Adrian: 0:00

A lot of founders are building up looking for a solution, but haven't found the problem yet.

Joeri: 0:06

Hello everyone and welcome to the Web3 CMO Stories podcast. My name is Joeri Bilast and I'm your podcast host, and today I'm excited to be joined by Adrian. Adrian how are you?

Adrian: 0:20

I'm great man. Thank you for coming, Joeri. I'm so excited I heard you're in Portugal. I'm in Boston, Massachusetts, and I'm excited to connect two continents together on this podcast.

Joeri: 0:30

Me too. Yeah, as my listeners know, I moved a few weeks ago and so it's one hour closer to North America than I am now. That's already a positive thing. But, guys, if you're now wondering, who am I talking to? Adrian Mendoza. He's a fintech, AI, and cyber security investor. Before becoming an investor, he was a startup founder who bootstrapped and raised vc money and later exited. He's a regular contributor on CNBC and the Boston Globe on the state of venture capital in the US, and his firm has recently been covered in Forbes, bloomberg and the LA Business Journal. That's already impressive. So now I'm curious, Adrian, about your journey, of course. So what inspired you to transition from a startup founder to a venture capitalist and how has the journey that you have of course, everyone has this journey shaped your investment philosophy?

Adrian: 1:33

Yeah, absolutely One of the little known facts, especially getting to the journey, and this is why I really reached out about this podcast, because there's a piece of my journey that I don't talk a lot about. So before I was a startup founder, I had a small ad agency and the reason that was is early 2000s I actually was. I went from Southern California talking about moves to Boston Massachusetts, happened to be here at the beginning of the dot-com boom and towards the end of it I got sucked into IBM's Innovation Lab as they were building out e-commerce and about a year after that I left the small start, the small agency, and it happened to be at that time. It was the beginning of mobility, of Palm Pilots, of PDAs, and so my firm was doing user interface, user experience design. We were doing retail packaging. We had the buyers from Staples and OfficeMax coming into our office and the products that we were designing for some of these brands were ending up on the shelves of Staples and OfficeMax and some of the big box retailers and it was really interesting because it was that experience of working in early e-commerce and for brands that actually was really helpful as a startup founder Because in the middle of the mid 2000s, something really magical happened in the marketing side. You started getting a lot of these ad agencies excited about talking about technology.

Adrian: 3:06

So little known fact in the marketing world, especially in the ad agency world, is they would hire studios like mine to come in and do marketing projects, technology projects, e-commerce presentations. And I was prepping for this podcast and I remember I was talking to my partner about this today, a story that this is like early 2000s. I actually was hired by Hill Holiday to work on the Dunkin Donuts campaign that they were just pitching for. They ended up winning the campaign, and so I remember talking to their like creative director and he said, man, this is incredible what you guys are doing. I really want you to be part of this. I want to hire you. And I said, no, he's like why it's three in the morning and I'm still here working on this presentation. And so I got to see all the details of working for brands and what it meant to creative pitches and really marketing around them.

Adrian: 4:03

And as I went into my startup, the reason that I joined and founded the startup is that we were looking at this time in 2007, between 2008, where mobile apps and mobile web pages were beginning to be part of marketing campaign. They were partying to be brand building and so we started looking at technology to make it faster. But because I had this way, had this experience of working at brands I had worked at Mullen, I had worked at a few of the other big agencies, bootstrapping while I was building my business, and then when I went into building my startup, I had these connections at a lot of these brands, everything from Sapient, these big sort of e-commerce houses that now became later ad agencies and because I was from the technology side, I started talking to them about data. And it was interesting because I remember and I don't remember what agency it was it was an agency that later took the Dunkin' Donuts account away from Hill Holiday and they had a data scientist that I actually knew and we'd have conversations with and he was the guy that actually did the data analysis to figure out that, even though it was things that we knew, when it was hot, people bought iced coffees. When it was cold, people bought hot coffees and then they could start marketing towards them. And it was interesting because we were start my startup.

