#401 Inside the Investor’s Mind: Adrian Mendoza’s Journey from CTO to Venture Capitalist

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Mehmet: Hello, and welcome back to a new episode of the CTL show with Mehmet. Today, I'm very pleased joining me from Boston in the US, Adrian Mendoza. Adrian, the way I love to do it is I keep it to my guests to introduce themselves. But disclaimer here, [00:01:00] Adrian have a very interesting background, which made me very, very excited.

Mehmet: Excited. Adrian, I will leave the floor to you. Just tell us a little bit more about you and what you are currently up to. And then we're going to take the discussion from there. So the floor is yours.

Adrian: Perfect. Thank you for having me on. Um, I am Adrian Mendoza. I'm the general partner. I'm a AI fintech cybersecurity investor.

Adrian: The interesting thing about me that made me attractive to reach out to Mehmet in the first place was. I actually was a tech founder before this, and I actually had two startups, and in those roles, I was the CTO. So I've gone from founder to CTO to now investor, so I'm pretty familiar with the journey of both.

Adrian: And so we are a venture fund based here in the U. S. We've now raising a 100 million fund. Primarily, we invest in, Uh, early tech founders that are innovating, modernizing and looking to transform [00:02:00] areas like financial services, insurance, manufacturing, and in those we've invested in companies that are fintech, AI infrastructure, cybersecurity companies.

Adrian: Uh, my background was the tech founder that, you know, had done work for some of the larger brands. And when we were walking around and saying, all right, what role are you going to be? I happen to be the most technical of all the founders and I still play that role here in house. Uh, I know a lot of the technology platforms, and so I'll definitely have a very much opinion today on what I think, uh, startup CTO is and isn't.

Mehmet: That's fantastic. We have a lot to, Uncover with you today, Adrian. Now, the first question, which might be like kind of, yeah, we expected this question, but what what attracted you to shift gears from being a tech founder to go the other side of the table and becoming, um, in the world of the VCs?

Adrian: You know, after we sold our [00:03:00] companies, you know, our, we, our story is we had one company, it pivoted to a second company.

Adrian: And then the board said, Hey, we want to sell this and go find something to do. And he was like, well, you don't have to tell me twice. Um, but kind of our experiences. We had some engaged investors and some not so engaged investors. And afterwards I would meet people that said, Hey, I know you, I invested in one of your companies.

Adrian: And I was like, who are you? And they was like, Oh, I went through this fund or went through that angel group. And I realized that there was just this incredible talent that was sitting on the sidelines, that if we had an opportunity to connect them to founders. You could create something really amazing.

Adrian: And that's always been what we build at Mendoza Ventures. We say we're by founders for founders because we run and operated several companies before my partner was our CEO. And so for us, it was how do we look at being taking the operational [00:04:00] experience? Knowing some certain spaces, the domain experience.

Adrian: And for us, we started eight years ago and that's been some key to our success is knowing their journey, but at the same time, knowing like, you know, prior to having the startup, I bootstrapped the company building some of the first mobile app for, for some of the banks. So I knew how to go through risk compliance infrastructure.

Adrian: And so that's really has helped us with our founders because we've We've actually been in their shoes. We've deployed to those clients that they are trying to get into as well.

Mehmet: I'm pretty sure, I mean, if this was a live streaming, I can imagine the amount of questions that would be coming. Um, especially because I was telling you before we start the recording.

Mehmet: So, uh, last year I spent probably like 90 percent of my time just Trying to understand the struggles of the founders. And of course there were like two things that used to come again and again. The first thing [00:05:00] of course is like, okay, we've come up with this product. You know, we think we are up to something.

Mehmet: We need some help in. Getting it out to the market, right? Of course. But the one which was always coming more is how we can find a fund, right? So we, we need, we need to get money so we can build this thing. Now is coming from a founder background makes, you know, this interaction with, The founders easier.

Mehmet: Can you, can you like sense from them this empathy? Because I would tell you like one of the feedback that I always come, uh, you know, the people who comes to me, they tell me is, you know, I met, like we, we presented, but these guys, they kind of ghosted us, you know, like these guys, they are asking us questions, nonsense.

Mehmet: Now, I'm curious to know, and maybe this is a strange question. I'm curious to know, you hear from the founders, You know, when they know that you were [00:06:00] in their place one day, so how this, you know, relationship goes, even if you don't invest with this company, like, and I'm asking you this question, Adrian, because I like to put the human aspect on it before, you know, of course, the investment and the technology and all this, I want to hear from you, like what you, what you are hearing, you know, challenges from, from the founders in that space.

Adrian: Yeah, I think it's always raising money, but you also have to understand like funds are raising money at the same time. You know, we raise money from limited partners to go into venture funds that then go into startups. And so it's, everyone's always raising money. And part of one of the things that I think a lot of founders forget is that raising money is just like selling.

Adrian: It's like creating a go to market strategy. It's finding the right team, but also finding the right investors that match up to you. Because [00:07:00] a lot of where I see founders go wrong. I think are two things. One, they go out and they pitch everything and everyone, but they're pitching to people to people that will never write them a check because they don't invest in this space.

Adrian: They don't invest in that vertical. You know, they do B2C. They don't do B2B. They do B2B. They don't do B2C. And so you have to treat it like a sales pipeline. And it's hard because when you're dealing with technical founders that are like it. They may not be in that selling stage, but then you have to talk to them about like, no, you're always selling though.

Adrian: You're building product. It's not about building product. I mean, part of it is, but also you're having to sell product. And you're also having to sell yourselves at the idea. And then the 2nd part. And this is where the empathy I'm known to be very direct with founders. I actually was just in Mexico city.

