Attracting Investors: Strategies from a Top Cannabis Player

Episode Transcript

[00:00:00] Intro: Welcome to the KayaCast, the podcast for cannabis businesses looking to launch, grow, and scale their operations.

[00:00:11] Tommy: Raising money sucks if you've gone through it or have you're currently raising today, you know what I mean? What if it didn't have to. Scott Grossman. Who's invested in hundreds. Of companies in his career joins us today to talk about what he looks for in entrepreneurs. We talk about elevator pitches, the founding team, what to include in business plans. If you're currently raising today or in 10 to raise in the near future. This one's for you.

Scott, thank you so much for joining us today.

[00:00:43] SCOTT: My pleasure. It's great to be on. How are you?

[00:00:46] Tommy: I'm good. You have a very extensive career in investment banking. You were an investment banker and now you've, personally invested in a lot of cannabis businesses. As an investor with your background, what do you look for in the business before you, you're ready to invest in them?

[00:01:06] SCOTT: Yeah, that's a great question. Maybe I'll just give you a little bit of context. Um, yeah, like you mentioned, I have about two decades of investing in both private and public companies across the capital structure. And importantly, um, I've invested, um, you know, at different points in companies startups to established mature companies, many of which have been public.

Um, I've also invested independently on my own behalf. I've also invested on behalf of institutions in the hedge fund and private equity world. And as you mentioned, now as a strategic investor for, uh, for a public company called Turning Point Brands. Um, all very different mandates, very different investment hurdles.

Uh, obviously every, every type of investor is a different risk premium. I'm happy to go into what that really means for, for what your audience is but you know, what I would say is regardless of where I've sat over my career and what I'm doing now, I think there are certain truisms that, that apply regardless of where you are investing.

Um, I imagine most of your listeners are entrepreneurs or are interested in startups, particularly in the cannabis world, so maybe I'll just try and like peel back the onion of what are kind of table stakes. regardless of the investment and I'll probably rank order them, uh, and, and kind of walk you through my process.

Number one, I don't know if this, this won't be controversial, but the team, right? To me, every startup that, uh, it's enormously critical to get this right. Of every win I've had, and I've certainly had a lot of losses as well, I would say 80 percent of the time it's because of the team. And that's the hard truth.

So, you know, how do I think about the team? Number one is, is the experience and the, and their track record. That's everything for me. So qualities that I look for could be, you know, what, what prior companies they've worked for, how these experiences have shaped the current opportunity that's being presented.

At the end of the day, I'm trying to figure out what, how is this company that they're trying to get off the ground, like what is scratching. the itch, if that makes sense. Um, most of the times and most of the opportunities that really win, you have a team that's trying to solve a problem that's palpable that they've actually witnessed and felt for themselves.

They're trying to improve upon an industry or a company that they've actually sat in. Um, now I fully recognize, particularly in the startup world and particularly given how, um, Strong entrepreneurship is with this generation that oftentimes there isn't a lot of direct experience actually trying to get this type of company off the ground.

And I'll just be honest, in the institutional world, whether it's private equity, venture capital, and certainly on the strategic side with what I do now, if there's no direct experience, I would say 10 times we're putting our pencil down. It's not always the case. But, uh, for me personally, I typically fall into this bucket and, and the reason for that is, uh, and I'm sure you can appreciate just given what you do is, you know, ideas are, are very cheap.

It's all about execution. So there needs to be a trail of breadcrumbs that point me, uh, to determine why that team or that individual that's been assembled clearly has the DNA to win. And I can't emphasize this enough. cannabis is hard enough. Being a startup cannabis company is that much harder. And so there has to be some breadcrumb for me to kind of dig into that says this is the guy or gal that's actually going to make this, uh, come to fruition.

[00:05:06] Tommy: So, you know, when you're talking about direct experience and let's say we're, an entrepreneur comes to you with an idea or access to a license, a cannabis license, and maybe it's a full vertical or, or retail, what type of experience are you looking for when you're deciding, Hey, is this person the right horse?

[00:05:28] SCOTT: Yeah, great question. So I, I personally don't invest in that, in that vertical. Um, let me walk you through how I would think about it. Uh, if it's some person who just stumbled upon a license, let's say, and then won the lottery, um, I'm going to need to know why this person has the right to run a retail operation.

