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Cannabis Investments w Tyler Stuart of Green Acre Capital – Ep. 2

by | Feb 20, 2019 | Investor Relations, Private Equity, Public Co's, Venture Capital

SUMMARY

Tyler is the co-founder and Managing Director of Green Acre Capital. Prior to starting Green Acre, he worked in investment banking with about ten years on the institutional sales desk of FirstEnergy Capital. There he focused on private equity clientele and financings. 

In this episode, we discuss Green Acre, how he evaluates investment opportunities as well as his investment banking and institutional sales experience. We get into how to present yourself to potential investors as well as the relationships that matter when engaging backers.

Tyler Stuart on:

LinkedIn

Twitter

Website

TRANSCRIPTION*

* This is a software-transcribed article. 

Cory: [00:00:03] Welcome to The Insider’s Guide to Finance where we dive into stories from the frontlines of financing public and private companies. I host seasoned CEOs, fund managers, bankers, brokers and business experts who’ll answer your questions about how to properly engage investors, finance opportunities and build outstanding success stories. We dig into the educational how tos and mechanics of structuring good deals. You’ll also hear about strokes of luck, tense negotiations and the pressures of closing while also getting insights on how to best navigate the public markets.

In this episode I sit down with Tyler Stewart, Co-founder and managing director of Green Acre Capital. Tyler’s always impressed me with his ability to see trends in the market and move on it. He and his partner made such a bold move to create one of Canada’s first cannabis exclusive investment funds. In their first fund they raised twenty five million dollars and attracted some of the top minds in finance including Brett Wilson and others who have pioneered the cannabis investments space. At the end of 2018 they closed a second fund of $89 million dollars increasing the scope of investments they do. When you look back it was a hugely bold move to go out and raise $25 million to invest in an industry which still wasn’t legal. It was murky at best. Our discussion takes us from his early career in investment advising and investment banking then to his nearly 10 years doing institutional sales. You’re gonna hear firsthand how he viewed and sold deals on the sales desk and now as a financier you’ll hear about how he evaluates deals and how best to pitch Green Acre and other funds or bankers. Stay tuned. This is a great interview.

Cory: [00:01:47] Tyler how are you?

Tyler: [00:01:48] I’m great. How are you doing?

Cory: [00:01:50] I’m good. It’s nice sitting here with you. As we’ve been discussing. I want to talk to you about finance, the world of finance, your career and what you’re seeing and I think probably a great place to start is Green Acre Capital.

Tyler: [00:02:04] Yeah absolutely.

Cory: [00:02:05] So two years in, two funds. What can you tell us?

Tyler: [00:02:08] Yeah absolutely it’s moving pretty quickly for us. So we launched in January of 2017 like you mentioned, two funds in now. So, first fund was $25 million dollar pure cannabis investments focused fund, finished deploying that in mid ’18 and then in August of ’18 we just went out and launched a second fund. So within the next couple weeks we’ll close off the marketing for that and we’ll drive on to deploy that capital. And that’s looking more like a $90 to $100 million dollar fund. So a bit of a step up from the first one.

Cory: [00:02:43] Wow, that’s I think 20 over what you guys were shooting for.

Tyler: [00:02:44] Yeah… We were targeting about $60 to $75. So, I think we’ve got our timing right and the marketing happened a lot faster than we would have thought. So, we’ll count our blessings and move on.

Cory: [00:02:56] Yeah, I laugh in the timing right. I think you guys are killing it. It’s been amazing and I think we’ll get into that. What I’m interested in digging into is…. your past experience in finance obviously brought you to Green Acre and informed a lot of what you did and a lot of what you’re doing now from investment advisor to some investment banking and then ultimately institutional sales desk. For the audience for CEOs out there or anybody else in the finance space… When you look at the roles that are there from an IBanker who’s putting together the deals to the institutional sales and to the brokers. What’s the relationship between those?… How do you see it from the inside from your experience at First Energy?

Tyler: [00:03:45] Yeah, it’s a good question because I think there’s a lot of confusion around that investment bank and that model is pretty confusing for people unless you’re in it to fully understand what everyone’s doing and all those roles. So… the traditional investment bank and the one that I spent most of my career out was kind of called First Energy Capital which was a boutique energy bank here in Calgary. And so the three pillars of that really were the Corporate Finance Group, the Research Group and then the Sales and Trading Group. And so all three of those pillars worked together on every deal or every file… to get things over the line. And so we all had different roles within that. The research analyst role I think is pretty well known when they write up research reports for individual issuers as well as macro reports. The Sales and Trading role is to essentially transact and is to go and try to get orders whether it be a bought deal or just regular kind of trading type business everyday trading. So that was where a salesmen would have to have that relationship with the portfolio manager in order to pitch those stocks and then once he gets the order over the traders to execute and fulfill that order and then behind the scenes you have the investment bankers. So they’re the ones that are really putting the hours in on papering these deals, in the case of a financing or working on the advisory side, the M&A side, so those longer files that take up maybe three or four months to get over the line in negotiating with both sides and legal and whatnot.