Adrian: We had a founder with us and I was really direct with them because I was seeing him pitch and I was like, let me give you some pointers because, [00:08:00] uh, you're running around talking to people, but you just have to be direct to them. Um, because if people know you're in, and that was actually very much our case, like we were warned very much, like you can have conversations, but if people know you're raising money, you're raising money and you have to, One of the things founders forget is us as investors all talk to each other, like all of the AI funds, all of the fintech funds.

Adrian: Like I know if a company pitches me, I know they've already pitched everybody else. And so we all talk to each other. And that's one of the things founders forget.

Mehmet: Right. So now I'm happy because you started to explain the, uh, Other part of the story, which is, you know, as VCs, you have to yourself go raise money from LPs.

Mehmet: Now let's for once and for all, as, as we say, Adrian, let's demystify this to founders. So they understand actually, you know, Why things [00:09:00] happen. So I want, you know, to go and they're going to keep the screen this way because it's going to be that kind of Q and a very quickly on this point. Yes. So, so VCs themselves.

Mehmet: Yes, they might be coming from a bank. So exited founders like yourself, right? So they might be bankers. They might be in different places and They are in a place where they can invest money. Let's put it clear that the VC, the GPs, the general partners, as we call them, they are not themselves putting that money.

Mehmet: So can we explain this, Adrian, like more into details where this money comes from and how, you know, the decisions to invest happen within the VCs?

Adrian: I mean, I think if you're an early stage founder, you're going to raise money from three different types of people. You know, there's the venture funds, and I'll talk about that last.

Adrian: There are these angels. People that have had an exit and then they're just investing out of their own pocket. They're kind of some of the easiest people because if they're a tech, [00:10:00] if they were a technical founder and you're like a very product focused, they might be enamored by you and say, all right, Hey, I'll write, you know, 50 to 150 K and then, or they, you know, a super angel may write up to 250, but they're, you know, sort of the easiest to raise money.

Adrian: Then you have these family offices that may be a family that had a business exited. And now they as a family are writing checks and there could be a range from 250 up to like maybe a million dollars. And then you have venture funds and venture funds are what's referred to as a blind pool. That means somebody creates a vehicle and then goes and fills that vehicle with investors.

Adrian: Other individuals, it may be in our case, we have a fund for banks. We have some of the largest institutions in the US as investors. We have family offices that don't want to do direct deals, but want us to do them for them. And then we have a small fund for individuals. And these are [00:11:00] everything from CTOs to CIOs to CEOs.

Adrian: That want to try their hand at investing, but don't want to go do it like them personally. They want someone else. And that's the rule of the general partner. The general partner takes a partnership, which are the LPs, the limited partners, and you represent them in finding companies, due diligency companies and investing companies.

Adrian: So one of the things founders forget is that they go and pitch a general partner. And they think that person is like an angel investor. Oh, that person will say yes. No, the angel investors will say yes. For us, there is a process involved. Every fund has an investment committee, which is a group from everywhere from two to 10 or 12 people that all look at the investment and the due diligence.

Adrian: And then they look at markers or things they want or things they don't want. In order to make that decision. And so one of the things I always recommend to founders are [00:12:00] about three important things. The first one is to back channel the VCs, like what do their investments look like? Um, you know, have they invested if you are a SAS company or if you're in a manufacturing company, look at what their investments are.

Adrian: So that's the first one is just because if you are not in something that they've invested in. The high likelihood that they won't invest in your vertical will be very, very likely, so don't get time. The second one is do research on where they are in the funding cycle, like, have they deployed a fund?

Adrian: Because I remember my experience, uh, we went and we met a BC and we had about three meetings with him and he was like, oh, I really like you guys. And we really liked him. And a friend of mine comes up to us, Hey, why are you talking to that guy? I was like, wow, we've had three meetings that guys, he doesn't have any money.

Adrian: He just deployed his last fund. He still has [00:13:00] to go and raise a fund. So you're just having conversations to have conversations, but he's never going to write you a check. And he never did because he didn't have the fund. And the third one is. It's always a, it should always be a back and forth. I appreciate it.

Adrian: And I always coach founders to say, not just like go and try to pitch their heart out, but to ask questions. And these questions will be like, how much do you typically rate? Like, how much do you typically write? What does your investment process look like? How long does it take from like a yes to a check?

Adrian: And that's super important because even in our case, We got a term sheet for an investment round in January. The round didn't close or we didn't get money in the bank till December of that year.

Mehmet: Wow.

Adrian: Yeah. Because we were like, yay, we found the VC. And he was like, Oh, [00:14:00] I'm only going to do part of it. You guys have to go and raise the rest.

Adrian: And so then we have to go back to everybody, the family offices, the angels, the other funds. And that process. We'd started in January, you know, usually here in the U. S. And it actually happens in Europe to nothing happens over the summer. So now you have, you know, a couple, you know, from January till May, maybe a little June, June, July, August, nothing happens because people are on vacation and anything you're doing is you're lining up meetings for January and then you have January, October, November, and in the U.

Adrian: S. nothing happens between Thanksgiving Day and Christmas. So you have limited windows in order to raise money. And that's why it took till December.

Mehmet: Now, one question, Adrian, out of, of course, not curiosity, I would say, but I imagine people would ask this question because you just mentioned it. [00:15:00] When to go to an angel investor and when to go to a VC, because I think there's a little bit confusion because I'm not sure if it's, is it because of the VCs or is it because the founders, they lack the knowledge because we see VCs and you know, we're talking about this before we start say, okay, we are early stage investors.

Mehmet: And the word early stage investors might be explained in different ways. So early stage can be a company that have built an MVP, but still they didn't sell yet. Or an early stage company might be a company they've built an MVP and they just have kind of few beta users. Running now and they have good feedback from them.

