One of the top marijuana venture capital firms is looking to raise over $100 million for a new fund to go after growth-stage startups

Jeremy Berke

Feb 15, 2019, 19:11 IST

One of the top marijuana venture capital firms is looking to raise over $100 million for a new fund to go after growth-stage startups

Courtesy of Altitude Investment Management

Altitude Investment Management's partners.

Altitude Investment Management is raising over $100 million for its second cannabis-focused fund, according to people familiar with the matter.
The fund is a sizeable increase over its first $30 million fund which closed last year.
Altitude joins a long list of cannabis venture funds that are raising millions to go after growth-stage startups.

Venture capital funds focused on startups in the rapidly growing cannabis industry are raising boatloads of capital, and Altitude Investment Management is no exception.

The New York City-based firm is looking to raise over $100 million for its second cannabis fund, according to people familiar with the matter.

Altitude's second fund is set to be a substantial increase over its first. The firm's first fund closed at $30 million last year and is deployed across 16 companies in the cannabis sector, including BDS Analytics, a data firm, and Front Range Biosciences, a biotech startup.

The fund's partners include John Brecker and Michael Goldberg, who both worked at the $2.7 billion Longacre Fund Management, Roderick Stephen, who founded Longacre's UK group and worked at Citadel Investment Group, and Jon Trauben, a commercial real estate veteran who did stints at Barclays and Credit Suisse.

'They're not being dreamed up in garages anymore'

Trauben told Business Insider in an interview that Altitude's much larger Fund II represents a shift in how the cannabis industry is maturing, with incumbent companies "boxing out" new startups that rise to challenge them - and needing capital to fuel that growth.

"The set of companies that will win the industry already exist," said Trauben. "They're not being dreamed up in garages anymore."

While Altitude won't rule out investing in public companies, the focus will be on growth-stage startups. The prevailing question, then, for Altitude's second fund will be picking out which companies will "pull ahead."

"We're in the second half of the startup ecosystem," said Trauben. "There's still room for new ideas and new companies, but it's not like it was two or three years ago."

In terms of what parts of the industry Altitude is looking at most closely, Trauben said the firm takes a "pretty broad view" of cannabis, but he's particularly bullish on consumer brands, and the exit opportunities those brands present canny investors.

He pointed to Green Thumb Industries recent acquisition of Beboe, an upscale marijuana brand. "I think 2019 would really be the year of the brands for cannabis space," said Trauben.

Another area of interest: agricultural technology. Trauben said there's a number of startups working on developing cannabinoids - the active compounds in the cannabis plant - through cellular hosts like yeast and algae.

As big consumer packaged goods corporations race to formulate beverages and other products containing CBD and THC, two of the most popular cannabis ingredients, this technology could potentially become "very disruptive," said Trauben.

'The true commodity in this industry right now is information'

Unlike some other cannabis funds, Trauben says Altitude won't shy away from investing directly in "plant-touching" companies, though marijuana is federally illegal in the US.

That's part of what most cannabis-specific funds say gives them an edge over more traditional venture capital and private equity firms, like Lerer Hippeau and Greycroft, who are slowly getting more comfortable investing in the space.

In Trauben's view, funds like Altitude that are used to dealing with the complexities of operating in an industry that's growing so rapidly while being federally illegal represent the best chances of "getting it right."

"The true commodity in this industry right now is information," said Trauben. "If you're not seeing that information flow - the networks and the relationships you've built - you just don't have the right data."

Investors in other, more mature sectors, like tech or real estate, have decades of data and historical precedent at their fingertips when evaluating deals.

"I think when you move from that environment to this environment, you realize what's missing and to build that knowledge flow doesn't happen overnight," said Trauben. "It takes a concerted effort."

Altitude joins a number of other cannabis-specific firms who are raising new funds this year, including Tuatara Capital, Poseidon Asset Management, and 7thirty, among others.