Adrian: 5:29

In my startup we were selling to the brands to the Lululemons to the Columbia Sportswares, and so we had this analytics platform to try to get them to start looking at how do you use marketing more tactfully, but also like digital marketing, like web, mobile apps. And it really was interesting enough because later in my startup journey, we actually created, we pivoted my company into an ad tech for mobile ad tech and what we were beginning to do is look at how do you take customers and segment them to figure out who's a woman who likes yoga in San Diego, who's a guy who lives in middle America who owns a car. And it was interesting because of my experience in agencies. My experience in that really got us to understand customer segmentation. How do you get data? And, of course, years afterwards, when we had our exit and we started looking at investing, we always have this operator view and this analytics view and this data view of how do you take not just what someone's saying oh, my customers are this but begin to look and top this conversation about segmentation.

Adrian: 6:44

So when I talked to a founder and he's, oh, we segment our customers, I was like great, I built one of the first segmentation platforms in the US. Like I know exactly, we were selling to the big DMA houses. We were selling to the big direct marketing agencies. We were selling 10, 15, 20 million records to help target ads towards them. So it's a walk me through what that looks like. And most of them are like oh, you actually know this industry. At the same time, I've helped some of my early customers sell their e-commerce platforms to SAP. So I know that world really well, but I won't invest in it.

Adrian: 7:22

And so, as we transitioned from founder to funder, we began to look at what are areas that we know really well, what are areas about disruption, innovation.

Adrian: 7:36

We're in spaces that we said how do we work with areas that technology can help extend, different platforms can help innovate, can help disrupt? And it was really interesting because we have that operator sense of having been an entrepreneur, having been run an agency before. We run our firm like a startup, but at the same time, we have that sense of we've built companies and products and we've sold to heads of e-commerce. We've sold to CMOs. We've sold to directors of e-commerce. We've sold to CMOs, we've sold to directors of compliance for finance. At the same time, we have very much this. Both my partner and I have a very much a design sense of how good UX. So later in our journey, while we were building our startup, we had a UX consultancy, a user experience consultancy, and we were being brought in to help bigger brands and small brands and medium brands build out more their web presence, their mobile presence. So it's the founder route of entrepreneur is not a straight line and as you go from there to investor, it changes. Yeah.

Joeri: 8:41

Yeah, absolutely. And it's interesting you're talking about data and analytics because before I went into marketing now I'm working as a fractional CMO and I also have the podcast but I had a business analytics company and I sold that 10 years ago. So this helps me, of course, today understanding all the analytics. Part of that, and then the fact that I had an investment club also helps me, so it all comes together. Like you say, everyone has this journey. And then I'm also curious because, of course, the world is evolving all the time, and now we have AI, which is really hot, but I also mentioned cybersecurity and introduction. Fintech is also something that your firm is focusing on. What are the trends that you are seeing now in these industries? So, yeah, curious to hear that.

Adrian: 9:29

Yeah, I think one of the interesting, especially with both of us having that business analytics background. It's hard because when, at the beginning of analytics, I like to say that there's three phases to data Data in the past is reporting, data in the future is analytics, data in the present is analytics, but data in the past is reporting, data in the future is analytics. Data in the present is analytics, but data in the future is predictions and what're not really thinking about. How do you get to the future? I go back to the example of the guy at the agency looking at weather data to coffee sales. Is it the fact that it's coincidence or is it causality? Did it cause it? And so one of the things that, especially having been in sort of the customer segmentation side, is you try to find patterns and then you try to replicate them. What AI happens to allow us to do, especially with generative AI, is get to those patterns faster, without these large data scientists and RStudio and R models that are way too complicated but can get us to build a language learning model where we toss the data in and then we're able to mine it and ask questions to it. It's really hard because, having been in this space and having known, having been in e-commerce since 99, 2000,. It's really hard, because I have this joke with all marketers is that CMOs like to buy to buy crappy data. We buy lists and if you're laughing, it's true. You're like let me buy a list. No, stop buying a list. Let me segment your customers for you. And that's something that a lot of the new AI technology can help us to streamline.

Adrian: 11:21

What we're looking for, especially because, when you look at early uses of it in marketing, is lookalike campaigns. That's what Ted coined is I have a group of users. I want to find other customers that look like them. I want to find other customers that have maybe not 100%, but maybe there's portions of it, and then the ability to build an AI algorithmic model can tell us how much confidence do we have that they are like that or what's missing.