Um, past experiences running and managing inventory, building teams and systems, understanding point of sale and merchandising, um, and, and at the end of the day, I'm looking for an interesting nugget. That really separates the opportunity relative to any run of the mill license holder. There's got to be an edge, and if there's no edge, um, you know, it's really hard for me because again, I'm, I invest on behalf of a public company, I've invested on behalf of institutions.

Our duration is, is very long, and so if there's a guy or gal came up with a license says, hey, this is Very rare and very valuable, and I'm going to go build this up. It's just not going to peak my interest, and I imagine it's not going to peak a ton of other people's interest. There has to be something that's incredibly unique about the value proposition that they're bringing to the market.

[00:06:48] Tommy: So direct experience doesn't necessarily mean. You've started a business before you've had a successful exit. It could be just anything that can show you that this person is uniquely qualified to start this venture. IE, I worked at Aritzia for 10 years and I understand their retail experience and how they operate internally.

And I've gone through the ranks as a cashier all the way through. And I understand how retail businesses work and I have a vision for what this brand. Um, can bring to the market and what the market needs. That is a compelling story for you to, you know, talk further.

[00:07:28] SCOTT: Yeah, sure. So, I agree with all that. And when I say direct experience, if you're operating a convenience store, that necessarily is quite different than running a dispensary. But there are truisms in retail. I talk about this all the time. about Retail 101, right? There are things that you need to know, um, regardless of what you're selling in order to have an optimized retail footprint.

Location. What's the foot traffic? What's your promotional strategy? How are you going to differentiate across the dispensary that's three miles down the road? What types of brands are you bringing in? How are you planning to bifurcate the various customers that come through your door? Types of incentives and loyalty.

Customer experience all of these attributes of a world class dispensary today No one's really done before So when I caught when I say direct experience there has to be a team that's been assembled that has a vision for the future based on precedent examples throughout retail obviously we're using your your dispensary example But I don't think that's any different regardless of whether you're creating a dispensary, or you're creating a cannabis brand, or an accessories company, or a POS company.

There has to be some edge that's predicated on some pain point that you've either directly observed because you've been in the industry or related industry. Or you're just so entrenched in the industry that you've identified a clear problem and your team has the the way to solve it. If that's not present, I just don't see it being enormously compelling, uh, certainly to an institutional strategic investor.

That's a, that's a

[00:09:20] Tommy: so much sense. and you've touched base on a lot of

[00:09:24] SCOTT: and

[00:09:25] Tommy: things entrepreneurs can do to position themselves favorably. If you were to say, these are the top five things that you should really think about when approaching an investor, what would it, what would it be?

[00:09:42] SCOTT: And so, and qualities, by the way, it goes on, on both sides, right? At the end of the day, if you're looking for an investor and you're early stage, you guys have to be copacetic, right? So for me personally, I put a high value on what this individual or team, what their values are. So for me, let me go through what, what I look for because at the end of the day I have to work with them, right?

So I'm definitely looking for a high IQ, but even higher EQ. Right? How do you, and what's your ability to express that? Not only are you smart in this industry, but are you likable? What's your reputation? What are the breadcrumbs of success? If I go through your references, how do you handle failure? How do you, how can you prove to me that you're resilient?

Um, the second thing I would say is no matter if you're head of sales, CEO, head of marketing, you gotta be able to sell. You just, I don't care what you're doing inside of a startup, you must be able to sell not only your product, but your vision. And so if you're, if you're getting a lot of no's, um, either you're approaching the wrong investor that doesn't align with how you see the world, or, um, I would really dust up on your ability to get your point across in 10 seconds, get your elevator pitch, figure out what the problem is.

And just really, really learn and practice that ability to sell. Um, another value in Attribute, again, regardless of the opportunity that's being presented, you gotta get shit done, right? It's all about execution and productivity to me. You know, how do you map out your priorities? What does success look like?

