Investing with Passion and Integrity in the the Next Great Industry
Investor Insight: Emily & Morgan Paxhia, San Francisco, CA
Whoever tries to convince you that two isn’t better than one, hasn’t witnessed the power and drive that Poseidon Asset Management brings to the table. They’re an unstoppable team who were born into a strong family blood line of entrepreneurship. He’s sharp, a master of crunching the numbers, and thrives when business plans are in his hands. She’s articulate, a confident problem solver, and is constantly striving to extend their company’s outreach. Meet Morgan and Emily Paxhia who are here to tell us why passion and integrity is at the very core of their success in this industry!
How did your entrepreneurial journey begin?
Emily: I have always had an inclination to start something new. Working in corporations and for other small businesses were great learning experiences and there was much to be gained from that, but I always intuited that I would carve out a piece independently. Our father was a business owner and an entrepreneur of sorts and his spirit for tackling the challenges of running your own business really stayed with me. We knew that this industry was the right place to step out as entrepreneurs, as we understood that any entrepreneurial endeavor would require passion and dedication and we are both very passionate about cannabis. Morgan was the one who noted the need for a fund like ours for investors seeking to place capital in the industry, but who didn’t have time to do the necessary exhaustive due diligence to make confident decisions.
Morgan: Entrepreneurship runs through our family’s history. After college, my father started a business rehabbing performance and antique cars. They built that business and used the positive cash flow to fund their real estate business. By the time our parents passed away, they had amassed a collection of over 50 income producing properties around the Western New York region. I used to spend many hours with my parents, cleaning and painting our rental units. My first entrepreneurial journey began around age 12, which was also the same year our father passed away.
That summer, I partnered up with a friend of mine in a landscaping venture. He lived in a nice community where we literally would go house to house to cut and clean up yards, flower beds, etc. One particular hot summer day we were tasked with de-stumping an oak tree with nothing more than a hose, a couple shovels and an ax. We worked 8 to 12 hour days all summer long. That was my first taste of doing our own thing and growing a business.
That very year I started buying stocks, using some of my savings from the summer gig along with other funds I had saved. I used the Peter Lynch/Warren Buffett approach to investing, which was to buy recognizable names of businesses I could understand. After a summer of fueling up lawn mowers, I focused initially on Exxon.
My first entrepreneurial journey began around age 12, which was also the same year our father passed away.
What was the motivating factor for you to invest in the cannabis industry?
Emily: We lost both of our parents to cancer very early in our life. Watching anyone suffer from the effects of cancer and the egregious side-effects of the ‘treatments’ for cancer is like watching human torture. The ‘treatments’ actually ravage the body and make the person suffer even more. Our dad had really wanted to gain access to cannabis during this time for nausea, but didn’t because of the stigma against it. We know cannabis would have helped him – something that has made a permanent impact on us. Why should anyone not have access to a plant that can help to alleviate symptoms and suffering with very little to no side effects?
From a monetary aspect, we see there is a tremendous market that already exists around cannabis. It is rare that you have an opportunity to participate in a pivotal moment in business or society and this is one of those times. Cannabis represents a new form of holistic healing as well as an opportunity for responsible use for adults seeking alternative ways to relax. Meanwhile, hemp can present an entirely renewed area of agriculture and industry. We see many opportunities to invest in and around cannabis that will mainly improve society, create jobs, and offer untold health benefits.
Morgan: Investing is a natural interest as it has been my passion and profession for many years. I have worked in the investment management industry for some time and extending that passion to cannabis only made sense.
One thing many first-time entrepreneurs struggle with is raising money. How would you suggest someone to overcome this problem?
Emily: It would be beneficial to explore what has been done by entrepreneurs in the tech industry to raise money. The key issues often come out straight away. When approaching investors, it is nice to at least start with a clear email that is at least written in full sentences. A lot of emails we get are sent haphazardly or are tombs with no clear point or thesis. Be clear, succinct, and considerate of the investors’ time when reaching out and seeking investment. Provide the facts of the business, the goals, and the blueprint to achieve those goals. Also, know your target audience. For example, as a fund that invests entirely in the cannabis industry, we don’t need to be informed of all of the broad strokes background of the industry and why this is a worthwhile sector, it is likely we know that already. It would be more beneficial to take the time to focus on the specifics of the particular investment opportunity and company.
