#1 Fallacy In Investing Today

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Contrarian Thinking: 

Public markets, who knows. Your guess is as good as anyones. But private investing in non-public businesses, now that I know something about. Let me tell you about a little fallacy circling around...

They say: Now is a terrible time to be a private investor, especially an angel investor.

I say: FALSE, now may be THE BEST TIME to be a private sector investor.

In my humble opinion, there has never been a better time to be an investor (and maybe especially an angel/early stage investor).

Why? The 2008 crisis was a HOUSING crisis, this crisis is a small BUSINESS crisis.

What is the one thing you wish you would have done in 2008... buy a house right?

What is the one thing I THINK you will wish you have done in 2020... invest in a business.

And while I am not alone in this, yes, I’m biased. Let’s disclaim up front. I’m a partner at a growth equity firm (Entourage Effect Capital), and a board member at the largest angel group in cannabis, The Arcview Group and a very active angel, seed and private deal investor.

AND YET, as Nicolas Taleb says the most important thing you should look for is who has skin in the game? I am putting my money where my mouth is, into cannabis companies now in bigger amounts than I ever have, and our firm Entourage Effect Capital is doing the same.

We’re not alone and we will show you why. 

We’ve been talking non-stop about the implications for cannabis with the coronavirus, and about why these markets have opportunity. There is certainly much difficulty to leapfrog over but there is much opportunity as well. What we haven’t discussed is sitting in your shoes as a private stage investor and why despite some of the pain that comes with startup investing, today may be our day. First green shoots of the economy beginning to show:

As you can see the economy is slowly but surely starting to show signed of recovery.

Related: Get my actual template for due diligence, deal tracker (including my actual early investments) and my notes on how to angel invest. CLICK HERE.

Let me caveat this up front by saying no one wants to profit off of what is happening. However, as investors it is our job to continue to try to invest money so that we create a virtuous cycle. We invest, companies are created, jobs thrive, employees prosper, and then hopefully we make money so we can keep doing the dance.

If we don't invest in businesses, help turn them around, or buy them outright this trend below continues. Bankruptcy at all time highs as unemployment rises.

Buyouts and investing at depressed valuations are a lifeline for a company in distress and its employees to continue to survive. It is also an opportunity for buyers to get in at historical lows.

We invested in Arcview because we see a huge seed gap in the cannabis space, meaning that most investors are moving up the growth chain and investing in later stage companies. Not to mention capital is a scarce commodity in this industry. That is tough on entrepreneurs but good for angel investors.

Most angel investors come into a market during bull runs. During this time entrepreneurs tell you their companies are worth $1B w/ no profits, yup I’ve gotten that pitch deck… TWICE. Newbie investors spread dollars like nothing can go wrong, life is good, and living is easy. But the truth is those are some of the worst times to put money to work. It’s just the law of buying at highs.

The real money is made when things are tough, and your gut is telling you to put all your money in bitcoin as the Fed prints money like it’s Venezuela. Which is a bit akin to the world we live in today post CARES Act 1 & 2 and nods to the massive amount of bankruptcies we are seeing.

We believe that because of all of this, we are at a precipice of a global reset in which the cannabis industry may legalize faster than ever, have revenue when most of the world is shut down, and be the balm we need to get through this anxiety. As an investor it is your turn to participate, and you won't be the only one. There is $4.7T in cash sitting and waiting on the sidelines as you can see. below.

Get my tools for running your startup including a 13 week cashflow model HERE:

So when I saw an excerpt from Jason Calacanis on him agreeing that Angel Investing is the place to be and like how he frames the opportunity:

• “I believe that we’re headed back to 2008-2010 valuations this year and it’s going to be fantastic for angel investors who are brave enough to place bets. Nothing is guaranteed, and you can insert a bunch of financial disclaimers here, but candidly I’m planning on being more active in the next 12 months than I have been in my 10-year history as an angel investor. 
• If you’re rich and bored, or maybe even retired and regretting it, I would like to make the case for you to become a half-time or full-time angel investor. Now, I don’t think you should invest 100% of your capital in startups this year.
• However, I think rich people (aka accredited investors who have capital available) who become full-time angel investors this year should build an intelligent plan to deploy a fraction (1-10%) of their net worth. Essentially, the amount they can afford to lose. 
• In my book ANGEL I explain a way to do this intelligently that goes like this: 
• 1.    You want to make 30+ investments so you have a chance at an outlier. 
• 2.    You want to only invest in startups that have products in market and revenue already — and there are thousands of them. 
• 3.    You want to make very small bets when you start and then go 2-10x on the winners. 
• 4.    You want to make those 30+ investments over a three-year period.”

He goes on to talk about some of his winners and losers with names like Uber and Twitter. It reminds me of what we've seen in cannabis with names like GTI, Canopy Growth, Curaleaf, to name a few. Not to mention how many Arcview members have made millions and collectively deployed $189 million+ into cannabis startups.

And yet, we were never doing it at a valuation level like today. Prices favor investors in a way they haven't since 2008.

Another fascinating aspect is that in the VC/PE world the best vintages (funds) usually are those who invest during and right after a crisis. So, we thought let’s make sure our investors are prepared for this opportunity, we probably will never see another like it in our lifetimes after all.

Sign up for our mailing list here to get notified of when our Arcview Investor University launches and click here to get access to a free series of tools from me on angel investing.

After all we are here with you to build the next great industry and in my very humble opinion there may be no better time than now.

Hats off to those of you who step forward when so many will sit on the sidelines paralyzed instead of poised for this opportunity. Let’s do this.

Codie

Cannacurious? Here's our contrarians' guide to getting a career into cannabis, or find out more information below:

IG: @codiesanchez

EEC: www.entourageeffectcapital.com

CS: www.codiesanchez.com

This article is presented for informational purposes only, is an opinion, and is not intended to recommend any investment, and is not an offer to sell or the solicitation of an offer to purchase an interest in any current or future investment vehicle managed or sponsored by Entourage Effect Capital, LLC or its affiliates. Any such solicitation of an offer to purchase an interest will be made by a definitive private placement memorandum or other offering document.