Venture capital dos and don’ts with Mendoza Ventures

Senofer and Adrian Mendoza of Mendoza Ventures

Quirky Consultant spoke with Senofer Mendoza and Adrian Mendoza, Co-Founders and General Partners of Mendoza Ventures. After having a career in enterprise sales and hospitality design, Senofer started Mendoza Ventures to address the growing funding gap in the pre-seed investment stage. She is a published author, innovator, and thought leader in the technology, startup, and VC space, with a passion for equality and diversity. She also advocates for DEI initiatives in her professional and personal life. After having two VC-funded startups in Boston, Adrian started Mendoza Ventures to address underrepresented founders' funding gap in the pre-seed investment stage.

Startup Budgeting

What are three types of expenses startups routinely take on that are considered cause for pause by venture funds, and why?

1. Salary

Every VC has a different theory about an appropriate salary for a founder. 

Still, it is good to remember that you are asking investors to take a financial risk on your business. Pulling a huge salary before or right after a close will give any investor pause. 

Make sure you are aligned with your board and investors on how salaries are set.

2. Development

Development costs should be aligned with your product roadmap and match the value of what you are building. So many startups without a CTO’s oversight overspend here without good advisors to keep costs in line with business goals

3. Service Providers

Outside help can seem like a silver bullet when you have limited resources. 

When you pay an outside agency, they need to bring that much value or customers into your business. 

What are three budgeting mistakes startups often make, and how can these mistakes be avoided? 

1. Relying on the System of Venture Capital

The biggest budgeting mistake I see, especially from early-stage startups, is relying on the venture capital system to catch them financially and spending like it will be there for them reliably at the next round of funding.

Your next round of funding is not a guarantee. 

Your job as a leader is to create a healthy, profitable business first and foremost, don’t let headlines and startup noise distract you from your accountability to the business.

2. Not Knowing the Numbers

Your money is the oxygen to the business.

If you don’t have the skills for the financial side, you have to learn them enough to be able to cross-check your CFO or your accountant.  

Your finances are a resource you are responsible for.

3. Keeping the Wrong People Too Long

There are so many reasons it is hard to let a team member go, but it is also important to remember that keeping them is not a passive act. 

It takes resources.  

Having the wrong CFO in place can derail a company, or keeping a leader on board that is mismanaging resources, people, or financial resources can be incredibly expensive, even debilitating.

Startup Financing 

What key business metrics do venture funds look for when evaluating a startup, and how can founders better set themselves up for success using these metrics? 

It depends on what funding stage you are trying to raise and the risk profile the VC is willing to fund, but no one can ignore solid metrics. 

Whether that is solid user growth, revenue, customers, or something that shows intrinsic value in a real market for what you’ve built.

How do venture funds typically evaluate a startup’s team, and how does this evaluation help to determine whether the startup is worthy of an investment? 

This varies wildly by the firm; some firms only invest in founders from specific schools, some in female founders, and some in people that were introduced from their network. 

What we look for is balance. 

The startup has to fit the metrics the venture capital firm has outlined for its fund, usually defined by economic vertical, region, or stage. 

Have the founders surround themselves with what they need to grow, whether or not it is similar to themselves. 

We look for diversity because experience has shown us that if founders can inspire people radically different from themselves to their cause, it sets them up for success.

It’s easy for a startup needing funds to seek an investment from any and every fund possible, but that’s not always best. What should startup founders look for in a venture fund when seeking funding, and why?

Look at who they have funded. 

No one wants to tell a startup no, and VCs will almost always take the meeting, but who they have funded is where they put their money. 

Especially if you are an under-represented founder, if the VC has no track record of funding people like you, spare your time.

How do venture funds weigh a startup team’s passion for what it does compared to its ability to execute, and why?

The ability to execute is a learned skill, and usually, passion is the thing that makes you willing to get radically uncomfortable enough to learn it.

You need both.

Scaling a company is an endurance run, not a sprint.

How do venture funds weigh a startup's short-term profitability, and why?

We are not typical in that we value short-term profitability more than most firms. 

Having options makes you more fundable, and the world of VC is notoriously biased and fickle.  

We encourage our founders to have as many options as possible to grow the company

Positive traction doesn't always mean making tons of money. What types of positive traction do venture funds look for when considering investing in a startup and why? 

Any proof of an idea thriving in the real world is positive traction. 

This can be many people sharing your product, completing a tough regulatory hurdle, adoption by a name brand, or recruiting a knowledgeable hire; every step in the right direction starts to prove your idea can grow.  

Some funds need specific traction to invest at a particular stage, it could be several customers or revenue, but as soon as you can iterate with customers, you’re generally better off to show multiple types of traction faster.

Other

Is there anything else you would like to share?

Mendoza Ventures was started with the idea that a woman and a Latino could change the face of venture capital and make a difference. We believe that VC has the potential, when invested responsibly, to create a wealth class in our country that looks like the population of our country. Roughly 80% of our portfolio is invested in the minority, female and immigrant founders. It’s important to note that diversity also makes money! According to a landmark McKinsey study in May of 2020, diverse teams outperform.