Morgan: Raising money is both an art and science. For many entrepreneurs, this is their first major sale for that particular venture. Investors are looking for strong management teams, tenacious drive, and a product/vision that is unmet in the market. Timing and valuation are also important aspects to consider.
There is incredible interest of people trying to capitalize on the Green Rush. So many first-time entrepreneurs struggle because they are not at the point when they should be seeking capital. In general, this is not the ‘dot com bubble’, where angels are willing to fund a concept; Investors are interested in businesses with more tangible progress. Revenue generation is great, but not necessary. However, it certainly helps to have some of the initial building blocks in place. If first-time entrepreneurs don’t know how to start a business, seek guidance first, not capital.
This is such a great time for first-time entrepreneurs in the cannabis industry. There are many ways to raise capital, refine the business plans, etc. For example, take a look at the The ArcView Group or CanopyBoulder as ways for entrepreneurs to get their businesses going. Network, network, network! There are many great people in this industry with tons of passion and business experience.
What are the key reasons why startups fail?
Emily: There are a myriad of reasons why startups fail. First of all, the intentions of the company and the founders have to be clear. If an entrepreneur cannot articulate why he/she has started this project and what he/she hopes to achieve, it will prove to be problematic whenever things get difficult. Also, the people involved in the project have to be crystal clear about their strengths, weaknesses, and where they need support. You have to be a little crazy to be an entrepreneur because, from a rational perspective, it is a wild undertaking; However, you have to be grounded and clear on what needs to happen to get the business to the next level. If unsure, an entrepreneur should have the ability to put the ego aside and seek mentorship or support. Finally, a key enemy to the success of a startup is pure fatigue. It is invigorating and exhausting to start a business and if you don’t have passion and the drive to keep going, it will likely just fade out of focus. Additionally, capital fatigue is a part of this as well; Knowing when to bootstrap and when to seek investors is critical and also very difficult.
Morgan: Failure is a part of life. Real entrepreneurs don’t fear failure, they embrace it. Learn, innovate, pivot. Those that have the stomach will make it, others get flushed out. It’s just part of the process.
Real entrepreneurs don’t fear failure, they embrace it.
Can you share your thinking on how to identify a company as a great opportunity?
Emily: We start by examining the people involved in the project. We talk with them and determine if we are aligned on the vision of the company and the steps needed to get it to the next level. We look at the evolving market and examine competition, the market demand, etc. We have a ‘boots on the ground approach’ too; We like to go and see the operation, understand where they are now, and what is going to be required for expansion. All the while, Morgan is digging through the numbers and financial models to stress test the potential of the company. With this industry, it is also key to understand local, state, and federal implications for the company, which is a moving target that requires a lot of consideration.
Morgan: This industry is still so new. There are no established brands yet, no clear defined markets. This is a people industry and that’s what we are seeking. We love entrepreneurs that are living their idea and willing to put in incredible amounts of time and effort. We have one entrepreneur that is so thoughtful about spending money wisely, it’s just amazing. We have seen their team at the end of events picking up their marketing materials off of tables. Not only are they saving easy money, but they are being environmentally conscious. How great is that!
What are the key cultural differences between successful and mediocre startups?
Emily: Passion and focus. There are a lot of people who are passionate about this industry and it is easy to get really excited about all of the potential avenues, but sometimes you have to be patient and pick a path to start. Yet, it is crucial to be aware of changing factors and to be adaptable in order to pivot if a key opportunity should arise. Mediocre startups are often all over the place, so they are diverting energy in too many directions or they are hyper-focused and attached to one solution or path, which might ultimately lead to a dead end.
Morgan: Emily is spot on here. Investors are generally savvy, driven individuals. They want to invest in people like themselves and they will easily move on if they get the feeling of mediocrity.
