Hedge fund and venture capital investor Paul M. Purcell led a seed round of financing announced last week by Chicago-based payments startup AeroPay, which has made cannabis retail sales a core of their client mix.
Meanwhile another Chicago payments company, Spence, was incubated by Burling Bank, one of the first Illinois banks to serve cannabis companies. In August Spence began testing its payments application with PharmaCann’s Verilife dispensary in North Aurora, Illinois.
Proceeds from AeroPay’s financing, which also included follow-up investments from early Google employee John DiCola as well as the estate of the late former NBA Commissioner David Stern, will be invested in new engineering and sales hires, says founder and CEO Dan Muller.
AeroPay, founded in 2017, recently began marketing its digital payments solutions to state-licensed cannabis retailers, cultivators and service providers across the United States. The company’s website also lists B2B, nonprofits and “standard” as industries it serves.
Due to the federal illegality of cannabis, mainstream banks and credit card companies tend to avoid managing transactions within the sector as they don’t want to risk losing their charters. Technology and banking relationships provided by companies like Aeropay and Chicago-based startup Spence allow dispensaries and other plant-touching businesses a compliant, app-based payment transaction system as an alternative to cash.
“The cannabis industry is incredibly underserved from a payments standpoint,” said Muller, who started his company at the Latinx Incubator in Chicago, a joint venture between the 1871 business accelerator and the Illinois Hispanic Chamber of Commerce.
“It’s not just about being able to normalize business in cannabis. Anything to do with financial services and high risk comes with a shutter. One we get through a demo and explain the nuances of our technology, we usually get a breath of fresh air.”
AeroPay works with Partner Colorado Credit Union, which Muller says provides multi-state compliance as they seek additional banking relationships in other states. While Muller would not provide customer names, he said the company is currently “live” in Colorado, California, Washington, Oklahoma and Massachusetts. He anticipates closing deals in Illinois and Michigan soon, with Missouri also on the horizon.
Terms and the amount for the seed round, led by Purcell’s family investment office Continental Investors, were not disclosed. The firm’s website includes 13 portfolio companies, including retail payment app LevelUp, which sold to Chicago-based GrubHub for nearly $400 million in 2018. Purcell’s father Phillip J. Purcell, who passed away earlier this year, created the Discover Card business while as an executive for Sears in the 1980’s. He later served as Chairman and CEO of Morgan Stanley.
Competitive space
Spence CEO Chris Rentner, a serial entrepreneur who sold Chicago-based financial services Akouba in 2018, says his startup is more suitable for cannabis companies due to its relationship with Burling Bank.
“The only way to provide transparency and payments for cannabis is to emphatically partner with a financial institution where the payments technology company has a very tight partnership with that financial institution,” he said. “ We are built specifically for cannabis. We took a lot of additional precautions and had many conversations with regulators. This is only possible if you have a bank as a close partner at the deepest and most intimate levels of the business.
Rentner added that he anticipates that the Spence app will be rolled out to Pharmacann’s other Illinois locations, and then dispensaries in additional states by year-end.
Muller says AeroPay’s technology and attention to details will enable it to capture market share in what is a nascent and increasingly competitive corner of the cannabis industry.
“We’ve been in the payments industry a long time,” he said. “We know how it works and are not taking any short cuts. With all the other providers, short cuts are a priority. The maturity isn’t there.”