Mehmet: Now the thing that I see from the founder's perspective So they say hey, we are a pre seed company We didn't build anything and they go to a vc and then they said oh the vc told [00:16:00] us Hey, guys, go build that and then come back to me because I only invest in something that is built already. And sometimes they say, hey, you don't have enough traction and so on.

Mehmet: So what I'm trying to do with you, Adrian, is to minimize, I'll say, but it's gonna happen, guys, because, Adrian, you mentioned something really true. Pitching is selling, right? So you are selling. And, and you do it as a founder, VCs, they do it to their LPs and you're going to have rejections. But let's say we want to avoid these hard feelings.

Mehmet: So when, when they go to, to Angels and when they go to VCs.

Adrian: Okay. So it's funny because like selling, there's a process of qualifying your leads and you always, and it's funny because founders forget this, like not everyone is a customer. Not everyone is investor and I go, I always push back on them. So perfect [00:17:00] example, like yes, last week that founder was over and he met with one of my investors who had invited them and they had a list of all the names of all the people that they had talked about.

Adrian: They had spent hours. putting names of funds and angel investors. And I walked in back to the house and I just took a marker and was like, no, no, no, no, no, no, no. And I crossed away 90 percent of the list. And they were like, I'm like, that guy doesn't have money. That guy doesn't have a fund, blah, blah, blah, blah, blah.

Adrian: Instantly qualified list. And that's the thing about it is the frustration comes from founders who are just pitching over and over and over and over again and not getting any traction. And what ends up happening is like part of your qualification is as you're learning about a fund or even an angel investor, and they all say they do early.

Adrian: Everyone does early stage, but they all mean a different thing. [00:18:00] And so you as founder have to do that, the work that ask, what does early stage mean to you? And then when you have early stage, they'll be like, well, there's people that like the idea phase, but they don't really, they like to make sure there's actually a product there's like that traction.

Adrian: Well, what does that traction look like? Quantify me to X number of dollars, number of customers. And one of the things that. I see founders struggle with. It's this VC thing that says, go find me a shiny rock. And the VC says, go do something. So they go on and do it. And then they come back and they're like, well, you should come and get me a red rock.

Adrian: And you come back with a red rock. Well, I really like a more of a crimson colored rock. And so now you come back and now you're just doing that. You're not building the business. You're just chasing after this investor versus, you know, one of the things that I, what I did is when I, you know, and it's hard because, but this is why Being an entrepreneur is hard.

Adrian: Like you should have [00:19:00] some dollars set aside, but it's also on you as a founder to be creative. Like one of the things that I did when we were pitching our startup is we waited to pitch. We waited till we had a beta product. And I had a referenceable customer who wasn't even paying. He just was a reference to tell me, to tell them what I buy it when they build it, like, what would the price be?

Adrian: And like more of like a customer reference, the closer you get to having a product with a customer, the closer and better terms you're going to get on the money, but also you also have to think about that these early stage funds. May only write you a 50 to a hundred K check versus there may be a super angel that could write you 250, 000.

Adrian: So it's like, you can run after these [00:20:00] funds, but you may not raise a lot of money versus you can go to four super angels that they could say, well, I love you, you're, you're great. And then like write a 250, 000 check. But it really comes down to the founder as just. creating that pipeline for themselves and doing the research on who they're talking to.

Mehmet: Absolutely. You know, like this is very important and, uh, this is the number one they teach people when, when they go into sales. But I think this is, should be taught to anyone in any domain, because again, like I always tell people, if you are planning a trip, right? So the first thing you do, you plan your trip, right?

Mehmet: So you say, I got to go first from, okay, first you're going to search your destination. Where are you going? And then you're gonna go and search the, the routes, right? So which routes would be the best option for me? What iterates me nowadays, Adrian, I'm not sure if you're gonna be agreeing with me or no.

Mehmet: So I see The [00:21:00] people that they call them, I don't want to call them connectors. Like you'll find the name, you know, these, these, these things that appears on, on social media, mainly LinkedIn and so on and so forth. And, um, where, you know, okay, I have a list of 10, 000 angel investor in, I don't know.

Adrian: I know those we get.

Adrian: Pitched by those, I probably get 20 emails from those a day. Oh, I have this company. The truth being, I ignore them because if the founder can't find me directly, like it's not that hard to find like FinTech funds. We show up AI funds, we show up and the best way to find a VC is not through one of these connector things because these guys are charging startups like 5, 10 percent for, for raising capital.

Adrian: Um, and that capital is expensive. Because now I'm going to [00:22:00] write you 1, 000, 000 check, but you're going to write 100, 000 to this person, like that's not going to be attractive for me. So when I see those, I literally just delete the emails, you know, the founders that really, really want to raise money will reach out to me via, and we got a lot of inbound, whether it be LinkedIn, whether it be Twitter, whether it be we have founders dropping their decks off.

Adrian: On front of my door, I was actually on a trip from I was literally just arriving to London And I wasn't even 15 minutes in I was literally just leaving the plane and a founder chased after me with this business card And walked with me from the plane To the border control, even though he had he had a flight to munich and he pitched me all the way down I'm, like man, I That i'm like, you know what a week later.

Adrian: He had a meeting in the office You Because I appreciated that, like his [00:23:00] tenacity, but also he knew who I was, he knew what we invested in, he wanted to talk, he knew that we would come in on companies that had a million in revenue, and he was like, he started the conversation of, we're already at a million in revenue.

Adrian: Great. Now I'm like, now I'm all right. Perfect. That qualifies you for me. And so even when you're doing inbound by LinkedIn, like tailoring the conversation, like, cause even the inbound we get a lot of it is I'm looking for money. Like there wasn't a, Hey, I know that. You invested in a company like this, tailoring it to the fund you want to talk to will better to get you a meeting than not and also finding a connection that you have, whether it be another founder, people like other founders don't realize the power of another founder of someone in your network that knows us to say, Oh, I know them.