Cory: [00:05:21] So when, in amongst those three pillars… and when a company comes and sits down with you. Let’s say they’re raising $10 million, $50 million, $100 million dollars or whatever their initiative is. What’s that process like

Tyler: [00:05:37] Yeah. So I think every firm would be slightly different but with our firm we would need a champion from each department. So you would need a research analyst that said – “Yeah, I like this company. I like their assets. I can pick up coverage of them. I feel good writing a report on them.” You need a banker, investment banker that’s buying in… and is working this client and then you need a salesman to say – “Yeah. I think we can sell that deal”. So you get that papered. You give it to us and we’ll find demand for it. We’ll place the stock.

Cory: [00:06:12] And that’s what your role was on the institutional sales desk.

Tyler: [00:06:16] Yeah. On the sales side then you’d take it over from the banker once that deal is papered… if it was a bought deal that you’re working on.

Cory: [00:06:23] So then if I was leading a company how would I corral those relationships? How was it done best?

Tyler: [00:06:31] Yeah. How was it done best is the good question? … It’s done best I think when you get firm buy in … It’s a competitive space. If I use the energy analogy you’ve got hundreds of companies in Canada’s oil patch that are essentially creating a homogenous product … There’s there’s only so many subtle differences between molecules … So how do you stand out? … You need to differentiate yourself somehow.

Cory: [00:07:03] You’ve got two good points. I want to drill down on one and get back to the other. You need to get firm by and you’ve got those three players in there: the analyst, the banker and the sales guy. How do you approach all of them? How do you start to work your way into? To get the champions on all three sides?

Tyler: [00:07:22] Yeah. A lot of that would be done internally. So I mean if you’re a CEO and you have a relationship with an investment banker … That’s that’s you’re in really. And then it would be that bankers job essentially to introduce you to the rest of the firm and get those other champions on the other side. So really, I think the relationships start with one of the pillars. That champion kind of takes it forward. So as a CEO you don’t have that many touch points originally.

Cory: [00:07:54] It’s not as though you’re trying to triangulate… you come into one…

Tyler: [00:07:57] That’s right. And then from there … I use the word and I will use the word differentiation a lot. … Because I think that’s pretty key … Any great investable idea, I think has a certain element of differentiation. … It’s a little tougher to differentiate in energy let’s say. So you’d be looking at the track record of management. How strong are they. How strong are their assets. How much growth is in their asset base. And are the investors getting this at the right price.

Cory: [00:08:34] Understanding that, and not to disregard it but I mean… I think there’s more to it than a strong asset base, a good pedigree. In your experience, for the ones who did it right. How did they communicate to you or to the champion in the office that got them to be … the winning horse or the horse that people were betting on? What did they do well? Or if you’re to think of one company over any other. What did they do remarkably well?

Tyler: [00:09:05] … Execution is key. … Let’s take an example of … let’s say the Montney here in Alberta or BC … It’s one play with a lot of participants in the play and you’ve got call it 12 or 15 companies that are all vying for capital despite having seemingly similar assets in the same part of the world. So, how do you differentiate? How do you do it right? Well, you execute and you execute on the small things. So you keep your costs down. Obviously you have a strong geophysical team that are drilling the best wells and you relay guidance and you hit that guidance and deliver on that guidance. So … when I’m looking at strong from weak management teams, I look at a track record and then I look at that execution.

Cory: [00:09:58] Would that suggest that, regardless if you guys had banked those companies that point, you were tracking and following a number of companies? And what did that process look like? How could a CEO keep on your radar?

Tyler: [00:10:14] Yeah, absolutely. You’re always following ones that … the firm has research coverage on and then ones that are on the periphery and other plays that you might care about a company that … borders on.So … the cops tables were big in energy and they’re big across industries. But that’s … I think the best way for investors to have a snapshot of … a particular segment or subsector when you can see them all on one spreadsheet and you can see the trading multiples of it then you can start making the comparisons and picking your horses off of that. So relative valuation was really important.

Cory: [00:10:54] OK. From that experience and I want to shift gears after this and come over to Green Acre. If you were to pick one kind of memorable story … one CEO or management team who stood out and just stood out from the crowd, and doesn’t have to be a … resource company. Who do you think that was from your experience there?