Adrian: 11:53

Because, especially having been in analytics, it was so much conversations about statistical significance and you had to have 10,000 data records and we're like, no, I sometimes can't collect 10,000 records, I just need an answer. I need to get sentiment really quickly, and that's what it allows us to do. But as we move forward into the next sort of, what's happening is that we start seeing within SaaS products the injection of money. If we're not collecting money at the form of the transaction, if I'm a marketer and I'm not selling something or getting people to sign up, how am I measuring brand awareness if I don't have a transaction? And so that's where things in Web3 make it really unique, because you can plug in the framework of FinTech. You can plug in payment transactions, whether it be tokenized or whether it be credit card transactions. That's the next jump of being able to make sure that we know that a transaction, we know that an interaction was successful because a sale was eventually made.

Joeri: 12:57

Yes, absolutely Everything is coming together, these new technologies, because when you're explaining all of that, I'm thinking, okay, AI, fintech, then blockchain, then analytics and everything. There are new ways now in Web3 to measure everything, of course. But a question that I also wanted to ask is okay, with all your experience, when you're looking at a startup at the founding team, what are some of the qualities that you look for in the founding team?

Adrian: 13:31

Yeah, I think for us one of the important things is if I ourselves, as our team, we come from a background of having built products for the banks, having built technology, having built, gotten things into FINRA to regulator approval or legal approval If we come from that background of making sure that we have domain expertise, we actually make sure that we look for that in that founding team. So if the founding team the advice I always tell founders if you're looking to fix a problem, if you're looking to fix something that's broken, work in that space, become the domain expert. If you want to fix the insurance industry, the banking industry, the marketing industry, work in that space, work in marketing, work in finance, work in a place where you get to see how systems work, what works, what's broken. So then you're building a solution for a problem. A lot of founders are building up, looking for a solution but haven't found the problem yet.

Adrian: 14:32

But if you yourself come from a background of understanding the problem, it's much easier when you have a solution to put them together and, more importantly, it's about finding someone that can pay for that. That really, for me, is the definer of does this have product marketing fit Is will a customer pay for this. Going back to one of our first startups, they had actually an e-commerce brand as their first customer and they were building a cybersecurity product. It was so important to that customer and they were building a cybersecurity product. It was so important to that customer. They paid for 90% of the engineering costs for it and they still bought a large license of it. And that's the important piece of making sure that there's a fit on both sides of the equation of what the founder wants to do but what the customer wants to pay for.

Joeri: 15:21

Absolutely. That's often forgotten. Those people starting companies and building something continue to build and then they know they need to do marketing. But they just want to continue to build and make stuff and then see, oh, there is no market for it or something. It's better yet to test the market or maybe even to sell before you build it.

Adrian: 15:45

Yeah, an interesting exercise that I do and I'm happy to share here. I always do this with some of our founders. What I do is I put a sheet together and after their first one or two customers, I actually put a matrix that I make them fill it out as an exercise. And it's completely helpful. And what I do on the left hand side is who did I talk to to buy it? Who was the user? Who was the sponsor? Because someone's got to sponsor it and who is the buyer? Who, where did who wrote the check? And then we sit, we then put them on one side and we then say, all right, tell me the reason that they bought it. And so then the user can say, oh, the reason that I bought it was because of this. The sponsor who sponsored you into the company can say, well, the reason I sponsored it was this. And then the buyer whose cost center it came from, says, oh, then, this is why we bought it.

Adrian: 16:44

And then the third column, which was really important, is what were the? And this is the great thing about having customers is they love to talk, they love to tell you their opinion. And this sheet, you don't want the founders to fill it in. You want them to bring it to their customers and say, hey, will you do something for me? My investor asked me to fill this out. The third column is the most important one, which is what were the words that I used to make you divide and writing down the words. Was it words? Was it pictures? Was it video? What was it that made the user want it? What was it that made the sponsor want it? What did I say in the meeting? What was on the website? What were the specific words that we try to capture and what were the specific words that made the guy who bought it actually sign the check?

