Fundraising Series: Inside the Mind of an Investor

An Interview with Web3 Investor & Partner @ Consensys Mesh , Thomas Rush

I had the pleasure of sitting down for a Q&A with Thomas Rush, Partner at ConsenSys Mesh: an accelerator, incubator, investor, and enabler of blockchain technology solutions. Thomas’ work is focused on token networks, DAOS, and the Mesh investment portfolio of 170+ positions. He is also an angel investor, board director, and advisor to early-stage technology companies. Thomas brings 15+ years of experience in innovation and technology. Before joining Mesh, Thomas led Client Services at Live Grey, served on the innovation and global business development teams at IPG Mediabrands, and co-founded Propeller, an impact-driven co-working space and business incubator in New Orleans.

What is the most common mistake you see founders make in their pitches?

"A very common mistake – which is not necessarily solely constrained to a founder’s pitch, but applies more broadly to their business strategy overall – is that often founders try to solve too many problems at once. And really what that means, is that they are trying to build more than one business at once, while not being aware of it.

As an example, somebody may say we want to build a platform where they attract users, and then sell advertising to brands, and serve those ads to the users.

And obviously, there could be a Web3-component such as a token or other elements, but it’s a very common business model on the web currently. The point is, they might not realize is that they could be building too many businesses at once – for example, the founder may be building the advertising platform as a peer-to-peer marketplace. In this instance, they're trying to insert a transaction fee, build a marketplace, while also selling advertising to enterprises where they also need an enterprise sales force as a result.

Although there may be synergies between the two models, those synergies may not outweigh the fact that they are quite literally starting two revenue streams and pursuing two different target markets.

This approach may even require two different tech stacks, two different interfaces, etc. It just quite literally multiplies the amount of work you need to do and the questions you need to answer in order to be successful. I think that's kind of an underlying problem that a lot of teams aren't necessarily conscious of."

What makes you immediately lose conviction in a company when you’re watching them pitch?

"I’m very flexible in terms of what is specifically being pitched, and what's on a slide deck. All of that stuff is going to change next week anyways, as the business evolves over time, so there's no reason to hold the team to an unreasonable standard in regard to the pitch itself.

However, in terms of the team, their personalities, and what they have done ahead of time to prepare for the pitch – that's where the rubber meets the road.

And so for me, the attributes of the team itself that are most important can be boiled down to two things:

1.???Their ability to receive feedback.

2.???Their ability to clearly communicate complex topics

Regarding the ability to receive feedback, if a team is pitching and you have a subject matter expert who's giving them feedback or asking tough questions and they're bristling at the questions, or you can just tell that they're not actually digesting the feedback -- that's typically not a good sign because they're going to have to consistently receive feedback over the life of their company, pivoting and adjusting to the market along the way. If they're just purely stubborn and not willing, it's likely not a good sign in the long term.

The second red flag I look for is really just a lack of clarity in terms of communication and also the thinking that goes into their business, which seems obvious–and it probably is obvious–but it's surprising how many people present a compelling business strategy and then if you “double-click” or “triple-click” on a particular area of the business, they haven't thought through the consequences of that element of their business.

An example might be a Web3 business that's going to reward users who do a certain activity, right? It’s aWeb3 and you're going to reward users, who watch videos, with tokens. That’s very easily gamified by someone building a bot that just sits there and watches content in exchange for tokens, or users who farm tokens and consistently dump them on the open market – ultimately adding zero value to your platform.

The question for the founders then becomes “How do you combat users who are trying to game your business for their benefit?” And if they haven't thought through those kinds of second elements, to me it’s a signal that they haven't gone to the level of detail that would provide a high level of conviction for an investment.

Which slides do you focus most heavily on when reviewing a pitch?

"One of the main ones is a slide that I think every pitch deck has, which is the “Problem” slide. I think the Problem slide is similar to what we discussed before, in that many teams will put a relatively simple problem on An example could be “wallet addresses are hard to read and it's hard to find information in Web3, and therefore I'm going to build a Web3 search engine,” and that's the problem and solution. The reason I focus on that, though, is because I think a team that is more poised for success will have a problem that's much more nuanced and likely indicates some sort of insight into a particular market.