Tyler: [00:11:16] Yeah. … We picked up coverage of a startup energy service company and … they had a different approach to the business they had spun out from a larger company. They were going to go after the same market segment essentially. And it struck me. They stood out to me because every time they’d come into the boardroom they would put their projections up and they would have a little prediction on not only their numbers but the industry in general and where the industry is going and it seemed like every four-six months that they came back into the boardroom to update us. … you could check those boxes off … That had happened. They had hit their numbers. And I remember telling the CEO in front of twenty five people in the boardroom. I said: “Look, good on you! Because 99% of the companies that come in to this boardroom have already operated businesses in this industry for years and they can’t hit their numbers. … You’re one of maybe 100 companies that comes in here and you hit your numbers and you kind of do what you say you’re going to do”. So to me that really stands out. … It was really surprising for me in the energy industry when I was in it. How many seasoned veterans in that business still couldn’t hit a number.

Cory: [00:12:41] Yeah of course!

Tyler: [00:12:42] … it’s very very few that can hit it. So … and that’s really shaped my thinking as far as when I look at a pitch deck now. I don’t spend much time on their forecast at all. I really don’t. Especially in the cannabis world where I am now. It’s a startup world. These numbers mean almost nothing because I know they’re not going to get hit.

Cory: [00:13:03] Well, let’s shift gears and move into that world.

Tyler: [00:13:07] Sure.

Cory: [00:13:08] So … it’s obviously the… I think probably 15 years in finance before that informed your move into Green Acre and about two years ago when you started we sat at lunch and you said “I’m starting a cannabis fund” and I’m like “Oh that sounds cool!”.

Tyler: [00:13:26] Seemed crazy!!!

Cory: [00:13:27] Well yeah … but incredibly intelligent. It’s been a huge success as I understand. So tell us about it

Tyler: [00:13:35] Sure.

Cory: [00:13:36] Green Acre.

Tyler: [00:13:37] Yeah. So I would back up even before we launched in early 2016. I wasn’t working at the investment bank anymore and I wasn’t so confident or sure that I wanted to be in that type of oil and gas finance role anymore. I wasn’t ready to go put a suit and tie on and go work for a big bank. I think I just needed a bit of a switch and a friend of mine had shown me a deal of a company based in Seattle. And I thought “you know what? Why don’t I hop on a flight and go check out this this company?” I hadn’t really spent a lot of time following the cannabis space. Trudeau had just come into power. Of course we knew that was one of his his campaign promises was to legalize. So I went down and looked at this company and it happened to be an edibles company that was looking for Canadian partners and it wasn’t the company that really gave me that light bulb moment but it was a dinner that I had with some people on a Friday night. A married couple, married with three kids in their mid 40s. She’s a serial entrepreneur had started and exited three companies. He’s a surgeon. He had performed two surgeries that day. After leaving the hospital he went to their favorite dispensary and he grabbed some flour for his vaporizer. He grabbed some little mints for his wife and she was ecstatic. She had a little mint before dinner like you’d have … a cocktail. He was using his vaporizer on the sidewalk of a trendy area of Seattle and for me that was my light bulb. I couldn’t believe how normalized it had been. And I was blown away at the people that were consuming the product… It wasn’t your stoner kid. It wasn’t the 18 year old male.

Cory: [00:15:36] Right. ….

Tyler: [00:15:37] To me that was kind of a mind blowing experience. And I remember coming home after that and this is call it like February or March of 2016. And I remember coming home and saying to my wife: “Ok, something is happening here I don’t know exactly where the opportunity is. But give me six months and we’ll figure this out.” Right? And so I always kind of think that … in North America at least you have trendsetters and pop culture that generally starts on a coast. Whether you are in Seattle, or L.A., or New York, or Miami. Generally those places set the trends and then it sweeps the nation kind of from coast into the interior. And I could see that maybe playing out again in cannabis … because I know that people in Vancouver were talking a lot about cannabis. People in Toronto were already doing a lot of deals at that time. Calgary wasn’t really focused on it. So … I would travel around a lot in 2016 as part of my research on my own dime just traveling around to conferences, going and meeting private companies, going and meeting lawyers and investment bankers, engaging whoever I could just as part of that learning process really to figure out where the opportunity for me was going to be.

Cory: [00:16:50] At that time it was primarily medical.

Tyler: [00:16:54] It was all medical. Yeah, it was all medical with the pledge or promise to legalize the rec market. So the risk was still that we might not get that rec market.

Cory: [00:17:06] And… just digressing here and perhaps digressing from finance but with the U.S. and the experience you had down there with the couple you had dinner with. They were recreationally using it.

Tyler: [00:17:18] Yeah. And Washington State was legal recreational. They weren’t doing anything out of line.