Adrian: The majority of meetings we take. Come from [00:24:00] founders that we may know that say I know this founder and I really like Or another investor that says oh, I like this person and you know, you should you should meet them

Mehmet: Absolutely. Just one thing also adrian and you know, correct me if i'm wrong but people they think oh these guys they You know, they are holding the money, you know, they they don't they're not really serious.

Mehmet: But the fact is That actually you have to deploy whatever you raise from your LPs. You have, you have, you have a, you know, your time start to take, right? So from the moment you close your funds until you deploy it. So you have, because let's say, I'm just giving an example. I'm actually

Adrian: going to correct you.

Adrian: It's not till when you close your fund. It's when you open the fund.

Mehmet: Exactly. Exactly.

Adrian: Let's say you do a first close on your fund and it takes you two years to do a final close.

Mehmet: Right.

Adrian: You have an investment period. That's it. That literally starts ticking. So if you know that [00:25:00] someone just opened their fund, they have two to four years that where they have to deploy the money.

Adrian: It's called the investment period.

Mehmet: Right. So this is why, you know, I tell people like, don't think that these guys, they don't want to meet you. So that means as to your point, Adrian, so probably you are not fitting with their, you know, area of, of what we call a thesis, right? So, so you are not fitting with their thesis because these guys, they, for example, they invest only to, you mentioned at the beginning in B2C only, and you are a B2B, uh, SAS company.

Mehmet: And of course they would not look at you because this is what they are focusing on because again, and I'm just saying this to, to clarify to the founders, the same way you pitch to the VCs, the VCs goes and pitch to the LPs and they say, Hey, we got to invest in. This right. And then of course, maybe, and let me ask you this, Adrian.

Mehmet: So you did your first fund. You're going [00:26:00] to go and build your second fund as soon as possible. Have you changed, you know, the area or the focus of your fund after you closed the first one?

Adrian: We're on our third fund. And our first one was in 2016, and you were, you know, we were operators and it was, this is like unheard of.

Adrian: There was no founders that were doing funds. And so what we did is we said, okay, we know we want to do early and we went to, we did what every founder does. We ended up talking to everybody and we ended up looking at everything, doggy dating apps, insurance, like we just saw everything. And a year of looking at like a hundred companies.

Adrian: You know, we took a step back and we're like, okay, we're not going to invest in everything. Let's look at areas we know really, really well. Well, I bootstrapped my company, my founder as a founder doing things for the banks. Well, let's look at FinTech at that point. That was [00:27:00] great. It wasn't even called FinTech yet.

Adrian: Um, well, we built some A. I. So we're gonna do that. We built some type of security. And so then we said, All right, we're gonna invest in these three spaces and we're gonna choose a company from each. And so that's how we did our first three investments. And then we ended up selling one really fast. The first other one.

Adrian: Was actually really a great story. It was a company called Alice here in Boston, and it's an AI gifting platform. And how I met the founder is we just started in January, 2016. I went to an event, they were having a pitch competition and this guy just came and sat down with me. And we just started having a great conversation.

Adrian: And he said, Oh, I'm pitching tonight. I said, Oh, I'd love to learn more. And he started telling me about it. And I was like, I left that. I didn't even stay for the pitch competition because I was like too noisy. And I walked out thinking, I like that guy. I wish I could invest in a guy like that. [00:28:00] And wouldn't you know, in May, he reached out to me.

Adrian: I'm not like instantly in May, he reached out to me and was like, Hey, Adrian, I've never raised money before. Can can I buy you a cup of coffee to learn? And we sat down for a couple hours. We talked about what it would take, and we ended up investing in him. And he was, uh, his name is Greg Siegel. And every time we would do something, he would always ask for advice.

Adrian: And I always appreciated that. And one day he was like, okay, we raised like our first round, like what happens next? And I started, I remember sitting down with him over lunch and I kind of walked through where. It would go and said, we're going to get to an A round and then at a B round, more than likely you're going to get replaced because you've never raised a company with 100 something employees and wouldn't you know, you got to a B round and he got replaced and he was like, wow, I can't believe that happened.

Adrian: And [00:29:00] one of the other founders said, well, Adrian told you this was going to happen. Like he told you the future. And I actually have founders that have said everything Adrian said would happen came true because I literally early on after I invested, I was like, here's what's where the movie is going to go.

Adrian: And that, you know, we have this saying that I always tell everyone. If you ask for, you know, money, you get advice. If you ask for advice, you get money. And that was a perfect thing of asking for advice and like listening, but also not being like, oh, I'm gonna do, I literally was like, let's talk to everyone.

Adrian: Let's get multiple term sheets. Like we were like, it was a really engaged process to the point when he was raising a series B from some pretty well known investors. He was coming back to me for advice on a series B and I was like, Hey, you know, I'm not a series B investor. And he's like, Yeah, but you still take all my meetings,

Mehmet: right?

Mehmet: Um, one of the things because you [00:30:00] were founders, Adrian, I'm sure like you can relate, but I would not ask you about the mistakes that the founders do, but I would ask you what would be a red flag for you. Let's say they, they pass the initial filtering, of course. So, so they reach out to you or one of your team members.

Mehmet: So you decide, okay, it's worth to talk to these guys, but then once they start, what are like some of the red flags for you that say, you know what? No, no, no, no. These guys. No brainer. No, no investment. What would be some of these third flags?

Adrian: Yeah, I think I would say there's a couple the first one is Like showing up and everyone has a role and everyone's like, I'm the CEO.

Adrian: I'm the CTO. I'm the, the chief revenue officer. And early on titles are meaningless. You know, even if you were to go and hire like this highly experienced sales professional, you don't have a product yet. [00:31:00] Like until like everyone thinks, and I think this is the thing with. Founders. They don't realize is that this is an organic process.

