming successful in this industry.
How does the role of the founder evolve as a company goes from seed to early growth to later-stage scaling?
If the business does really well and makes it to later-stage scaling, the role of the founder changes immensely. The founder becomes the protector of the corporate vision and often the face of the company if he or she is lucky and qualified to do so. This is a key point – the founder must demonstrate the ability to contribute to a later-stage business and many entrepreneurs are great at starting businesses and poor at running them when they get bigger. This is just a fact. At the end of the day, if you can help the business, you have a role; if you can’t, you can be a great shareholder, which is often a fantastic job.
What is your new knowledge in regards to investing in the cannabis industry?
CanopyBoulder solves 3 major problems in the cannabis industry and the investment community:
ONE – There is a significant lack of “investment ready” businesses in the cannabis industry today. There are a lot of great ideas and some great founders, but something always seems to be missing – be it a full team, a refined business concept, an understanding of the competitive landscape, or realistic financial projections. CanopyBoulder solves this problem via our intense 3-month business bootcamp where every aspect of the founder’s business plan will be scrutinized, refined, and polished. One of our primary goals with CanopyBoulder is to produce “investment ready” businesses that will set a positive course for the industry’s future.
TWO – Many high net-worth individuals, family offices, and angel investors who are interested in the cannabis industry are sitting on the sidelines, either not confident enough to get in the game or without the time to do the due diligence necessary in this rapidly evolving industry to make a smart investment. We see CanopyBoulder as a solution for these investors interested in getting a broad exposure to the industry from an investment standpoint.
THREE – Valuations are all over the map. I’ve seen pre-product and pre-revenue startups presenting $5M valuations. CanopyBoulder offers $20,000 in cash and a $40,000 investment in services in exchange for 9.5% equity, valuing each startup at just over $210,000. We also work with the startups to present the best valuation possible to achieve their goals.
As an investor, what are some of the key things you wish cannabis entrepreneurs knew?
I wish more cannabis entrepreneurs knew about our CanopyBoulder accelerator. It truly is the best place to launch a cannabis business. We have a great stable of mentors and advisors to surround our founders coming from inside the cannabis industry and outside the industry. We also have access to well over 1,000 cannabis-focused investors. Coupled with our 3-month program, CanopyBoulder provides cannabis entrepreneurs what they need to take their business from idea to reality.
CanopyBoulder provides cannabis entrepreneurs what they need to take their business from idea to reality.
What needs to happen in order to create a billion-dollar company in the cannabis industry?
Scale of opportunity. Most cannabis businesses that touch the plant are restricted by interstate commerce laws. Ancillary products and services are not and that is where we focus with CanopyBoulder. We want to help tech, software, media, data, grow tech, safety, and other businesses that serve the needs of the market in ways that don’t touch the plant directly.
How do you decide between shutting down, keep funding, or selling your start-up?
That’s a big question and one better discussed over a beer! My quick answer is to look at two key indicators.
One is financial analysis and the other is your board. If your most informed analysis tells you to sell, then sell. If it tells you to shut down, then shut down. If it tells you to keep on with more funding, then raise more money.
The other is the opinion of your board. They should help you see the forest from the trees in these strategic moments. If you’ve done a good job assembling a board with diverse expertise, great connections, and high intelligence – you should feel confident in their recommendations.