When a company is dealing with internal issues due to disagreements between multi-partners, what role and procedures do you play to save your investment?
Emily: When investing, it is good to know that you’re dealing with human beings who have emotions and egos. When these things start to happen, it is key to remember to sit down and calmly address them before it gets out of hand. If it gets too far down the path, it is harder to repair. When you address people and they feel heard, it often opens up the communication channels.
Morgan: This is a part of business. It is easy to let emotions take over when you are putting it all on the line. Communication is generally the route of all issues which is addressable. If there is a failure of trust, there could be more serious implications. Starting a business, investing in a business, parallels relationships. Spouses argue, but the real relationships will work it out. Emily studied psychology and her understanding of human behavior is invaluable with managing internal disagreements.
How do you build a sustainable competitive edge?
Emily: We work hard to really get to know the industry and the key players. We examine the market like any other alternative investment category and have hours of our own research documented that we use as a key resource. We work with our existing investments to see if there are synergies across those and aim to build strong relationships. Most of all, we are dedicated wholly to this endeavor and put our time and good intentions into growing the fund and the industry with integrity for a future of which we can all be proud. Some people are in this for a ‘get rich quick’ rush and we don’t believe that this approach is sustainable, nor will it truly help the progress and growth of the industry.
Morgan: This is an interesting time in the industry as there is a lot of first-mover advantage. In addition, this high octane industry is ripe with ‘me too’s’ or ‘wannabes’ that will just become market distractions. Real businesses are built in time, with dedication, innovation, and focus. From the cloud of dust, the real players will emerge. It’s too early to say who those will be, but we are certainly working hard to align ourselves with the right talent. It’s amazing to think back just one year ago at the companies in the sector and compare that with today. It is incredible to see the amount of people exit, enter, and remain in that short amount of time.
This is an interesting time in the industry as there is a lot of first-mover advantage.
As an investor, what are some of the key things you wish cannabis entrepreneurs knew?
Emily: Sometimes it seems that entrepreneurs lose sight of the money, time and energy that investors are dedicating to their success. Investors are taking risks and are putting their money, time and efforts on the line for the entrepreneur, so it is nice to honor that by providing updates. When constructing a an investment offering, consider the stage of your company and the level of risk, as that will be a good way to start the process.
Morgan: Greed is the root of all evil. Entrepreneurs can get wrapped up in the exploding industry and all the potential money they can make. We get sick at the amount of money some entrepreneurs think their business is worth or how much they should get paid. Just because you see a stock trade up tens of millions of dollars, doesn’t mean that business or theirs is even worth a fraction of that.
What needs to happen in order to create a billion-dollar company in the cannabis industry?
Emily: Agreed, federal legalization is essential to reach that size. Overall, sufficient market size and demand, a shift in consumer perceptions to be more open to the idea of cannabis, dedication on the part of the entrepreneur and the ability to grow without toxic financing and intelligent fund-raising. Branding is really just starting to take off in this industry and that will be critical to growing a billion-dollar company, as it is in any other industry.
Morgan: Federal legalization. I’ve seen several other investors say the same thing, and I agree. Plain and simple, it changes the risk dynamics, banking issues, interstate and international sales opportunities. Businesses are finding ways to grow, within the confines of the laws, to other states. However, it is tremendously expensive, inefficient, and ultimately not an option for many businesses. This all potentially changes with federal legalization.
Branding is really just starting to take off in this industry and that will be critical to growing a billion-dollar company, as it is in any other industry.
How do you decide between shutting down, keep funding, or selling your start-up?
Deciding to continue the relationship with an investment vs. shutting it down or selling is a nuanced decision, especially in such a nascent market. Morgan especially is constantly analyzing and reassessing our investments as we build our portfolio. Our fund is quite dynamic and we are always trying to build and balance what holdings we have at each moment. Therefore, the investment decisions also relate to what we have at the time.
Thank you Cashinbis for your the opportunity to share a bit more about Poseidon Asset Management. We are very passionate about the industry and excited about the road ahead!