Adrian: Like the company you are when you just start is not the company you are at a seed round and it's not the company you are in a year round. It is not the company you are at the B round. All you can do is start putting the things in place in order to help you grow. And it's, you know, early on, like we, they're at my company, there were no pebbles.

Adrian: Because it was like, everybody did everything. Everybody sold, everybody helped build things. Everybody helped find customers. And then once we got that at first round of financing, then we were like, well, somebody has to be the CEO. So I actually hired a guy to be the CEO. And then one guy was like, well, I really want to focus on sales.

Adrian: So he became our VP of sales and then I was the most technical person. And then they were looking at me and they were like, well, I guess you're the CTO. And I'm like, well, I guess so. [00:32:00] And I used to call myself the accidental CTO. Um, and part of it is, you know, but as we scaled, we were like, all right, let's build out an engineering team and I should be replaced.

Adrian: Funny enough. I never got replaced. That flexibility of where you are is really important. And then it comes to the second point. The second point is sometimes founders have a very specific vision of what they want their company, their product to be. And I remember talking to a company a couple of years ago where I asked, just asked a question, say, Hey, if someone bought you early.

Adrian: What would you think about that? And they were like, no, we're gonna IPO. That company's never IPO. They, you know, have not even raised to be around yet. Um, and part of it is, they need, you know, the best advice I have for that about flexibility is. [00:33:00] Every founder wants to say who they are. It's not who they are.

Adrian: It's who your customer says you are. Your first customer will tell you who you are, what product you are, what vertical you are. And that's the thing about it. And we look at the flexibility. And so that's why when you look at a company, You want to make sure that they have customers because I'm going to go talk to the customer and I'm going to say like, who are they?

Adrian: Why did you write them a check? Would you buy from them again? Because what you're trying to assess out is. Is is it an outlier that they got a customer or is it repeatable because that's the piece of it. Is it repeatable? Because if they're not and they just managed to get to 500 K or a million dollars, but they won't get there again, then that's something that's a warning flag that not everyone's going to buy.

Adrian: And so people always ask me like that. What's the one thing that you look at that will automatically [00:34:00] like be like a good indicator of success? And I always say it's revenue. The more repeatable revenue you have, the, you know, they aren't like 5k checks, 10k checks. But our, you know, 50, 100, especially on the B2B side or on the B2C side, if you've got 10, customers, most like early stage fintechs won't break 5, 000 customers, you could find 5, 000 customers in your sleep, you could buy them, you know, just by like buying ads, but like the repeatability of it.

Adrian: Is something that's really important.

Mehmet: Absolutely. Now you mentioned something about the route to exit Adrian. And do

Mehmet: you think really founders, especially first time founders, and I'm asking this on purpose, they are prepared mentally at least to accept that one day this company Can I [00:35:00] be sold out like because you mentioned the everyone has in his mind or her mind the IPO But why they should actually embrace no, you know what probably I gonna be bought after maybe my series a series B I would say I gotta exit because I gotta be a serial entrepreneur and go start the next big thing.

Mehmet: So why do you think still some first time founders, they have this eagerness, which I can understand for going IPO and going, you know, this big exits.

Adrian: You know, it's what my partner calls a Cinderella boy story. You're going to raise money and then poof, you're going to IPO. And it never happens like that.

Adrian: The path to success is a really, really windy road. And one of the things that I have to remind founders is your typical IPO is 17 and a half years. From seed to the IPO. It is a long time to get there. [00:36:00] And during that process, you may not be at the company. Um, you know, I always said that for me, like, I really did well at the early stages.

Adrian: Seed to eight. That was where I played, you know, you get me managing a hundred people, I would get bored. But like that and the same thing with founders is you have to be like, where does that founder live in the life cycle of the company? And for a lot of them, like, it's not gonna be managing 100, 200, you know, raising 200 million.

Adrian: It's gonna be like, all right, you know, an early stage founder is great for that moment. As early stage investors as early stage advisors. Um, but I think that's the path of the finder. And look, I've met founders who sell earlier than they're supposed to because they're like, this is too stressful. This is not the life I want.

Adrian: But there's some that won't be like, I don't mind because everyone forgets that even if you [00:37:00] sell. You're going to still be part of the company. You just will not have more, any more upside that goes from there. Um, but I think it's also like one of the things it's like when I talk to, let's say, like AI companies, people are like, well, great.

Adrian: When's the last AI company that IPO'd? And they're like, yeah, never been an AI company that IPO'd. Then why do you think you're going to IPO? Like, you're more than likely 90 percent of the time going to get acquired, as in fintech, as in cybersecurity.

Mehmet: Absolutely. Now. On the, you know, uh, point you mentioned you were accidental CTO, right?

Mehmet: Um, now how this makes the life easy for you and the founders when the discussions start, right? So, because you come from a technical background. So I believe even Some, not all, but I mean, at least the preliminary, uh, stuff that happens with the technical due [00:38:00] diligence. So maybe you can spot a few things from your side, Adrian, right?

Mehmet: So how, how does accidental CTO, um, you know, Background that you have, which I think you are a CTO, right? After all, how, how this, how this makes, you know, the, the discussion and the technical due diligence and the whole due diligence later easier for you when to pick, you know, a startup to invest with.

Adrian: You know, it's funny cause people used to ask me like what my job was as a CTO.

Adrian: And my, I told them that my job was unblocking people at the height of it. Like we were writing code 24 seconds. We had teams in India, a team in Croatia, a team in like South America, and then we'd all meet up at like 10 o'clock and then review code. And so my job as CTO, and this is leading up to what I see as an investor, is I never wrote a line of code by the, when we were up and running.

Adrian: My job was to make sure that [00:39:00] my team was unblocked. So that they could write the lines of code and that I would sit on the meetings to make sure that I can get budget or that I can talk to the customers. And so my engagement was really high because I was the filter between the engineering team, the business team and the customer.