Cory: [00:17:26] … Not that we should care… And so that led to… well obviously took you down the path to …

Tyler: [00:17:33] Yeah. Took me down the path really kind of working out of the basement just to learn that industry and traveling around like I mentioned at that time took an interest into all the publicly traded LPEs with my own capital, just to get a sense for the stocks and their stories and founders and how they trade and … the market flows and whatnot. And so that was fortunate timing as well because if you recall and I think it was about late ’16 that the market really kind of started taking off and people started buying into this story. So in all that travelling and research I think it became apparent to me that it was real. The opportunity was real and Canada was moving fast from a global context and that there was enough people working on it but not enough where I felt it was just crowded by any means. The few people working on it gave me a little bit of validation that “ok, this thesis could be correct.” So … after all of that studying I came away with two ideas. The first being a specialty investment bank and the second being like a fund model. So, one sell side one buy side. I thought that both were needed in the space. And you could’ve thrown a dart and either one would’ve worked out … and in hindsight now both would’ve worked out. And the conversation I had with Brett Wilson who is one of our advisors and lead investors was that I had two ideas in the cannabis space and he said to me: “well. OK, interesting. I’ve done the investment banking thing so not really interested in that again but if you’re going to do the fund thing I would be interested in that”. So I’m like “Ok. Well, maybe that’s my decision then”.

Cory: [00:19:18] Kinda made for you.

Tyler: [00:19:18] Yeah. So, that’s when we started putting pen to paper and figuring out a business plan for that. And by summer/fall of ’16 I was engaged in discussions with the family office out of Toronto called York Planes. York Planes was an old client of mine when I was on the sales desk at First Energy. And lo and behold they were looking at this model as well. I’d remember them back in ’13 ’14 investing in startup cannabis plays but… I wasn’t focused on it. But yeah, lo and behold they were looking to put out a fund as well and they were a little bit unsure of how large they could get that fund and whether they had a viable business model in it. And so we decided that we should combine forces and mitigate some of that risk and … lean on each other and hopefully get a larger fund out the door. So that’s what we did. In effect we came to terms in late ’16 and made a promise that first week of January ’17 we were going to press release and get everything going. And … the business it’s been… I always use the analogy… this cannabis industry is like drinking out of a firehose … it’s just coming out you so fast. So I think you have to be very decisive and quick in your decisions. And so we’re kind of running our business that way. We want to be very pragmatic about every investment decision or strategic decision we make. However … this industry is on like dog years … you really have to move fast.

Cory: [00:21:10] So it with that.. I mean, the speed at which it changes, the speed at which it moves … I think it is typically kind of a result of the world of VC… Let me backup Would you fancy yourself as a VC early stage with the fund? Or, where are you now?

Tyler: [00:21:36] Yeah. Definitely when we launched it we were solidly VC. And now … with the size of Fund Two we’re rethinking that a little bit and migrating to some later stage deals that might be considered more PE investing, private equity investing. … the VC community is fairly small still in Canada. So there’s not a lot of opportunities to deploy big pools of capital in that VC world. So what you’ll see from us in Fund Two is we’ll be going into some larger companies with larger checks, later stage opportunities. But we’re still gonna have a nice mix of that real early stage VC style seed investing. And so yeah, as far as the numbers go … you’re bang on there. It really is in the VC world that really is a numbers game.

Cory: [00:22:37] Sorry that the question I was after … was, you saw twelve hundred deals or so.

Tyler: [00:22:40] Something like that, yeah …

Cory: [00:22:41] Whether it be … it blew off your desk as a piece of paper or drilled in, or… And how many did you finance?

Tyler: [00:22:48] Yeah we did 13 in the first fund.

Cory: [00:22:51] That’s good number!

Tyler: [00:22:51] Yeah. Lucky number.

Cory: [00:22:54] I want to drill into that because I think that’s a really important aspect of, when you’re out financing your company, that less than one percent… or one percent. What made them different compared to everybody else?

Tyler: [00:23:10] Yeah. I mean it’s not really surprising when you look at the numbers because we all hear the stats about start up businesses and 85 or 90 percent of them fail after three years. Right. So it’s not surprising that only one percent would attract our capital… there’s multiple reasons for why it won’t work. I try to hit on a few of them maybe … And I’m going to go back to that differentiation. … For us in this business … I’m still trying to lean on my mature industry metrics like a track record and a valuation but there isn’t a lot of track record in this game. … most people are just coming into it. Unless you’ve in the black market for the last decade or two.

Cory: [00:24:02] Which adds some color to it as well, right?

Tyler: [00:24:05] Yeah for sure. We’re seeing a lot of those opportunities too. So then we have to look at the individuals and what they’ve done in the past and how they had success in the past. And are they entrepreneurs and can they navigate an industry with a lot of moving parts to it? … it’s a regulated industry obviously and a lot of times the regulations are unclear and the government is still trying to figure them out as they go sometimes. So you have to be able to do the pivot and roll with the punches, sort to speak. So … we look for great ideas, great products, technology, services that not a lot of other people in the market might have or if there are other people in the market or other competition you’ve locked up a big market share. You locked up good clients and you’ve got a great brand. So we always look for best in class management, best in class ideas, services, technologies. That sort of thing.