How do you keep your team accountable? What is your level of intensity? No one wants, uh, you know, to be around a really tough manager or, or CEO. But the end of the day, um, the only way it's going to become a success is if you actually produce something. And so that is often, I find a category that trips up a lot of executives, not only in the startup world, but also in the mature world, which is how do you incentivize and get people motivated.

to fulfill the vision of the company without being an asshole. Right? And that, and that's, and that's, uh, that's really tough to do. That's really tough to do.

[00:12:16] Tommy: You hit the nail on the head. And it's also a fine line too, because being Mr. Nice guy doesn't work either.

[00:12:21] SCOTT: Doesn't work. It doesn't work. So the values that I espouse on my team throughout the startup stuff involved in, you know, is number one, transparency and trust. And I think that's really critical for a startup. Because there are always going to be failures. There are always going to be problems. We are lucky to have these problems if you're in a startup because that actually means you're actually doing what you set out to do.

And so there has to be an environment, and it starts with the top, where I don't care what the problem is. I have to view everything as objective in order to solve it. But the only thing I ask in return is make sure all the problems are being surfaced. No surprises, and I think that's a real good value regardless of whether you're a startup or a mature company The second thing is like owner's mindset again from the person who?

Wipes down the countertops all the way to the manager There has to be this level of this is my baby, right? Everyone on the team has to feel like they own the business and we can get two ways of actually creating ownership in startups You But the best startups that I've seen is there's just this rallying cry that people view the company as, as there's a clear vision.

They know what success looks like. Everyone's pulling their oar in the right direction. And at the end of the day, there's just a consistent feeling of, Hey, we're doing this together. Um, along the lines of that, and the other two ones are accountability. Say what you're going to do. And do it. And again, likable.

I don't think anyone wants to go to work in an environment that's just not fun. And so, I think you gotta find your tribe. You gotta, if you're a CEO, you gotta create the tribe that, that, you know, is consistent with, uh, with how you see the world and, and make sure you've got the right people in the right seats at all times.

[00:14:23] Tommy: Hmm. You've mentioned something that, uh, some people make gloss over is real resiliency. And I want to touch base on this just a little bit how many deals come across your, your plate and how many of those deals you actually execute on?

[00:14:40] SCOTT: That's a great question. I would say over my career arc or just at Turning Point. Can you

[00:14:47] Tommy: Maybe career arc, yeah. In your

[00:14:49] SCOTT: my gosh. So just to give you a flavor, I would say in the 20 years on institutional investing side, I probably invest in less than 1 percent of opportunities that I see. And I would probably say That I've, at this point, I've, I've, you know, you know, tens of thousands of companies that I've analyzed, both on the public and private, both credit and equity.

The, the bar is extremely high, and that's okay. That's okay. Not every opportunity is perfect for me. It might be perfect for someone else, but I go into the, into every year, um, with the expectation that that, you know, at least nine and a half times out of 10, I'm saying no. And that's not because it's not, it's not no forever.

Uh, it just might not be the right fit for our company. It might not have the best return profile. It may be too risky. Um, there's a whole host of things that I'll say no on that has nothing to do with the actual opportunity. It's just, I'm just not the right partner and it's like a marriage, right? Okay.

You're going to be right for someone. It just might not be right for me.

[00:16:06] Tommy: And I think that's really good to emphasize on is if you're out there looking to raise capital and you're going to give up, uh, after talking to 10 investors, this, this isn't for you,

[00:16:17] SCOTT: It's not for you.

[00:16:18] Tommy: you got to talk to hundreds of people.

[00:16:20] SCOTT: Yeah. And I think doing that, those reps informs, you know, we talked about how do you get better at certain things. You know, you got to take that feedback and integrate that feedback into the next pitch. So if someone says, Hey, I love everything, but your financials were messy. Well, make sure your financials aren't messy.

For the next pitch

or let's say someone says I've got 30 seconds and you've taken three minutes to get you know Your point across we'll work on your elevator pitch. So No's are great. And we talk, you know, the original question is resiliency I think at the end of the day, we're lucky to get the ability to fail Failure is a is a dirty word or has been a dirty word for a very long time in the business community You And my personal belief is if you're not failing, you're not taking enough risk.

It's bottom line. And that goes for an investor who's investing public stocks or private equity or venture capital. If your hit rate is a hundred percent, you are not taking enough risk.