Adrian: So. In sales cycles, I would be brought in with the head of the sales guy to help close business. And he would be like, ha, ha, that CTO thinks it could be done in a minute. And then I would be like, look, here's how we can deploy our code in a minute. I even did it by on a video. And then I would send them a video ahead of time.

Adrian: And the customers were like, yeah. He's right. You could deploy that code in a minute. We don't even have to talk to him. I start talking to the technical co founder, the CTO. I don't really care about the code base, the code base. I can sick an engineer to look at it. What [00:40:00] I really care is like, how did they think from an architectural level?

Adrian: Like I remember sitting and hiring a VP of engineering and on a board, I said, here's what I want. And I literally like in a flow chart, you know, looked at where I wanted our load balancer is where, what would be an AWS. Architected out everything, and then the CTO came back by and he said, Oh, did you? Did you do this?

Adrian: And the VP of engineering looked at me and said, No, he did it. And this is exactly what we're going to build. But that idea of taking the architectural, the big picture. And because one of the things that is. When you're building an early product, you cut a lot of corners. It's what, you know, the term technical debt comes from.

Adrian: And it's things that you're like, Oh, that's a future Adrian problem. That's a future CTO problem. Well, one way or another, you're going to end up paying for it. And so what ends up happening is you cut a lot of corners, [00:41:00] but then it's not like you can really take the time to rebuild things because now you have customers.

Adrian: Now you have scale. And now little problems become big problems. And so what I want to suss out when we're looking at a technology company is where have they cut the corners and where are they breaking at the seams? Because at a certain point, I've seen really good companies try to get the scale and fail because the product just won't scale, even though the customers are scaling, but the product failed.

Adrian: Then like in our case, like our first product was. Written on Ruby on rails and would not scale at all. And then up having to like just rewrite everything at the same time that we had customers at the same time we were doing stuff and we ended up changing our engineering team halfway through because some of them were good and some of them weren't.

Adrian: And so when you're looking at due diligence. You're looking at, like, [00:42:00] what their view is, like, from an architectural level, from a cost level, like, is this something where you need 100 engineers? Is this something where you maintain? Because the ideal purpose, when you take a step back, is as revenue goes up, your operation expenses, OPEX, should remain flat.

Adrian: If you have to go, and as revenue is going up, Your operation expenses are going up because you're hiring more engineers. You're having to play more AWS, you're having to pay more software. Then you're never going to get to profitability because you're just margins are always continue to be the same. And so that's kind of what we need to push it because the bodies are the biggest expense, but they're also your biggest asset.

Adrian: And so, um, for me, when you talk to the technical founder, Again, it doesn't matter about the writing code. What matters are, can they hire a team behind them? Can they [00:43:00] hire the right people to work for you regardless? Like I used to have this example. We had an incredible VP of engineering and I hired him.

Adrian: I fired him. I hired him. I fired him. I hired him again. And then I fired him again because we were just raising money, not raising money, raising money, not raising money. And um, right now, if I called him, he'd be like, great. Where do you want me to be? That's the thing.

Mehmet: It's like a rollercoaster.

Adrian: It's a rollercoaster.

Adrian: But at the same time, I once had a CTO that I knew he had just sold his company and he was starting his next company. And he went to the VCs and, uh, the VCs asked him a question that I still love today that I still use. The VC asked the CTO, Hey, so you sold your other company. And he's like, yeah. What happened to all of your guys?

Adrian: And that was a really good question and in his case, his answer was, [00:44:00] yeah, I had these 20, 30 guys and these guys will be here. I helped them find a job over here. And these guys will be here. They're going to come with me on my next company. And these guys, they were good, but I'm okay letting them go.

Adrian: Especially for a good CTO, when, especially if you're a technology company, you need to have in tow because hiring the right talent is difficult, regardless of whether you're sales. And I would ask the same question on the sales team. I would ask the same question on any of the other teams, the startup, but engineering talent is still hard, especially talent that you could trust.

Mehmet: Absolutely. Now, Adrian, I know and you just mentioned which, uh, which domains you focus on. So you said AI, FinTech and cyber security, right? Now, I just want to go one by one very quickly, but let's start with AI because it's, I think where we're gonna stop the most [00:45:00] now AI, right? So everyone is now talking about AI and there is this, you know, sometimes I read these articles saying like, yeah, these founders, even they have.

Mehmet: you know, this very simple AI application, but still they got, you know, huge, um, uh, investments from, from these VCs while these guys who are building something, which is, you know, like hard to build, it took them more resources to build. No one is looking at them. Is AI currently overrated? This is my first question.

Adrian: I was on CNBC last year and I'm like, we're in a, AI bubble again, because now everything is ai and it's like, like I tell the, I think you'll, you'll anyone who sees Enemy on a podcast, I'll talk about the pizza deck. I saw a deck from a, some, a group of technical founders that were using com, computer vision and algorithms to detect how many pepperonis were on a pizza.

Adrian: And the reality [00:46:00] is like nobody cares. There's like a pepperoni is like, what, a quarter of a percent, like who cares? And that's the thing about it is, and this is where, especially on the AI companies where people fall in the trap of, Oh, I'm going to build something. And it's like, all right, you're going to build something.

Adrian: But the people that are earning that are raising the money now are the ones that could do a good job of explainability of the AI, but also the use cases. Use cases people are buying. Use cases on the vision for what it's going to go. And so this is kind of the curse of the technical founder, where they go in a hole and they start building something, and they're like, but why aren't the VCs buying it?

Adrian: Why aren't the customers buying it? Because they're not able to tell anyone why anyone should be using this. Why anyone should be buying it. And is it something defensible? Because [00:47:00] if you're just building an application on top of an LLM like ChatGBT, there's nothing defensible about it. You're just building an application on top of someone else's code base.