Cory: [00:25:16] When somebody walks in… all too often if you’re getting pitched you know the jargon: “We are strategically positioned”, “We are best in class”. How do you identify that? Or what do you suggest for people to say… because I’m sure when you hear that you’re like – “Oh yeah! Okay you too?”

Tyler: [00:25:32] Well there’s a lot of product testing in this business.

Cory: [00:25:34] You should see the smile on your face man!

Tyler: [00:25:37] Everyone’s got to come here and say “Oh I grow the best stuff” or “I’ve got the best oil, or the best gummy, or the best vaporizer” or whatever it is… And there’s no way that a hundred guys could have the best. So my easy simple answer is “Sure. Let’s see what you got and I’ll give it to the people that know”. In some cases know a lot more than I do. And we’ll get back to you. So there’s a bit of that too. OK. … I kind of hold people to it to see if the product is what they’re claiming it is. Part of the due diligence.

Cory: [00:26:12] Nice due diligence!

Tyler: [00:26:13] Yeah.

Cory: [00:26:13] Can we go further than that? … How do you… I mean that one percent… excuse me, less than one percent is a very small [percentage].

Tyler: [00:26:20] Yeah. I mean like some people haven’t really thought through their business plan , right? What we saw in the early days is most people’s reaction to a legal cannabis market that they wanted to be a part of was like “Oh, great! I’m going to get [00:26:34] a grower” [0.1] or “Great! I’m going to get a dispensary”. And that was it… they could go in two ideas deep and there is nothing beyond that. Now as a fund … our thesis was to invest in non cultivation or non-growing opportunities. So we’re looking more at technology, software technology or hardware products and technology, distribution retail, brands, plant science, that sort of thing. So what we really like is when a group comes to us and says … “here’s what we’re working on. Here’s where we see the industry going and … trying to use the Wayne Gretzky analogy: go to where you think the puck’s going to be not where it is right now. And so go into those nooks and crannies that not a lot of people are participating in with a really unique idea that everyone in hind sight is going to say “Oh yeah, of course that makes sense. … I need to own that. And … a lot of companies aren’t … I appreciate a lot of the passion that we get from some of the entrepreneurs in this industry… for a lot of people this plant has had lot of impact on their lives … or their family’s life and it’s helped them … maybe deal with cancer or help them with pain management or anxiety so you get a lot of people that are quite passionate about it but you have to be able to separate… OK, this is passion and perhaps maybe a hobby versus this is like a viable business. Like you might have the best intentions but maybe you just haven’t really thought through what … the market really needs.

Cory: [00:28:20] With that deep thinking. What’s the best way to present that thinking, that information? I mean you could start with an elevator pitch but there’s more to it than that. What are those pieces? What are those pieces that stood out for you? Was it a beautiful presentation, a standup just verbal presentation by the CEO? Was It a business plan? What were the pieces that you thought were a good idea?

Tyler: [00:28:40] Yeah … that’s a good point… The first deal I ever invested in, the first private company in the cannabis space was a company called Tokyo Smoke and this was before we had launched the fund. And I was attending a conference in Vancouver and the CEO was on stage and he had come from the tech world. So he was roaming the stage very animated and enthusiastic. Might have even been dropping a few “F” bombs which … risky move but I was so impressed with his style and his manner and his story. … they were pitching something that no one else was talking a motor thinking about … at the time. This is mid 2016. They were running opening up and running coffee shops with cannabis paraphernalia and clothing, branded clothing in them. And their whole vision was to create a brand and a culture for cannabis and around a cafe. So kind of taking that Amsterdam approach to Canada and the LPs at the time weren’t even doing that because they couldn’t. They were restricted with with advertising. And so here is Tokyo Smoke’s vision really to create all this this following for their products without even selling cannabis. So they weren’t even touching the plant. And so I go to to Toronto and attend their events and they were lined up around the block and sold out and … tens of thousands of followers on social media and appealing to maybe a younger demographic but a demographic that really is conscious about brands and and they’re loyal and angelical about their brands and so I thought that was really cool. Like I had made up my mind within 15 minutes of hearing this guy speak. Like this is a company that I could easily put money into just personally. It wasn’t the due diligence I would do for the fund. So I grabbed Alan when he was done speaking and I just asked him a question like: “Are you raising money? If that’s a yes. Perfect. I’m writing a check for you”.

 

Cory: [00:30:53] Wow. That’s powerful.