[00:17:25] Tommy: it rings true with everything. With pricing, if not, if nobody's saying no to your pricing, then it's probably too low. You need, you need some no's, right?

[00:17:34] SCOTT: Agreed. Agreed.

[00:17:35] Tommy: When an entrepreneur is, actually, what should an entrepreneur think about when raising capital?

[00:17:42] SCOTT: It's a really, really good question. So, um, The one thing I think is, so let's just say we were past the team. So you figured out what the problem is. You've assembled a great team. You've, you've gotten the ability to kind of say, okay, this is an opportunity that I want to attack and I need to go raise capital.

I think it's really important then to focus on, you know, why does this team and company have the right to win? And so I think that goes back to the strategy, right? What is the opportunity? Why does this opportunity exist? Why is this company defensible? How large is the addressable market? Can it scale? If it can scale, what are the steps required in this company to take it to the next level?

That could be human capital, that could be actual capital, there are a whole host of things that to have time to actually go through each specific case, but I think you've got to lay that out.

So after you lay out the strategy, I think, for me, it's critical. for the team to demonstrate what the actual business model is. And I would say this is unique to me. Um, but again, I grew up in the private equity world, hyper focused on unit economics and how that really flows through the income statement and cashflow.

So what I'm ultimately trying to understand is how does the business make money? Why does it have a right to re to exist? Okay. And for me personally, if I'm giving the company capital and I have a hurdle rate that I deem appropriate for this type of opportunity, how can that business and team prove that that capital is actually being deployed to generate the returns that I need?

And so I think that has to be extremely laid out thoughtfully. Now you're not going to have the answers to everything. But in my opinion, at least trying to take a real good stab at that and showing why, why, how this, this use, the capital that's coming in is going to be used effectively and efficiently in order to make the enterprise that much more valuable.

I think that's a critical thing for most startups to demonstrate very early on in the dating game with investors.

[00:20:10] Tommy: what can somebody do that? I mean, that's a really good point because at the end of the day, you're raising money. So why are you raising this money? How are you going to spend this money? And what are you getting from this money without experience without operating experience? How can somebody do that and validate that this strategy is sound?

[00:20:32] SCOTT: Very hard. I think, you know, I'm a big believer in building the widget, so if you're, you know, a point of sale company, or if you're a marketing company, or you're building out a consulting company, or you're building out a dispensary, I think you've got to build the prototype. Okay and that's, that's hard.

So going back to your original example, hey I just got a license, I'm gonna build a, you can't prove that,

[00:21:02] Tommy: MVP it.

[00:21:03] SCOTT: right? So obviously there are individual cases where that's not always the case. But nine out of ten times I would say is bring me a prototype. If you're a cannabis brand, what does the brand ethos look like?

What does the actual end product look like? And by the way, it doesn't necessarily need to be physical, but it could, it could be a CAD drawing. I just got to, you got to walk me into your world and show me the vision. And the best way to do that is actually to create something that, that has tangible value.

[00:21:38] Tommy: Scott, if I if I came to you and I said, Hey, this is, this is our brand. We are going to serve, uh, blue collar everyday people, right? And they live in these pockets of the city. Uh, our footprint is going to be under a thousand cause you don't need that great of a footprint. These locations are, uh, are where we should be.

These are high traffic locations. This is where people stop to go to work. This is kind of who we're going to speak to. And this is the demographics around that area. These concepts are doing great. Well, what we found is a lot of times people come to work, uh, maybe it's going to be next to a coffee shop, right?

And that, and does that fit in with what you're looking for?

[00:22:24] SCOTT: for sure, because you're creating a picture based on, um, the inputs that are required in order to make it successful.

So just by virtue of what you just went through, it's very clear that you're giving incredible amount of thought of, again, what would make this business successful? So you hit on a number of points.

A, I'm serving a particular demographic and this is why I understand that demographic. And this is why our store in this particular region, um, is going to attract that type of consumer. And by the way, let me give you examples of precedents where this has been done before and why we'll either replicate it or we'll do it better.

Here's the problem we saw with that precedent and here's what we're going to do. Again, goes back to the team. If that person who's pitching it is just an outsider looking at various dispensaries and saying, I can do it better. That's much harder for me to believe. Okay. Then for someone who said, Hey, I've worked at Stizzy for the last three years.