Adrian: And it's easy to start poking holes. Like, one of the things that we go when we're talking to an AI company, it's like, what LLM are you using? Why that LLM? What if it gets deprecated and you get kicked off? Um, also when you look at like code bases, like, is it something that you build proprietary versus like, is it something that you did it?

Adrian: And I think that's really, really important because, you know, if you're using Google's machine learning algorithm, You're not using your own. There's nothing defense. There's nothing defensible about it. And especially when you're dealing with AI, it's the really is a focus about defensibility because the day that chat GPT decides to kick off all their users because they're going to charge them, there goes your application.[00:48:00]

Adrian: Or let's say they deprecate one of the LLMs and you've written everything specifically for the chat GPT or open AI number version eight. And they go to number 10 and then they deprecate it and you haven't built an abstraction layer to switch them out at any moment in time, you are in trouble. And so as we're doing that, I mean, it goes back to the due diligence.

Adrian: It's looking for holes on things in an environment that is literally changing in every week to two weeks.

Mehmet: So it's about solving real problems, Adrian, like, it's not like trying to build something and then, hey, let's see if someone gets interested or excited about it, right?

Adrian: Well, Hard now, especially knowing that anyone can build a chat, GPT application, anyone.

Adrian: So it's like, all right, so you're looking at 10 companies that all look exactly the same. And if they're all saying [00:49:00] they do the same use case, then it's like, alright, let's talk about the sensibility and who owns patents, who actually has customers paying for them? And that's why I go back to the thing of, it's all about the revenue.

Adrian: Who actually is getting paid? Build something or actually to like commercialize it

Mehmet: more over and also like the thing, which I think, uh, no one can predict it if one of these providers, like whether it's open AI, Google or, uh, Anthropic or any one of these companies or now, uh, Meta with, uh, with, uh, uh, Lama and so on, because it's happened with me.

Mehmet: It's not like I have built something, but you know, yeah. When AI, I mean, the chat GPT was still new. So I started to see, you know, this, something that's related to podcasting. So you just upload your MP3 and then they will generate for you the transcript. They will generate like options for titles and, um, [00:50:00] you know, like, show notes and so on.

Mehmet: So, and there were, you know, a couple of these startups. I tried even a couple of them. I expected, I expected that why not open AI would allow anyone to upload the MP3 file or like even the transcript, which you can do it very easily today. And then I would do it by myself. So I don't need even to, to have this up.

Mehmet: And this is exactly what happened. So the thing is you don't know, or no one would know If these companies which are providing the API, funny enough, they're going to build the application on top of their own technology, and then they will make you obsolete. And guess what? They can tell people, Hey, we're going to give you this for free, right?

Mehmet: So part of, for example of your 20 per month that you pay to open AI, I going to give you, for example, something that allows you, I don't know, like to As you said to do the speeds[00:51:00]

Mehmet: So all what I have built and because you need to pay the API's due to I mean there is cost Maybe it's minimal now But still there is cost you need to do marketing for your application and then you end up by having the biggest Distribution, which is the providers of the APIs themselves doing it. So it makes you obsolete.

Mehmet: So this is why I say you need to differentiate yourself now. This is for the AI. What's happening in the cyber security space, Adrian? Yeah, to my, just because like one small note to me, it's, is it crowded or am I feeling it again? It's good.

Adrian: It's crowded. There is a lot of identity company and interesting in that space, as there's been so much excited excitement about chatty BT and AI and companies are looking to it.

Adrian: They've actually moved their dollars away from identity. Into generative, because they're like, oh, we should do something in that space. Our product should do something [00:52:00] in that space. And so that's a space in the last couple of years has been really crowded. This was a space where people were closing million to 2 million deals.

Adrian: Now they're closing 50 to a hundred cadence. And so we have one of our companies that was like, all right, if that's the case, instead of closing three deals, one, and I close nine deals. Okay. Smaller deals to get my foot in the door. So when things open up again, because they will, we're ready to go. And she's not an identity company, but like when you look at like identity orchestration, identity, access management, governance, there's so much noise in that space.

Adrian: And it's really hard because there's people that come from all the same pedigree, but the customer is now looking at instead of two options. They're looking at 20 different companies, and that's the hard thing to distinguish yourself. And I think [00:53:00] we're going to see a bigger shakeup in that space because so much money was poured into a certain aspect of cybersecurity.

Adrian: That has to do with just identity, which is important, but still now there's just a lot of like, just way too much noise, way too many companies, way too product that's not being bought.

Mehmet: Got you. Let's jump quickly to, to, to FinTech because FinTech is very interesting, very, very interesting. And, you know, What?

Mehmet: Every time I think, okay, we reached the end. I don't think there's more innovation that can happen. I get wrong, which I like to get wrong, by the way, it's not that

Adrian: we're just getting started. And it was funny because a couple of years ago I was quoted by a magazine here in the U. S. called American Banker, and they said, like, Hey, what do you think the future is?

Adrian: I said, the future is going to be decentralized finance. It's the [00:54:00] ability for a founder, because if you think about it, like 10 years ago, you couldn't build a FinTech like there was no way for you to get any banking done. There was no way for you to get money right now. You can stand up something that does remittances across companies in minutes.

Adrian: You could stand up like there's so much kits of parts out there and code bases move money. Which is incredible. And so I was asked by this. I said, Hey, what's the future? I said, Hey, this is the future. And it's the future because it's the ability for companies build like financial wallets to build financial tools as founders quicker than we could ever before.

Adrian: And I said, and because of this, it's going to disrupt some of the traditional players in the space, the MasterCards, the visas, the credit companies. And it was funny because then someone took, uh, Synapse took my quote and started using it to market it [00:55:00] to be like, Oh, and I was like, no, no, no, Synapse, you are the guys that are going to be disrupted.