 

Tyler: [00:30:54] Yeah, it’s just one of those things and it turned out to be our first investment in Green Acre because my partner Matt was also looking at it at the same time independently of me. And when we got together we decided that this made sense for the fund. And it was a bit of a divisive investment for us because we had people tell us that they wanted to give us a bigger check into Green Acre but they saw our first deal and they said ‘wait a second, I don’t really get what these guys are doing’. And it turned out to be our first exit and we exited the position within about a year or year and a half and generated about a 650% rate of return in that 18-month period. So it was great. It turned out to be a great investment which was important not only for Fund I but for us as we start to market Fund II to have that quick exit and founders we had another exit but that one was was a very high profile deal for us. So those are the types of ideas where I go back to that really unique concept, that unique product. They’re thinking about this industry… top down with a different lens than a lot of people are thinking about it. And they were absolutely right. Canopy came in and bought them and the day of closing I think the deal was valued at roughly $400 million dollars. So that’s a company that went from a $9 million dollar valuation to $400 at date of closing in two years. Or a little bit over two years.

 

Cory: [00:32:38] The numbers are phenomenal there but what really strikes me and what is interesting to me is that charisma of Alan, as you mentioned. I want to argue that that can be taught versus just innate in the person, the presenter, the CEO. And for you to walk out and just say to them: “Are you raising money? I’ll invest”. I mean, it is pretty powerful though the way he was presented.

 

Tyler: Yeah, absolutely.

 

Cory: [00:32:42] So, would you agree with the statement that “emotion trumps logic”? When you were there, was he talking numbers? Or was he talking… was he painting a picture?

 

Tyler: [00:33:21] He was painting a picture. Absolutely, yeah! There was no valuation discussion or anything like that in his presentation.

 

Cory: [00:33:27] Thank you for backing me up.

 

Tyler: [00:33:28] You’re absolutely right.

 

Cory: [00:33:32] I can picture it and I can see that charisma. And that’s something that I think is so incredibly important and is often overlooked by CEOs when communicating what they’re doing.

 

Tyler: [00:33:47]  Yeah absolutely. I mean, passion really shines through, right? When you have it. I mean, you have to have the support of the numbers and the valuation. If I would have seen the sub agreement and it would have had a $90 million valuation instead of nince. Well… OK. I’m not investing now. But, you need that balance. I don’t know whether you can teach charisma. You probably can to a certain extent. But I think a lot of that you have or you don’t. OK. Or it comes naturally for a lot of people. But if you have that passion or charisma and you can really tell that story and you can do it while being grounded with your numbers and your estimates I think that’s a great combination.

 

Cory: [00:34:31] When looking at some of the other deals you’ve done – and this is a little bit of a change in path here but… What are the terms like from the VC side? And perhaps you can get into the private equity side, but what are the terms that you work with that you need and are they are they different from other traditional VCs?

 

Tyler: [00:34:55]  I don’t think they’re too different really. We would look to include standard CVCA or NVCA terms… (Canadian Venture Capital Association or in the US, National Venture Cap Association). We would look for similar terms and reps and warranties… as those deals across industries. So there is a template out there. Now, each deal is a little bit different and there’s a lot of factors that will go into that… If it’s a very hot deal and there’s a lot of investors looking at it, then I might not have as much power and bargaining strength there. So I might have to take less favorable terms, let’s say. If I’m the only one at the table and I’m writing a large check and I’m going to be a big part of their cap table then I can drive harder terms obviously, right? So there’s a bit of a balance there. I would say that in the VC world it’s more of an art than a science… We always target companies with… let’s call it a sub $10 or $20 million valuation if it’s kind of a start up model. But at the end of the day, going back to my earlier point about estimates and numbers, they are barely worth the paper they’re printed on. So… it’s really tough to… do that… discounted cash flow analysis or something. These businesses a lot of times don’t even have a product in the market.

 

Cory: [00:36:33] When you mention “writing larger checks, being that lead” that can… make a deal. Make a deal happen when you’re able to secure that. But how does one go about getting a lead investor?

 

Tyler: [00:36:46] Yeah. A lot of different ways… Are you doing it non-brokered or are you doing it brokered?… If you’re doing it brokered then your investment banker should have those relationships and he’ll make those calls or she’ll make those calls.

 

Cory: [00:37:04] So leaning… from a public side or a pre-public side… leaning on your banking relationships for them to go and find that lead.

 

Tyler: [00:37:12] That’s, right. Yeah. So if you want to do it yourself, non-brokered as a company then it’s a lot more work… You’ve got to make those calls, you’ve got to reach out and we get… this is where a lot of our deal flow comes from. It’s from CEOs reaching out to us, whether they hit us up on our website or… meet us through another mutual friend or on LinkedIn. I’ve found a lot of people approaching us on LinkedIn actually… There’s a lot of different ways that you can go and kind of cold call and prospect. I would say… as a CEO if you’re in fundraising mode and you’re planning on doing it yourself, you need to be out there and be visible and be marketing and pay attention. Just as an investor, I’m always paying attention to the companies out there that I don’t know yet. I’m reading and I’m cold calling companies and reaching out to learn more about them. I think as a CEO you should be doing the same thing… You should be paying attention to who the financial players are in your space and look at the deals that are getting done and who’s funding them and then try to get contacts there. So yeah, it’s tricky when you’re doing it yourself. It’s a lot of work and it’s distracting.

