• As the cannabis industry matures, winners have begun to separate themselves from the pack and position themselves as leaders in their categories.
  • VCs are taking notice. They said they’re shifting their investment dollars from early stage firms to growth stage companies that already have a proven track record.
  • According to data from PitchBook, VC investment in cannabis startups cratered this year, as the cannabis bubble burst and investors pulled back during the pandemic.
  • Many investors told us they’re still open to new exceptional startups, however.
  • Business Insider talked to six VCs who say that for a startup to get their attention, the company would need to have solid leadership, an idea that would completely innovate or create a category, and the ability to scale quickly, among other qualities
  • Subscribe to Insider Cannabis for more stories like this.

The crowded cannabis market has thinned out since its boom in late 2018, and investors are becoming more reluctant to invest their cash.

So far this year, VCs have invested about $512 million in cannabis companies, a sharp decline from the $2.1 billion they put to work during the first nine months of 2019, according to data from PitchBook. And the money has shifted somewhat away from early-stage companies to later-stage businesses.

In the first quarter of 2020, VCs invested $71 million into angel- and seed-stage startups, or 46% of the total. In the second quarter of this year, that amount fell by more than half to $32 million. This quarter, angel and seed-stage firms have raised about $39 million, or 20% of the total funding.

Read more: Here are the top 14 venture-capital firms making deals in the cannabis industry, and where they’re looking to place their next bets

Many investors told us that they’re still open to startups with short track records. But with limited capital in the cannabis space, newer companies are facing the challenge of competing with their seasoned counterparts for a share of the pie.

Business Insider reached out to six VCs to ask them about the investment trends they’ve seen in cannabis over the years, and where they’re seeing capital flowing now. Investors said that companies that have positioned themselves as the winners of the industry are gathering investor dollars, while early stage companies are struggling to gain traction.

For a startup to grab their attention, investors told BI, the company would have to have several qualities that would convince them to go in on an investment that may take years before exits appear on the horizon. 

Some listed a solid leadership team or an idea that would completely innovate or create a category. Others talked about the ability to scale quickly and model that would be able to withstand industry downturns. 

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