Assessing Marijuana Investments
Investing in a startup is a risky proposition and the due diligence process helps to mitigate risks. Let’s review a few basic steps in the process. Essentially due diligence is (1) discovery, (2) analysis, and (3) drawing conclusions.
- Company financials
- Balance sheet, Income Statement, Statement of Cash Flows
- Pro forma financial statements
- Background investigation of principals
- Market analysis
- Contracts & partnership documents
- Product roadmap
The materials a marijuana investor pulls together during the discovery process are worthless without good analysis, which means finding the right people to dig through the details. You’ll need a CFO-type person to review the financials, an attorney to double check contracts and corporate filings, and an expert in the cannabis market to review the market analysis and product roadmap. Other experts may be needed as well for specific issues.
Smart angel investors build a network of experts and rely on them for analyais and advice.
The analysis process should produce a report or series of reports with qualitative grades for different aspects of the opportunity.
- Is the company’s current financial health an A, B, or C?
- Is the market analysis Good, OK, or Weak?
Try to use a standard approach to grading opportunities and remember you need to look at multiple opportunities in order to have points of reference.
Should you invest your money in this opportunity or another? That’s the question you need to answer and only you can answer it. Every investment is different and every investor is different, leading to an infinite number of reasons for and against most investment opportunities. Analysis paralysis is a real danger for angel investors and you don’t want to fall into that trap. Set a deadline for your analysis, make your decision, and move on to the next investment.
Originally published at go.canopyboulder.com.