 

Cory: [00:38:33] Absolutely. And in coming in to sit down with you… Is it a valid question to say “you like the opportunity, will you be our lead?”.

 

Tyler: [00:38:45] It’s a valid question. I wouldn’t go there after one meeting. I think in the VC world the PE world, they tend to move a little bit slower… the due diligence process isn’t two or three days, it’s two or three months more. So I would expect that you know you have to get into a longer term relationship with your lead order.

 

Cory: [00:39:10] Nobody wants to… on the first date.

 

Tyler: [00:39:12] That’s right. Yeah, let’s date for a while before we get married So… It’s that feeling out process. And so that’s going to happen over multiple meetings and multiple calls… It depends how, I guess how forthcoming that investor might be and whether he wants to tip his hand and say “look we’re interested in leading this, let’s work towards that”. Or if he wants to kind of drag it out and play hardball. Everyone’s got their own style. We tend to know right away after either reviewing a pitch deck in five minutes or within 15 minutes of a call or meeting. I could tell you if this is going to be a “yay” or “nay” as far as… Do we do more work on this? Or is this done? We’re not spending time on this…. so our filter has gotten a lot more refined after seeing so many deals… The first couple dozen deals we wanted to give them enough attention where you could dig into that segment and understand how they fit into it. Where now I think we have that general understanding of all the segments in the industry. We know which ones we want to be in.

 

Cory: [00:40:19] Who’s who in the zoo…

 

Tyler: [00:40:20] Exactly… A lot of these deals like cultivation for example, it’s really not our thing and especially if you’re not even licensed yet. If you’re applying for licenses, that’s an easy “No”. I don’t even need to do a call or I don’t even need… the pitch deck to tell you that I’m not interested.

 

Cory: [00:40:34] You must get barraged with requests, pitch decks coming your way in all these kind of things. To the extent that you’re willing to give it out, what is the best way to approach Green Acre?

 

Tyler: [00:40:49] Referrals are always good and I think that goes for any private investor. When you get a deal come through one of your referrals or a network someone that you know and you trust. That’s the best way… but I would encourage everyone to to reach out cold as well… you have to. You simply just have to do it.

 

Cory: [00:41:15]  And those who have reached out cold and grabbed your attention. What did they do differently?

 

Tyler: [00:41:19] … I Would say you know like you can tell when people are engaged or when they’re not engaged. If someone sends you a short little brief e-mail without a lot of thought to it and making assumptions for you. It’s a bit of a turnoff. But you can you can tell when people have spent the time and they’ve approached you with a specific reason… and they frame the opportunity for you and give you that information, enough information to get you excited… call It the elevator pitch. You’re going to go a lot further… and you can tell when someone’s lazy or not even by email, you can tell.

 

Cory: [00:42:07] Yeah, that’s true.

 

Tyler: [00:42:10] And just engagement in the sense of… Are you replying to the email promptly? Or are you following up as you said you would? … Give you another example: I met a company in Los Angeles a few weeks ago over lunch and I presumably wanted some information after the meeting and told her that. And it’s a month later and there’s been no follow up. There’s been no email. Thank you for lunch. Here’s some more info. Just dead air. So I won’t spend any more time on that. Because … I know enough now about the CEO.

 

Cory: [00:42:56] You know what I find is interesting and stepping back out and talking about the deals that come around. I think it’s imperative for people to respect that you guys have built a bit of an ecosystem around everything you’re doing in identifying those areas where you focus and keep in. How can people start to find… the information on the deals you’ve been a part of? And what’s keeping you interested? Because it’s such an evolving space now. It’s important to understand how you guys view that ecosystem and where you’re putting your interest but as it continues to evolve, how can they keep up to speed?

 

Tyler: [00:43:39] Yeah. Well, we do post most of our transactions on the website. So you can see our portfolio on there and we will press release when we do a deal. We generally talk about why we like the company or the space that they’re in. So there is information out there in the public domain. We do have to be a bit careful. Just given we’re in an industry that is still federally illegal in the US so we want to be a little bit careful about, kind of what we’re doing and where we’re participating. So… we’re not as forthcoming as we would be in other industries perhaps. So… I think that the website and our social media is probably the best way to learn. Picking up the phone works too.

 

Cory: [00:44:27] This is true. OK. And what are the spaces you’re most interested in? And you go to the Gretzky analogy… Where’s the pot going and what are you most interested in?