I've built with my team 10 dispensaries in this region. And by doing that, we realized that we can't capture this type of customer that's abundantly out there because our brand is focused here. Like those are the breadcrumbs I'm talking about. And without that, I think it's incredibly hard to convince someone who just has capital, maybe they have experience like me, but it's incredibly hard to convince them of your vision without actually, you know, providing it on a table so that I can actually sink my teeth in onto what you're going to actually try and execute.

[00:24:04] Tommy: When somebody, yeah, when somebody raises money, what should be their thought process on, sorry, what should be their thought process on how much to raise?

[00:24:15] SCOTT: Great question. Um, I, I encounter this all the time. I think for startups, my personal preference is investing upon milestones. So, going back to your original example, hey, I got a license, I want to build a dispensary. I think you need to raise enough capital in order to meet a milestone that gives you the right to then go out and raise more capital.

So there are key things that you need to focus on when you're trying to raise capital, which is again, how much capital is required to get to that milestone? What are the, what are the sources of that capital? You know, who do you want to be sitting around the table next to you, right? Do you want high value add partners at the table providing real insight and experience and access and a network?

That can only fuel the business. I think in most, in all cases, that's always the case, right? Then I think you need to think about like, what is the structure of the capital? Is it debt? Is it equity? If it's equity, then you have to start thinking about, in order to get to this milestone, how much dilution am I willing to give up, i.

e. how much am I willing to sell of my company in order to get me to the next level comfortably quickly In order to raise another rate round of capital that's now building on where I was, uh, in, in the past. And so there's always a delicate balance between raising too much and diluting too much. But most of the time I think most entrepreneurs are focused on, Hey, I don't want to give too much of my company and raise, uh, you know, too much capital.

It's always the opposite, which is, I, I didn't raise enough capital. I might have suffered less dilution and so I own more of the company, but I don't have enough capital to prove why we can take this to the, to the next level. 100%.

[00:26:19] Tommy: when you're building out your store, it generally costs more and takes more time than you realize.

So you kind of, you have to over raise, but also the cost of not raising enough is, you never want to be in a position where, You don't have enough money to finish the build. And now you're at the mercy of somebody just coming in, you know, and taking

advantage of you because you put yourself in that position.

[00:26:43] SCOTT: Agreed. I don't think it's, I think this is obvious for, for, for your audience, but raising capital and cannabis has been extremely challenging. Especially post, you know, 2019 when, when the bottom kind of fell out. Um, and I empathize with that. And so, you know, just going back to the original question, which is, okay, I have this idea.

I've got a great team. I've proved that this is a, our business that needs to exist. Um, start small, right? Maybe your eyes are too big. And so if you're a cannabis brand, and going back to your example, Build, start building the community now, right? You don't necessarily need to be at a scale of an Alien Labs, or Doja, or Stizzy, or ZigZag.

Um, but you can certainly prove that in your community, there are people that buy into what we're doing, and then we have a path to grow because we earned it. Um, I think most of the time it's, I'm going after this enormous market. And I'm going to capture it all. Here are the steps I'm going to take in order to do it.

But then they forget that they have to start from here.

[00:27:59] Tommy: It is a

really

[00:28:00] SCOTT: to start really small. And so, um, you know, just given the lack of capital in the industry, I think it makes sense then to build a business that's on a smaller scale, have a big vision, but, you know, be, be, oh, you know, I think the expression is.

Operate in, in your reality, not what you wish it was, but what it is. And so therefore, if there's not a ton of capital, but you have a really great idea, and you've, and you can prove that it's actually working, well then maybe your next milestone is, is not as grandiose. And so, um, I'm a big believer that, In 10 years, the cannabis industry with normalization u with ubiquity, with obviously what's going on in, in federal reg regulation, the world's gonna be different for cannabis.

And so, um, you know, I, I think timing obviously has to factor into it. So maybe now's not the right time to raise capital. Instead try and build it up word of mouth on a shoestring, friends and family. And, and, and hopefully you can get to a place where. The capital environment is better in order to raise what actually you think will will benefit the company in the long term

[00:29:16] Tommy: If somebody were, and let's say the time is right, time is right. Economics are good. I mean, the economy is good. Where should people look online to look for investors? How do you, how do you find investors to approach?

