What a Tech Investor Sees in Cannabis Companies

By | Small Business

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With an industrial engineering degree from Stanford, an MBA from Wharton, and career experience leading product teams at AT&T Interactive, eBay, Green Dot, and Spot Runner, William Hsu is well suited to his current role as an investor who helps tech startups like Task Rabbit, Retention Science, and Blayze get off the ground.

But these days, he’s looking to make seed investments in an entirely new industry. “Marijuana startups are the ones to watch this year,” says Hsu, co-founder and managing partner of Mucker Capital, a Los Angeles-based venture capital firm that makes seed investments in “companies powering a software-enabled world.”

Says Hsu, “We invest in software and tech, but we like to be opportunistic. Our overwhelming interest is in whether a company can grow really fast. If a company has the ability to grow 100 percent year-over-year, then we think about the team, the market opportunity, and our ability to help.”

In particular, he’s interested in seeding business models that don’t actually handle weed. Marijuana is now legal for medical use in 23 states and will soon be legal for recreational use in 4. But as long as it is illegal at the federal level, Hsu says he’d rather look at companies that “have created a nice business without touching the product or that stay within their state until national legalization happens.”

In other words, Hsu is interested in investing in startups that are conducting research and developing technology to support the marijuana industry. Those include businesses that want to improve product efficacy, design retail delivery brands, develop ways to use THC as a painkiller ingredient, or build technology to automate plant growing or bring better yields.

Hsu says WeedMaps, an app for finding medical marijuana dispensaries around the country, already makes “tens of millions of dollars a year from advertising.” Two other pot dotcoms, Leafly and Strainbrain, crowdsource reviews of marijuana plant strains. And the software company Potbotics, which Fast Company reported on recently, develops products to match users with the most effective strains for their DNA or brain activity. The website AngelList indexes another 237 marijuana-related startups as well as more than 1,500 angel investors backing them.

Indeed, the pot-tech sector is getting the attention of some major money. Peter Thiel’s Founders Fund made headlines in January when it took a minority stake in the holding company that owns Leafly. And rapper Snoop Dogg revealed in February that he is investing in cannabis tech companies too.

For his part, Hsu wants to get the word out that there is capital available for entrepreneurs who look at the emerging industry as a marathon rather than a sprint. “It’s not about having this great new idea or product or technology that cannot be deployed or make money until it’s legal in all states,” he says. “We’re not going to invest money and wait 15 years. The goal is to get to market in a legal way, start making money, and position yourself so that as things happen state-by-state you scale up.”

To be sure, many entrepreneurs in the sector know all about waiting out regulators. “A lot of these businesses have learned to be very lean, serving constrained markets in a single space,” Hsu says. “Some that were on the black market are now becoming legitimate, so they have a traditional source of financing and are extremely capital efficient. They think in terms of $50,000 investments instead of $50 million.”  

But Hsu believes the ultimate payoffs will be great. “The companies that are launching now that can wait out until legalization will be ready to take advantage of this fast-growing industry. We believe that by the time that happens, the investment opportunity will be gone.”

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