 

Tyler: [00:44:39] So we are interested in the hemp and the CBD space. We haven’t made an investment there yet. CBD is obviously getting a lot of attention so we think there’s an angle there. It won’t be investing in a hemp farm or anything but maybe it’s on the processing side or the finished goods side. So we’ll look for something there. We still like that distribution space. We have a great horse in Fund One that we’ll put in Fund Two as well in the distribution space and it’s fairly fragmented and they’re emerging as one of North America’s kind of leaders in that space. So we think we could almost have kind of… a roll up strategy there. So we’re looking for more exposure and distribution. We like retail. So we have exposure here in Alberta. We have exposure in the US as well as we’re looking for exposure in Ontario. Now that they’re coming online. Hardware is interesting for us. We do own a hardware manufacturer. So think about like vaporizers, vape pens, that sort of thing. Vape pens will be a huge part of the market. When it becomes legal in Canada so edibles, concentrates, vape pens, those sort of things are one year past legalization or after the accusation so in the next call it 10 months we should see those on the market. So that’s interesting… I think the market is going away from straight flower consumption. So joints are kind of not as cool as they used to.

 

Cory: [00:46:18] Nineteen ninety nine.

 

Tyler: [00:46:23] Yes Sir. Nineteen ninety nine. So… We like the concentrates. We think there’s great plays there. We do like edibles. I’m looking at a really interesting beverage play right now. It’s in the non-alcoholic craft beer space. It’s led by a gentleman that started the… essentially built the largest brand of craft beer in America and now he’s jumped over to do cannabis. So that’s really exciting. So you talk about a track record of execution… He grew this label to a billion dollars in sales before his retirement. So that’s really exciting. So I’ll get on the ground floor with him and then I’d go back to that plant science… You want to talk about kind of the future. Well, that’s where it is… it’s in the science.

 

Cory: [00:47:18] And the technology of…

 

Tyler: [00:47:19] That’s right. What is this plant really capable of when we apply some money and really brilliant minds to it? You think about all the other crops out there and you think about the work that say a Monsanto or Syngenta have done on the genetic side and the tissue culture and what not. None of that work has been done on cannabis yet. Because it’s been illegal. So we’ve now got PhDs in their fields jumping over to work on this plant. So it’s interesting to see what they’re going to come up with… How that could change the cultivation game really. We kind of view cannabis as an ingredient going forward… It’s the THC or CBD or some of the more rare cannabinoids are going to be extracted from that plant and they’re going to be put in a different delivery format… Whether that’s a gel cap or a tincture or a topical lotion or a pack to inhale. People work on inhalers, the vape pens that I already talked about, the edibles… there’s so many different ways to administer this plant. Some would call it medicine. So that’s the exciting thing for us too… where… the days of smoking a joint behind the house or in the back alley… I think they’re coming to an end.

 

Cory: [00:48:44] Yeah! OK. And as a final question for anyone out there raising money, whether it be pre-public, public or just in general. What would you leave them with?

 

Tyler: [00:49:02] I would say just… know your stuff… do the research! Both… your own business, the segment that you’re in and then the people that you’re talking to. Come in with a with a clear ask. Don’t come in with a bunch of questions and looking for something. Don’t come in without having a firm grasp on what you’re valuing this opportunity at, and have confidence in that number. Another real turn off is someone that comes in and says “oh well… we’re looking to raise money. $5 million at a $50 million valuation but… if you really like it, we could talk a better valuation for you”. Well, that’s a really weak position. That’s not what I’m looking for in a leader. So have your story straight. Be prepared and… just know your market. I think a lot of times where entrepreneurs fall down is they… put their head down and they’re passionate about something and they’re not really kind of seeing the rest of the world around them and how this idea fits in. Does the world really need this idea? …Are You trying to create a category or is this a category exists and you’re just gonna do it better? These are important questions that I think you have to be asking. Where’s your value adding in the whole system?

 

Cory: [00:50:36] … Excellent! Let’s leave it at that. Informative.

 

Tyler: [00:50:42] Great.

 

Cory: [00:50:43] It’s a bit of an inside scoop and I hope you can dig down again sometime and dig in more.

 

Tyler: [00:50:47] Absolutely. Thanks for having me Cory.

 

Cory: [00:50:50] Thanks Tyler. Appreciate it bud.

 

Cory: [00:50:53] Thanks for listening to this episode of The Insider’s Guide to Finance. If you enjoyed what you heard please share this with your friends and colleagues so they can benefit as well. You can also subscribe and leave a review on iTunes or the Play store. You support there is really appreciate it. For future episodes if there’s a question topic or specific person you’d like me to interview, feel free to reach out. You can connect with me on LinkedIn or through my website at creativereturn.ca