[00:29:33] SCOTT: Specifically for cannabis It's a great question I think you know There's there's a lot of communities out there that you should definitely be a part of right so there's I'll go through some of them right so Um, you know, definitely be on Twitter. There's a, there's a, I think Twitter, in my opinion, is the most active and networked community of cannabis executives and all the way down to consumers out there.

So I wouldn't be on Facebook and I wouldn't be on Instagram. I'd spend most of your time on social and on Twitter just to learn what's going on in the marketplace. Um, second thing is I would go to trade shows. Not only the Benzingas of the world and the MJBiz of the world, but go to the counterculture trade shows like Champs.

Champs run six shows a year throughout the country. Walk the floor. See what your competition is doing. Understand what the buyer's pain points are. Talk to consumers. Go to cannabis events. Go to Puffcons and, and, and all that, all those, uh, go to cannabis Cups. I think you've got to immerse yourself in the industry in order to build that network and just A, really embed yourself within the industry first.

With respect to investors, those investors are doing the same thing that I just said. I'm at 10 plus trade shows a year. I'm at probably 5 cannabis cups over the year. Um, I'm all over social, and so that's how I find a number of my opportunities. And so, obviously the perfect marriage is we, we meet on that network or we meet at a trade show and I already know what's going on there.

Um, the other thing is I, I think there are non cannabis outlets that you should definitely be on. And I would take a page from the, the, the startup world, go to Y Combinator, go to AZ16 and Sequoia Capital. Um, look at what a best in class term sheet looks like. Look at what a best in class, uh, uh, investment pitch looks like.

Get world class service providers around you. It's, I think in the cannabis world, we always think that we got to stay in the cannabis world, but I, you know, if we're right on this being an enormous opportunity, eventually all of those experts, investors, service providers, POS providers in your case, are going to come into our industry.

And so I would encourage you to do that now and start acting as if you're a world class CPG company as opposed to, Hey, I got a cannabis brand that I'm trying to start up.

[00:32:23] Tommy: Where, if you don't mind just listening out the trade shows that you go to,

[00:32:29] SCOTT: Sure. I, like I said, I go to all the champs. Um, like I mentioned, I run, I'm Vice President of Alternative Sales and Strategy. So my team is focused exclusively on selling ZigZag and our associated portfolio through the cannabis value chain. From retailers to manufacturers, from booklets of papers to bulk cones.

And so, I'm at all the champs. Um, all the other, you know, cannabis accessory trade shows, I'm at MJBiz every year. Uh, like I mentioned, I'm at a ton of cannabis cups throughout the year. New York Grower's Cups coming up in December, I'll be there. PuffCon was two weeks ago, unfortunately I wasn't there. But, you know, that's typically where you'll find someone like me.

Uh,

[00:33:18] Tommy: would be the best way to do so?

[00:33:22] SCOTT: ideally it's through someone that we have mutually in common. PuffCon. So, just leverage the network. Um, hey, I was speaking to XYZ, he mentioned that you're looking for these types of opportunities. That's, that's by far the best way to get my attention. Um, like I mentioned, I see a ton, right? And we invest in very few.

So, I would say leverage the network. Come up to me and, and, and give me the elevator pitch. Um, and, and really, I think, regardless of it, whether it's me or some other investor. I think it would be really valuable to understand what that investor is looking at. There are some investors in cannabis that won't invest in cultivation.

So don't go up to them to pitch your business. Maybe go up to them and say to him or her, Hey, listen, I have a cultivation business. I know you don't invest in it. Are there people that you might suggest that I reach out to? And I think that's goes back to that, that resiliency. I think at the end of the day, you got to figure it out.

Um, but you gotta uncover all these rocks.

[00:34:30] Tommy: I love the resiliency because, and I love raising, actually, no, I shouldn't say I love raising money.

I hate raising money.

You know, that's why we, we, uh, we've avoided it for so long, but it's a, it's a microcosm of actually running a business because

[00:34:46] SCOTT: 100%.

[00:34:47] Tommy: You have to be resilient. You know, you're going to get a lot of no's.

