Hypur Ventures II, L.P. (“Hypur Ventures II” or the “Fund”) is a private equity investment fund targeting legal cannabis and hemp businesses that are fueling growth, gaining market share, and creating long-term value across the industry’s supply chain. The Fund is managed by Hypur Ventures II GP, LLC (the “General Partner”) whose members have been operating and investing in the cannabis industry since 2012.
Hypur Ventures II plans to provide Limited Partners with diversified exposure to the cannabis and hemp value chain, which is uniquely segmented between regulated (“plant touching”) and ancillary (“non-plant touching”). The Fund will invest across this complex supply chain to derive the most value through investments that are well-managed, revenue generating businesses, with a portion of the portfolio focused on mergers and acquisitions (“M&A”) and rollup strategies. Hypur Ventures II intends to invest in private companies at various stages of maturity, namely early and growth stages, with investments that may range between $1 million and $25 million.
More importantly, the Fund will invest in seasoned operators to provide growth and acquisition capital for strategic initiatives that we and our portfolio companies have identified. As a team, we are able to see the markets from various angles due to our collective positioning as operators, investors, and thought leaders, providing a unique vantage point within the ecosystem. Our ability to see inside of these markets and identify and unlock value gives us an advantage over other investment groups.
The General Partner expects the Fund’s first round to close on or before April 15, 2019 at $25 million, with an additional $100 million closing on or before October 30, 2019. The maximum size of the Fund is $500 million. The General Partner anticipates the balance of investments in the Fund’s limited partnership interests will close pursuant to investments by institutional investors by mid-2020.
Prior to the second half of 2018, the cannabis industry lacked an active M&A market as business verticals, legal regimes and state policies were still developing and the capital markets had largely been inaccessible. The cannabis ecosystem has been characterized by fragmented markets, immature companies, inexperienced managers lacking conventional business and financial discipline, a scarcity of significant capital, and no institutional leadership or guidance. However, with the shift in capital market access in Canada and the US, as well as the introduction of US state regulatory and banking reform, we believe the opportunity is ripe to consolidate the currently disjointed industry into more mature entities.
For example, Congress is poised to consider legislation that would give cannabis companies access to banking. The Secure and Fair Enforcement (SAFE) Banking Act of 2019 was introduced in March 2019 following a hearing held in February 2019. The SAFE Banking Act of 2019 aims “to create protections for depository institutions that provide financial services to cannabis-related legitimate businesses and service providers for such businesses, and for other purposes.”
Given that most U.S. states have legalized marijuana in some form, a bill that gives businesses access to banking services despite the federal illegality of cannabis is a necessary step. The latest bill also includes protection for ancillary businesses, such as real estate owners, accountants and other service providers that don’t work directly with the plant. The SAFE Banking Act of 2019 has overwhelming bipartisan support with 106 cosponsors at the time of introduction.
We believe that the industry’s continued growth despite federal prohibition, evolution of market trends to mimic those of developed industries, and pending legislation all point to the opportunity for targeted and rapid consolidation. Our team is well-positioned to connect companies to resources, identify new revenue streams, and prepare and capitalize companies for mergers, exits, and/or capital markets.
The General Partner’s strategy for Fund portfolio management will benefit from years of frontline experience, insights and contacts to capitalize on key opportunities throughout the cannabis and hemp industries. Categories of emphasis will include cultivation, distribution, retail, genetics, technology and brands with a focus on top tier operators and synergistic views in key strategic markets. The team’s deep experience will also enable portfolio companies to quickly identify and execute on opportunities throughout the country and promising international markets, enhancing value throughout the portfolio and/or creating opportunities through public vehicles and M&A.
Directly invest in the entire industry – regulated and ancillary businesses -- in the US and abroad, spreading risk throughout the portfolio
Invest in Seed stage through Series C
Pursue investments in complementary business that provide accretive value to portfolio companies
Identify high yielding investments with growth potential in the cannabis value chain
Ensure legally compliant companies with existing revenue streams
Focus on proven management teams with an existing track record
Preference to be the lead money investor in investments, but will consider a passive position for strategic deals especially in mature companies
Seek board seat or advisory board seats in all investments
Ensure alignment with management whereby they have capital at risk alongside our investment
Equity or equity related securities, including preferred stock, warrants, common stock and other securities with equity or equity-like features
Debt or debt-related securities
Our investment thesis is anchored in three core beliefs:
1. Strong infrastructure, including supply chain management and enterprise level service or products, is key to stabilizing and growing the industry;
2. Highly fragmented businesses with forthcoming disruption offer huge potential for M&A and consolidation as a way to further mature and enhance efficiency across the industry; and
3. There is an emerging global supply chain that the US is well-positioned to tap into as regulations evolve.
The following chart illustrates the various sectors in which our investments will fall, derived from the three opportunities identified in the investment thesis.
• Tissue culture and clone manufacturer
• $11 million allocation of $20 million Series A
• $40 million pre-money valuation
• Expected close: on or before April 29th
• Scalable, compliant distribution
• $5 million - $10 million allocation of $15 million Series C
• $75 million pre-money valuation
• Expected close: on or before April 10th
Payment and Banking Technology
• Core operator in banking and compliance
• $5 million allocation of $10 million in Series A
• $100 million pre-money valuation
• Expected close: on or before April 30th
Compliance & Transportation Services
• Fasted growing cash transport in the US
• $3 million allocation on $3 million in Series A
• $9 million pre-money valuation
• Expected close: on or before April 30th