Joeri: 18:26

And that's often not what they think. It is that, founder, because then you'll find out If you just ask others. Like an opinion can also be something in marketing. With my former company, I wanted a new logo and I had in my mind this is the best logo, but then I found out that everyone else liked another logo better, so I took that logo, of course. Yeah, so it's always good to ask and I think it's an easy, simple exercise, but nobody probably does it and indeed, if you ask it, then you know what made them just sign or what made them to buy. So that's I think I love it Really good advice. So if people are listening, take note of this. It's really a golden nugget. People are listening, take note of this. It's really a golden nugget. Another thing I think I know it's important for you, which is diversity. Diversity plays a significant role in your investment decisions. Why do you believe that diverse teams have a competitive advantage today in the markets?

Adrian: 19:27

Yeah, I think for us, we invest in what we call overlooked founders, incredible talent that you know, especially in the US, we expect that the talent all coming out of Silicon Valley, but the reality is they're incredible founders and companies that aren't just in Silicon Valley, they're in the middle of the country, they're in Europe, they're in Mexico, they're in the UK, they're in Canada.

Adrian: 19:46

For us, it's always been about finding incredible people that may not look different than the typical person that went to Stanford or the typical person that went to Harvard, and usually that talent is women, people of color, that are using really coming from life experience. They're not coming from privilege, they're coming from a different experience that's lived and that, for us, is what excites us, because it's when I talk about it's not just about that domain expertise is have they lived? What life have they lived to bring a difference of opinion to the team? Because the reality is we, we know that stats are opinion to the team. Because the reality is we know that stats are, oh, diverse teams outperform. For us, it's diverse teams have actually created positive financial outcomes for us. It has been really what has moved the needle for us, because we're looking at teams that no one may look at, but they're scrappy, they're hungrier, they're looking to climb the mountain that no one else will climb and that, for us, is why we do it.

Joeri: 20:53

So, Adrian, as a seasoned investor, what advice would you give entrepreneurs looking to secure venture capital funding in the fintech, AI, and cybersecurity sectors?

Adrian: 21:07

Yeah, that's a good question, Joeri. Part of it is you have to think about it like a sales cycle, is that? Not every investor, like every customer, is a match for you. And look, I went through this journey. I would pitch everyone, and I finally realized that you can't pitch everyone, because not every investor in not every fund is a good fit for your company. And so think of it as like building a sales funnel.

Adrian: 21:36

You start off with qualifying who your leads are. Who are the investors that are going to invest in my spaces? Everyone else. If they haven't invested in a fintech, ai, cybersecurity, I don't think they're going to start now. And so, they're right, you cut those off of those out of the lead. Now you look at qualified All right, there are a good amount of funds in this space at angel investors.

Adrian: 22:00

What are the types of checks that they're going to write? So I talked to a fund this morning that said, hey, we write, we have two funds, we write 10 to 20 million, and then we write three to 5 million. That's a fund that's not going to do your $1 million pre-seed round. And so therefore, you're like, okay, we're not going to cut them out, we're going to, we're going to put them in a different bucket. It's come back for series A, series B, but the worst thing you can do is to go pitch them and then they can say, oh my God, I only write three to ten million dollar checks. Hey, keep us posted for the series A, you just wasted a bunch of time, yeah. So therefore, you've got to look and all of this is available, whether it's on their website, whether it's on articles available, whether it's on their website, whether it's on articles. So it's really important to just start getting that funnel where everyone's as qualified, that will the pitch will resonate and you want to have, you don't want to have too much concentration risk. You need to look at. All right, let me look, maybe talk to the corporates, I want to talk to the big funds and let me talk to the angel investors.

Adrian: 23:07

It's interesting that one of the things that I see is that, before you go out and start pitching, we were lucky that when we were founders, there was a lot of events. You could go to an event like every day of the week here, and it was great because you could practice your company's pitch just by speaking with it, but also your personal pitch, because every investor. The first thing they're going to tell hey, tell me about your company, you tell them about the company and you tell them about blah, blah, blah. That's great, but tell me about you, what's your story? And founders forget about what, the why and the where and how, like, how did they get there? Why them? And so you have to refine it before you start talking to investors, because that's going to be really important.

Adrian: 23:55

And especially, like in refining the pitch, early investors, early investors, are looking for a vision pitch, what's what we call? Internally. It's like how am I going to climb Mount Everest, that big vision, that big wild ass goal? Because I think there's two types of pitches out there. There's the vision pitch and the vision pitch. And vision pitch is you want to get people excited by standing up in their chair and say, yes, I agree, this is a $10 trillion market and I want to be part of it. This is billion dollars. I want to be part of it.