You're going to learn a lot. And when you do get funding, that's when the game starts.

[00:34:59] SCOTT: I agree. I'm going through it right now for a personal business, uh, a family business of mine. Um, and, and what I would just say is the process of raising capital, uh, again, it's a luxury. It's a gift. It's a privilege. And in order to get the materials, talk to lawyers, talk to investors, get the pitch date, you learn so much more about your own business, that regardless of the outcome, you're in a much better place than had you not gone down that path.

And so, um, it's painful, there's no doubt about it. Um, but I, again, I think there's, uh, you know, the old adages, you know, hard, hard choices, easy life. I think that applies here. You got to do the hard stuff in order to create a lot of value.

[00:35:49] Tommy: Yeah. I have to ask you this because I know a lot of people are thinking this. What should an elevator pitch have? And what would catch your attention out of the millions that you've listened to?

[00:36:03] SCOTT: I think the elevator pitch has got to, got to touch on all things in a hundred page deck, right? It's got to be, this is the opportunity and pain point. This is how we're planning to solve it. This is why the opportunity is big enough to go after it. And this is the team to actually run it to the ground.

And this is what we're, here's the ask. I need X in order to pull this off. Um, by the way, that content is valuable, but what's even more valuable is how it's delivered, right? We go back to those qualities. What's your EQ? Can you, are you demonstrating your IQ? Are you demonstrating passion and hunger? Are you demonstrating your ability to sell?

Um, I think I get more value out of the how it's presented as opposed to what's actually inside.

[00:36:55] Tommy: And that, that comes back to your point about reps. You're not going to hit a home run your first, uh, first at bat.

[00:37:02] SCOTT: Definitely not. Definitely not.

[00:37:04] Tommy: What should the thought process of somebody that is looking for investment be on what type of investor fits that? What is the type of investor that I should look for?

What's a good investor?

[00:37:18] SCOTT: Again, I start with values. Number one. Right? So there has to be alignment of values. And the reason why values are so important to me, not only as an investor, but also as an operator, is It's because shit's always going to hit the fan, right? So I think what you want to try and envision is, okay, if we have an existential problem, how are people going to behave around the table?

And I think that is a critical step for both the investor to understand as well as the operator or the startup, which is, do I want this team around me when, when problems come up? How are they going to handle themselves? Um, that I would say that that would be really critical. Um, I don't know if you want to expand on, on your question a little bit more.

[00:38:10] Tommy: Yeah, I actually

have a follow up question to this is what, what are some of the best questions that entrepreneurs asked you?

[00:38:21] SCOTT: Whew. Um, that's a really good question. I think, I think their appetite for follow on investing, like what would it take? For us to take this marriage to the next level, I think that's a very reasonable question. How much capital are you managing? How do you think about add on investing? What does success look like for you as an investor?

Um, the last one we didn't mention is, is the exit. And I think that's a real critical question that should be asked, which is, You know, a number of investors are doing this on behalf of institutions or companies. Some have unlimited duration, like a company that I'm at today. But venture capitalists, they're not necessarily investing forever, right?

They have a five to seven year typical horizon, sometimes longer. And so I think you need to be aligned with, how does this investor get out? Does that require a sale of the company? Does that require an IPO? Um, does that require just a cashout or a buyout? I think you want to get that on the table pretty early, um, because it's not often asked and, and it creates a lot of problems down the road, particularly on the institutional side, because the business might be doing great.

You know, I don't, I, hopefully you can appreciate this, but the, the amount of private companies today, vis a vis or relative to, you know, a decade ago. Companies are staying private for longer. There are not as many IPOs, um, and so you need to be comfortable that your investor base has the duration and the appetite to kind of take this company through multiple life cycles.

Um, so I would definitely ask that question as well.

[00:40:17] Tommy: Thank you. I want to actually change, uh, pivot a little bit. We don't have a lot of time. What metrics do you look at as an investor?

[00:40:31] SCOTT: Again, for startups in terms of when you say metrics or you're talking financial metrics,

[00:40:38] Tommy: Financial metrics.

