Anatomy of a Capital Raise: ebbu’s Road to VC Funding Winds On

Back in January, ebbu LLC‘s Dooma Wendschuh was embarking on a journey to raise $9 million in venture capital funding. The money will fund research and development into cannabis products that Colorado-based ebbu plans to produce and sell.

Since announcing the opening of the capital raising, Wendschuh has spent much of his time on the road talking to potential investors. The exercise has involved late nights, early mornings, working holidays, more alcohol ingestion than he is used to and revisions to the business plan based on feedback from potential investors.

“It’s been crazy,” Wendschuh said. “Every day is a new adventure. Fundraising has just sort of been exploding lately.”

On a recent trip to New York City, Wendschuh said he had 35 back-to-back meetings with potential investors. There are breakfast meetings, mid-morning meetings, lunch meetings, afternoon meetings, dinner meetings and after-dinner meetings. After-dinner meetings often involve drinks, which for a guy not used to drinking a lot sometimes makes the next day’s breakfast meeting feel very early.

“For the 8 a.m. meeting the next morning, sometimes it can be hard to be on point,” Wendschuh said.

He also ended up working through the Jewish Passover holiday. “I love going to New York,” he said. “They work all the time there. I love to work all the time, too, so that works out.”

All the work and late nights and early mornings seem to be paying off, however slowly. Of the $9 million it is seeking, ebbu has banked $1 million. Wendschuh said he has paperwork sent out to other investors for additional commitments totaling $3 million.

Wendschuh said he expected that the time between sending investors the paperwork and getting a check could be lengthy. Thus far he has been right about that. Much of the lag time can be attributed to Colorado law.

In Colorado, any equity shareholder in a marijuana business must have been a Colorado resident for two years prior to the investment. Additionally, equity owners of—and lenders to—marijuana businesses in Colorado must pass criminal background checks and submit their fingerprints to local law enforcement.

In 2012 Colorado voters approved legalizing recreational use of marijuana. In an effort to keep a watchful eye on who is running and investing in marijuana businesses in Colorado, the legislature wrote and passed a long list of rules governing cannabis commerce. The state Marijuana Enforcement Division, part of the Department of Revenue, sees that the rules are followed.

“It takes a long time for people to get around to doing the paperwork and sending the money and getting fingerprinted and clearing all the hurdles they have to face,” Wendschuh said. Although he sees the Colorado rules as an impediment to raising capital, he said ebbu is committed to following both the letter and the spirit of the law.

In February, Wendschuh said he hoped the capital raising process would go quickly. “This is not easy to do; I don’t like fundraising,” he said. “I’m also trying to run a company, here. We want to get the raise done as soon as we can.”

To illustrate the ups and downs of venture capital, in February, Wendschuh said he was optimistic that a series of meetings in New York could end up raising the entire $9 million. From Feb. 14-19, Wendschuh said, he was jammed up with meetings. He cited one meeting with an “uber-wealthy individual” who could single-handedly close the round. Six weeks later, Wendschuh had just come off a stretch where he was doing between five and seven meetings a day, still pitching ebbu.

In addition to teaching potential investors about his company, Wendschuh said he has been learning from those same investors about ways to make ebbu more attractive to venture capitalists.

“You hear a lot of things when you do these meetings,” Wendschuh said. “You’re going into a room with people who’ve done this hundreds of times before and I’ve never done this. Investors are suggesting things independently that we might not have thought of regarding our business plan.”

At the top of the list of advice is accelerating ebbu’s plans to begin producing and selling products derived from hemp. Hemp was always part of ebbu’s long-term plan, but Wendschuh said the company wanted to first develop and start distributing its signature cannabis products.

ebbu is approaching cannabis the way distillers approach alcohol. The goal is to develop and sell five varieties of cannabis that deliver the same effect every time. ebbu has named these varieties “Chill,” “Bliss,” “Giggle,” “Energy” and “Create.” ebbu won’t sell marijuana directly through retail stores; rather, it will sell the cannabis it develops to others who will then put it into products that deliver the cannabis to the consumer—products like edibles and vaporizer pens. Those products would be labeled as containing ebbu brand cannabis.

The hemp part of the business plan involves making hemp products and selling them not only in Colorado, but nationally and internationally. “A lot of investors are suggesting we should have concentrated on that first,” Wendschuh said. “We can sell to more people and build the brand more quickly.”

As a result of that feedback, ebbu is revisiting its hemp products timetable. In fact, Wendschuh said, the business plan is constantly changing—and not just because of investor feedback. “The business plan is this evolving thing that’s changing every minute,” he said.

“ebbu is like the ice breaker,” Wendschuh said. “We’re the first people doing the kind of thing we’re doing in the world. There is no path for us to follow.”

Thanks to a successful round of seed funding, ebbu is in a position where it does not need immediate infusions of cash to continue functioning. Wendschuh said the company has 17 full-time employees. It has kept its cash burn rate low by paying those employees, in many cases, less than they were making in their previous jobs and less than they would make in the pharmaceutical industry. In lieu of money in the short-term, ebbu has offered them equity in the company and other incentives.

At the same time, ebbu is continuing its research and development and even plans to bring two interim cannabis products to market—one called “raw” and the other called “pure.” Raw is simply a cannabis extract while pure is more like a cannabis dietary supplement.

Keeping expenses down while working to bring some early products to market to generate revenue are things Wendschuh said prospective investors like to see.

Over the coming weeks, Wendschuh will continue pitching prospective investors and he has no doubt ebbu will ultimately raise the $9 million it seeks.

The only difference between success and failure in venture capital fundraising, Wendschuh said, is whether or not one gives up. Even businesses that start out as bad ideas will eventually become good ideas if the person starting the business keeps meeting with people and using the feedback to refine the business plan, which is exactly what Wendschuh plans to do.

“I don’t see how you can fail at raising money unless you lack the tenacity and ability to learn from feedback,” Wendschuh said.

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