Adrian: 24:29

The business one is here's revenue, and then here's my CAC and it's $1.72. And someone's going to say I don't know, is it $1.72 or is it $1.75? And then you go down what we call the rabbit hole, where you're now arguing about pennies, about CAC or about LTV, but the reality is, early on you've got to get people bought into the vision of what the company is. And, funny enough, as you start pitching and you get closer to a series A or a series B, you go from heavy vision pitch to heavy business pitch. And we've had founders in our portfolio that raised a series B and they started pitching the vision. I was like, guys, you got to stop doing this and then they went to did it and you're like you're right, they didn't really want to hear the vision anymore. I'm like no, you need to have a company. They're going to ask you about revenue. They're going to ask you about is it a dollar 72 versus a dollar75? What's your LTV Like? How? What's payback period?

Adrian: 25:27

If you're an enterprise and that's the important piece, because it's at the same time that you're pitching you also have to run the company. You also have to continue to have successes. So everything runs concurrently because we as investors one of the funny things that people don't understand, especially founders, is that we all talk amongst themselves. I was on that call with that same investor. We were going through companies. Hey, I realized I haven't talked to this guy. Oh yeah, let me give you the update. We all trade notes about every founder we meet because we get pitched by everybody, and so that goes back to building that funnel of no. Let's actually pitch. Who is the pitch is going to resonate to? To give you a higher chance of success.

Joeri: 26:12

Indeed, and it's interesting you mentioned that I was thinking about my podcast. I said it to you before we started to recording. I get a lot of pitches and lots of them they just pitch piteously. It's like throwing a plate of spaghetti on the wall and hoping that it will stick, like just so many podcasts without a plain vanilla pitch, not even listening to the show. Yeah, so that's really. You know who to pitch to and it's quality pitch, Maybe.

Adrian: 26:42

They're all getting the pitch that matches what they're looking for. Because even what we would do is when we were pitching as founders, we would have five to six different decks and they would be pitching to. The angel would be one deck pitching to a small fund, pitching to a larger fund, because they're looking for different things. There's things the individual angel is really looking to be like oh my God, what's that big vision the fund is looking for? Like, all right, what's your hockey stick? What's revenue? What's? I'm not going to get into financials because that's they're all BS. They'll prove it otherwise. But show me how you're going to make money. Show me how is this as a $20 billion business in five years?

Joeri: 27:27

Thank you for all this advice. I think it's a great moment to end this podcast with this really good advice. Now, if people want to connect with you, Adrian, if they want to follow what you're doing with your company, where would you like me to send them?

Adrian: 27:43

Yeah, feel free to reach out to me on LinkedIn Find Mendoza Ventures or Adrian Mendoza. We get a lot of pitches on LinkedIn. My inbox has about 300 LinkedIn requests so I don't get to the majority of them. If you are a founder, tailor the invite. You heard a lot about my background, about e-commerce, about data, about agencies, about FinTech. Like, tailor it to who you're pitching to and write a note. It's that little bit. You wouldn't amaze the power of connecting on a social network, like. We've actually met investors for our funds through LinkedIn that I've reached out and said hey, I saw you like their things, you like to learn more about Mendoza Ventures? And so the same goes with founders. We found incredible founders that reach out and say here's my deck. I heard one of the podcasts, I like what you said, here's what we're doing differently, and it's all really about good marketing.

Joeri: 28:41

Good marketing is tailoring to your audience Absolutely, and yeah, I mentioned that you listen to the show. That always is nice to hear, also for me, when you meet me at a conference, just say this, because every time I meet those people and when they listen to the full episodes, it's meant so. Thank you so much, Adrian. It was really a pleasure to have you on the show. Thank you for having me. Guys, what an amazing episode On our podcast. We started to get some investors also, with always interesting stories. You can learn a lot from them. So if you think that this episode is useful for people around you and I'm sure people send the podcast episode to them If you're not yet subscribed to the show, this is a really good moment to do this. If you haven't given me a review yet, if you can give me these five stars, it will help me even reach a bigger audience and, of course, I would like to see you back next time. Take care.