Chicago Ventures, which has $163 million under management and dozens of digital startups in its portfolio, led a $5 million round in February for Chicago-based payments platform AeroPay. The move puts Chicago’s most prolific seed-stage venture capital firm in the weed business.
Founded in 2017 by fin-tech executive Dan Muller, AeroPay in September raised a seed round of funding led by family investment office Continental Investors, which was founded by former Morgan Stanley and Discover Card CEO Phil Purcell.
AeroPay in recent months secured Phoenix-based 4Front Ventures as an “anchor partner” for its technology, said Muller, enabling cashless bank-to-bank transfers between customers and 4Front’s Mission Dispensaries located in Illinois and Michigan.
Muller said AeroPay, which has a partnership with Denver-based Safe Harbor Private Banking, will use proceeds from the round for product development as well as to market to legal cannabis businesses all over the United States.
“The goal is to embed within the infrastructure of the industry,” said Muller, who previously served as vice president of product for GPShopper, which created mobile payments solutions for retailers including Foot Locker and Crate & Barrel.
“The aim is to consistently improve and provide flexibility to our partners as federal normalization happens,” he said.
Muller and Chicago Ventures partner Stuart Larkins, who will sit on AeroPay’s board of directors, compared cracking into cannabis as a payment provider upstart to what they observed in highly regulated industries including alcohol and CBD. First movers that get an early foothold in once illicit industries, they say, are well positioned to fend away larger financial services companies that might choose to enter the category after federal banking and legalization laws potentially change
“People tend to shy away from high risk categories that have bad actors or fraud,” Larkins said.
Ancillary cannabis investments now firmly in play for mainstream VCs
Founded in 2013 by Larkins and Kevin Willer, an early Google employee and former CEO of digital incubator 1871, Chicago Ventures is a financial backer of nationally recognized digital startups including Cameo and SpotHero.
The firm’s initial limited partner investors included racetrack owner turned multi-industry conglomerate The Duchossois Group, Pat Ryan Jr. and then venture capitalist and now Illinois governor J.B. Pritzker. Larkins noted that Pritzker relinquished any involvement with the firm prior to public office.
Since cannabis became recreationally legal in Illinois at the beginning of 2020, Chicago has emerged as the home for several of the largest commercial cannabis corporations in the United States, including publicly traded (in Canada) Green Thumb Industries, Cresco Labs and Verano Holdings which combined are worth well in excess of $10 billion. Privately-held multistate operator Pharmacann, newly minted special purpose acquisition company Choice Cannabis, and out-of-state companies like Ascend Wellness Holdings and Parallel (led by native Chicagoan and chewing gum magnate William Wrigley) are also expanding significantly in Illinois.
The large concentration of cannabis corporations combined with Chicago’s deep talent pool and diversified economy make it an attractive location for industry service providers.
“Chicago is already a center for fin-tech innovation,” said Muller. “This along with companies doing cannabis in a professional way makes it easier to start here.”
Other Chicago software startups focused on the cannabis space to be financially-backed in recent years include advertising technology company Fyllo, with part of its over $30 million in funding coming from Chicago-based cannabis-specific venture firm Salveo Capital, and supply chain management provider leaf.trade, which raised $4.5 million in 2019 from members of the Hyde Park Angels investment group.
Larkins, who has made multiple personal investments in cannabis companies, said there are no restrictions to investing in additional digital startups that serve the cannabis industry.
As for investing in plant-touching companies that currently transact in a product deemed illegal by the federal government?
“We haven’t to date,” he said. “But never say never.”
In the meantime, Larkins credits the presence of multiple multistate cannabis companies close to his firm’s proximity for making his job easier.
“Doing our due diligence is easy,” he said. “There are so many people here who are our friends who are in our own backyard.”
Continental Investors, an early backer of mobile payments application Level Up, made a follow-on investment in AeroPay. Additional individual investors including the estate of former NBA Commissioner David Stern, an early Google employee, John DiCola also re-upped, said Larkins.