Adrian: And wouldn't you know, like they just shut down like 30 days ago because they got disrupted. Yeah.

Mehmet: A lot of things happening there now because you invest outside of the US right? Adrianne? Am I correct?

Adrian: Yeah, so our fund two was invested in Canada. It was invested in the uk. We look at companies in latam, we look at companies in Europe right now with my current fund.

Adrian: They have to be domiciled in the US but can do business anywhere in the us. So for me, what I love is to find a company. That can one makes, you know, most companies I think are domiciled in Delaware, even in the UK, even in, you know, in Mexico or Latin, you know, Latino America and but can use a different market.

Adrian: So I was just in Mexico last week and I was talking to fintechs in Mexico. And when I said, one of the powers of what you can do [00:56:00] here is you can build a fintech and you can fail. And nobody cares. And then you can stand it up, try again, fail again till you get it right. If you did that in the US, everyone would know you failed.

Adrian: But guess what? If you are able to try something here, and then move it to Europe, or then move it to the US, move it to Canada, after you've tried and failed with customers in a smaller market, that's something pretty interesting for us to look at. Because you've been able to kick the tires, And now you're going to be ready to scale.

Mehmet: Right. Uh, by the way, even here in, in Dubai and the Middle East, the majority of the companies, what they do is they domiciled the company in, in the U S in Delaware specifically, of course. And then, you know, when they operate locally, so it's kind of like a holding company that owns, you know, the branches across the globe, which is, which is, you know, Um, you know, same case as as what you're [00:57:00] mentioning about the LATAM and, uh, uh, other geographies also as well.

Mehmet: Again, it's because, you know, Deliver has the long history, um, of being, you know, easy to establish a fund and, you know, operate as a VC over there for, for multiple reasons, I can say. Now, as we are coming close to an end, I want to discuss the impact part. Of what you're doing, Adrian, and because I know you focus a lot on inclusion, you focus a lot on, you know, in empowering women in tech.

Mehmet: And one of the things that also like I'm passionate about myself is to empower people to, you know, like, and this is why I'm liking this conversation today. So to show people that, you know, being a in the venture capitalist, um, Domain. It's not like you just invest and you you wait for companies to exit because actually you are able to impact people lives.

Mehmet: You are able to empower them to grow economies and so on. So tell me a little bit more about the [00:58:00] impact part off of what you do at Mendoza Ventures.

Adrian: Yeah, one of the things I love is the ability that especially through FinTech. Because of decentralized finance, because of sort of this access to products to be able to touch customers that no one else is touching.

Adrian: And this is where sort of financial inclusion plays a really important thing. So last week in Mexico, I was able to bring one of my founders who focuses on Latino customers, put him in touch with the president of a bank in Mexico. And the first thing he said was, I love this. He's like, no one understands how strong.

Adrian: The latino customer in the U. S. Is to the latino customer here, and he started the conversation. He already had an idea. He was like, I wish we could do this. Will you help build it with us? And it was like instant, like he had an idea of how to deal with the customers. And he's like, no one's touching this customer.

Adrian: And that's the power of financial inclusion. Because most of us on this call are the overbanked were [00:59:00] being approached by all the banks. Hey, well, you open a bank account here. There is a subset of the population that is underbanked. So how do you support the underbanked and then get them to be the overbanked, which is the ideal situation?

Adrian: So I think there is a focus there. On the customer, but also on the founder side for us, it's on the impact side is finding incredible talent that's overlooked that, you know, because it's not just whether or not they're Latino or they're a female founder, but also where you are, everyone thinks the only way place you can be a founder is Silicon Valley.

Adrian: There's incredible talent everywhere. There's incredible talent. Like you're in Dubai. There's incredible talent there that want to build something like I met some incredible founders last week in Mexico. I was in London before that, but it's incredible founders there that are looking to just build things, but also have the main knowledge of their area to be like, here's the problems.

Adrian: [01:00:00] Because this is the best founder is the one that finds a problem. And understands the problem and is now going to find a solution for them. That's really the ideal and the perfect founder, because they know that they're building stuff and it doesn't matter who they look like, if they, or where they are, if they have a solution to a problem and they can build a company.

Adrian: That's an incredible person to find.

Mehmet: Absolutely. I love, I love this because to your point on the talent, you know, like, uh, what I can tell, like, there's a lot, a lot, a lot, a lot of talents everywhere and they deserve to. Be exposed to the world. So I love this. Adrian, I really enjoyed this, this conversation with you today.

Mehmet: Like time passed. I didn't even feel it. So, uh, where people can get in touch,

Adrian: reach out to me on LinkedIn. You could follow me on LinkedIn, or just, if you want to send me your deck, send me a message, but tailor it to me and say, Hey, I [01:01:00] heard you on the CTO show with my I like you did this. This is what I'm doing.

Mehmet: Okay, that's great. I gotta put the linked in link in the show notes. So Adrian, again, thank you very much. I know how busy can things get, especially for someone like yourself, very active in the startup scene and you're trying to empower, um, you know, the founders from investment perspective. And of course, you do more than this with the mentorship and the coaching and all that.

Mehmet: So absolutely, you know, um, Really, you know grateful for for you to have, uh, you know this conversation with me today And this is how I end my episodes by the way, so this is for the audience If you just discovered this podcast by luck, thank you for passing by if you like it Please subscribe give us a thumb up and share it with your friends and colleagues And if you are one of the people who keeps coming back, thank you for doing so send me your suggestions comments and comments Everything, you know, that you have in mind, maybe a follow up questions with the guests.

Mehmet: I will try to do my best to get it to them. [01:02:00] So please do so. Thank you very much for tuning in and we'll meet again very soon. Thank you. Bye bye.