An employee of the Clever Leaves company checks a cannabis plant at a greenhouse in Pesca, Colombia, Colombia October 2, 2019.
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We asked some of the top cannabis investors to tell us which startups they’re most excited about in 2020. We took that list and narrowed it down to 15 startups based on which companies came up the most.Cannabis tech companies like Flowhub and LeafLink generated the most votes on our list. Click here for more BI Prime stories.
Despite tough times in the broader cannabis industry, investors who have bet on the burgeoning space say things will turn around as we enter the 2020s. While venture-capital investing in cannabis surged above $2 billion last year, money flowing into cannabis startups slowed down toward the end of 2019 as the industry faced a number of headwinds, including vape-related illnesses, and a public markets slump that catalyzed a wave of layoffs across the industry. That hasn’t deterred cannabis-focused investors, who say they’re investing cautiously in startups from cannabis tech to brands that sell THC and CBD products.But, like any new industry, investors picked favorites, startups that they expect will grow rapidly in 2020 and beyond. The list’s methodology In order to put together this list, Business Insider interviewed 15 cannabis-focused venture and private equity funds and asked which companies they were most excited about this year, whether they’ve invested or not. Their answers ranged from B2B software platforms that cater to cannabis companies to product testing labs, and cultivation companies.
The list below features the 15 startups that investors mentioned most often.Cannabis tech startups were the most popular: Flowhub, with five votes, took the top spot on our list, followed by LeafLink, with four votes. Wurk, with three votes, also landed high on our list.Three businesses that all directly touch the plant—Grassroots, Flow Kana, and Ascend Wellness—landed some top slots on our list with three votes each.We used data provided by the companies or from PitchBook and Crunchbase to report how much money each startup has raised and its valuation, when available.
How investors decide to bet on a cannabis startupThere are a lot of factors that determine whether or not investors will bet on a startup.Michael Gruber of Salveo Capital said his firm considers close to 1,200 deals a year. He said he decides not to invest in many of them because timing or focus may not align with his own firm. He said that many of the startups he looked at in 2019 were valued too highly, even though they were strong brands or good companies.Some VCs only invest in particular parts of the industry, and others avoid plant-touching businesses altogether since THC, the component in cannabis that gets you high, is federally illegal in the US.
venture capitalist cannabis spending in 2019
Graphic by Business Insider
Juan Martinez, a principal at Measure 8, said that they’re avoiding the “completely overhyped” CBD market. Martinez said his fund looks to make 6-8 investments per $100 million fund, and doesn’t subscribe to the “spray and pray approach.”For other investors, taking a long term view that cannabis will eventually be legal in the US — whether that is in a few years or decades down the road — is crucial to making investment decisions today.
Krishnan Varier, a managing partner at Arcadian Fund, told Business Insider he decided not to invest in companies that were trying to address the lack of access to banking as those businesses have not proven an ability to be profitable once cannabis is federally legal.Without further ado, here are the top 15 cannabis startups garnering lots of attention from VCs in the industry:
Flowhub — 5 votes
Flowhub founder and CEO Kyle Sherman.
Date founded: 2015Funding raised: $27 millionWhat it does: Flowhub is a retail management platform for cannabis dispensaries.Post-money valuation: Not disclosedProminent backers: E.ventures, Evolv Ventures, David Stern, 9Yards Capital, Poseidon Asset Management, Phyto PartnersWhy VCs like the company: “They have the DNA of a Silicon Valley company, they’re led by a strong entrepreneur, and they’re tackling the POS segment in a way I haven’t really seen before. They’re heavily focused on data and aim to make retailers smarter; I think that’s something we can all get behind right now as the industry matures.” — Narbe Alexandrian, President of Canopy Rivers”I’ve been impressed with how well the company has leveraged its point-of-sale software as gateway empowering clients to deepen relationships with customers. This creates sticky recurring revenues for Flowhub, which materially helps to make them an attractive investment, and their cap table of diverse, top-tier investors is a testament to their successes to date.” — Krishnan Varier, Managing Partner at Arcadian Fund
LeafLink — 4 votes
LeafLink cofounders Zach Silverman and Ryan G. Smith.
Date founded: 2015Funding raised: $51 millionPost-money valuation: $255 millionWhat it does: LeafLink is a wholesale management platform for the cannabis industry.Prominent backers: Lerer Hippeau, TIA Ventures, Thrive Capital, Nosara Capital, Thrive Capital, Phyto PartnersWhy VCs like the company: LeafLink has “a strong foundation in the U.S. and a solid understanding of cannabis companies’ needs and behaviours,” said Narbe Alexandrian, President of Canopy Rivers. “In today’s highly fragmented cannabis market, we think LeafLink provides a place for brands and retailers to interact without friction. With more brands, products, and retail stores expected to come online this year, we think the demand for ancillary companies like LeafLink will only continue to grow.”
Ascend Wellness — 3 votes
Date founded: 2018Funding raised: $100 million Post-money valuation: Not disclosed. Pre-money valuation is $295 million.What it does: Ascend Wellness is a cannabis cultivator and retailer based in Massachusetts.Prominent backers: Poseidon Asset Management, Salveo Capital, JM10 Partners, Shire Capital AdvisorsWhy VCs like the company: “We had been a prior investor, but become more deeply invested in [Ascend Wellness in] 2019 as we were impressed with management’s ability to acquire key assets in attractive state markets, and with their ability to manage the complicated process of getting through permitting and opening stores. Fast forward to today, we are very excited with the company’s ability to have some of the first recreational stores in both Illinois and Michigan and where both stores are doing extremely well, and with the company getting recent approval for the first retail store within Boston limits in Massachusetts.” — Michael Gruber of Salveo
PathogenDx — 3 votes
Milan Patel, CEO of PathogenDx.
Date founded: 2014Funding raised: $12 millionPost-money valuation: $36 million What it does: PathogenDx provides DNA-based testing technology for cannabis and hemp. Prominent backers: Altitude Investment Management, Entourage Effect Capital (formerly Cresco Capi
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