[00:40:39] SCOTT: Listen, I think it's a really hard question to kind of peel back the onion on because it's very company specific. But as an example, um, you know, for, I do a lot of brand investing, as you know, um, or at least we look at a ton of brands because at the end of the day, ZigZag's a brand.

And I think we have capabilities at Turning Point that is on, you know, promoting and distributing brands. But also, um, um, you know, leveraging our operational, our fulfillment, because there's a lot of synergies by distributing multiple brands at the same time. So for us, uh, or how I think about it is, is it synergistic with what I'm doing today?

Again, I'm a corporate investor, right? I'm not going to go, if I'm making widgets, I'm not going to go down the path of doing something completely different if there's no synergy with what I'm doing today. Um, in terms of actual metrics, I, I, again, on the brand side, we typically do not look at any brand that's not actually present in at least five states.

So that could be an AssetLite, like an old PAL model, which we've invested in, but it could also be, um, uh, uh, uh, Operationally Intense as well as AssetLite, like what Alien Labs has done, or, uh, What STZ has done. We got to see proof points that the brand is resonating beyond this one location that it started and it's actually working in multiple demographics and multiple geographies.

And the last thing I would say is unit economics, which is as the business scales, there has to be proof points that, you know, revenues going is growing. I'm making these up like 30%. Is it marginally accretive, right? So gross profit dollars obviously should be scaling, um, maybe not more than 30%, but it should be growing commiserate with revenue.

And then I guess the big one is, you know, how are we leveraging the operational expense of the company, right? There has to be some leverage inherent in the business. So, um, having a brand manager who's running one state, what's the ability for that brand manager To run five states. If you have a sales team that's that's doing inside sales How much capacity does that team have in order to replicate that at scale?

Those are critical things that I personally look at because at the end of the day that's that gets back to How is this business compounding? And if it's compounding That's in theory a proxy for how my investment is compounding as well

[00:43:25] Tommy: The last investment that you did personally, so not for Turning Point, um, turning, um, sorry, the last company that you invested in personally, what industry was it? What vertical? And why did you ultimately decide, Hey, this is, this is a good one to get behind.

[00:43:43] SCOTT: So, the last private investment, um, that I invested was, uh, it's a few years stale is, is Centio. Uh, Centio is effectively a Bloomberg Lite for investment professionals that provides real time financial data. Uh, um, it had a, at the time, a, a, a real. Uh, unique ability to scour press releases, uh, earnings reports, transcripts, and it effectively took, uh, a 30 year old, stale, very expensive, very clunky, uh, platform Bloomberg, which I've used, you know, I'm 46, I've used it now over almost, you know, 25 years.

It was just a way better widget. For way better, for way less, and it was, it was, I started as a customer. I was using it for my business, for my hedge fund. And I liked it so much that I, you know, uh, was asked to see about investing in that company. The company has since been sold, it was sold to AlphaSense.

AlphaSense is a, is a large company at this point. Um, and so all the things, I'm not going to go back into what we talked about. All those things were present, right? It was a great team, they came from the hedge fund world, they used Bloomberg, so they shared the same pain point. They understood that the, the existing, uh, uh, product wasn't doing what today's investor needed.

Um, and the valuation, everything made sense, and so that was the last private investment that I've made, and it was a very successful investment.

[00:45:30] Tommy: I thank you so much for joining us today. You dropped a ton of knowledge. Where can our listeners find you?

[00:45:37] SCOTT: Thank you. I appreciate the time. This is always fun to do these. Um, the best way to get me is probably on Twitter or LinkedIn. My Twitter handle is srg444. I'm pretty active there. I try and stay objective and just give a flavor of what's on my head as it relates to, you know, the business and culture of, of cannabis.

Um, and on LinkedIn, I'm, I'm, I'm there as well. If you, if you ever want to shoot me a DM and I'm happy to, to, to see what you have to offer.

[00:46:06] Tommy: Guys, send your best pitch to Scott.

[00:46:09] SCOTT: I'm more than willing to look at it.

[00:46:12] Tommy: Thanks, Scott.

[00:46:13] SCOTT: You bet.

[00:46:14] Tommy: Thank you so much for listening. If you enjoyed this podcast, please like subscribe wherever you're listening. It really helps us out. Until next time guys take care.

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