So instead of a very broad problem, for example “Web3 adoption is slower than expected,” a great team will focus on what market has a particular problem. Why do they care? Why would they pay for it? And very often, those second-order questions are missing from the problem.

So the result is many teams present very unfocused problems. While the converse of that is a problem slide and a problem statement that has that level of nuance and has a higher level of insight. An example of an insightful problem slide might sound like “brands are looking to find new ways of engaging their audiences. Furthermore, Apple's privacy policies have wiped out a lot of ad revenues, and ROI has been reduced because of the death of the cookie, and the latest privacy policies that Apple has implemented. Our solution is to provide NFTs which offer another level of engagement across a particular target market that these brands are pursuing because it represents Gen Z users and that's a growing market segment for x, y, z brands.”

All of the sudden, the team has a completely different problem statement that goes from this very broad, obscure approach, to a very narrow-focused thought process. You can more easily see the experiments that that company would run in order to validate whether or not their business is on the right track."

Can you give an example of a really great pitch you've seen and tell us why it was so impactful?

"Yes, and full disclosure this startup is not a portfolio company so I’m relatively unbiased.

Recently, I've spoken with a team called Momint. They are building a marketplace for brands to mint NFTs related to their respective products. I’ll give one example, to provide more nuance to yourself and everyone who's listening to, or reading this: there was a whiskey brand, I forget which one, but they launched an NFT and that NFT gave you the right to some super rare whiskey that was currently being developed by the company, and then you could obviously buy, and sell, and trade that NFT accordingly, and it gave you the rights to that future X number of bottles of whiskey. And so, it's a really great long-term value proposition for the brand and how they connect with consumers, etc. But the reason that I think the pitch was so good, was that they had gotten to the point where many pitches are lacking.

Backing up a step, many pitches I find are still dealing with first-order problems, right? They're talking through and validating the problem, they’re still experimenting with who the target market is, they're toying with what kind of experiments they're going to run, et cetera.

This team had already gone and done all of that work: they were in talks with brands, they had validated the problem, and built a beautiful product. They had reduced the risk dramatically because they'd already checked so many of the boxes before going out and pitching to investors, and again, it seems obvious but 80% of companies don't do that.

There are so many things that a company or a startup can do without fundraising that begin to reduce the risk of investing in that company. I personally think it speaks to the quality of the founder when they go out and take that initiative–reducing the risk without any capital outlay. And then, of course, there's another group of founders that don't, the first thing they do is go out and pitch. They think that capital is required to do all of the things, when really the opposite is true."

Can you share an example of a pitch that missed the mark and why?

"So I have one in mind, and again I don't want to highlight them because they could turn everything around and be the next Airbnb, but one of them was similar to what we were discussing before: The fact that this founding team simply didn’t have a detailed map of the world – in the sense that if you have a very detailed map of the territory, you'll know how to navigate it in a much more clear manner and be more efficient as you execute. Whereas, if you don't have that detailed map of the world in your mind it’s going to be a lot harder and there's going to be many more wasted cycles as you go down one path not realizing that it’s a dead end, and having to trace back and start over down another path, metaphorically speaking. This could come to life for a startup as the iterations on a product, the particular market being pursued, etc. All of the efforts that a startup expends over the course of two years can be much more efficiently executed with the right amount of preparations up front.

And so, to bring it back around to your question, the company I’m thinking of was starting several businesses all at once, and in each of those verticals they were competing with very well-funded competitors and they weren’t even aware of these competitors. To use the map metaphor again, they clearly didn’t have a very detailed map of the world that they were trying to navigate.

And then furthermore, they had a business model that depended on collecting a fair amount of data that they were then going to structure and sell it when pressing them on how certain elements scaled, their answer was: “right now the team itself is scraping it manually.” It’s certainly an acceptable strategy for early-stage teams to do things that don’t scale, but, eventually the sites that you're scraping the data from are going to kick you off because they realize you’re running a bot or it's people who are continually revisiting and scraping their front end.

The question then becomes “How do you deal with this long term?” And after I pressed them on this, they just didn't have an answer. And the reason all of this is an example of an unsatisfactory pitch, is that their pitch effectively included a proposal to pursue a market with well-funded competitors, across several verticals, with no understanding of how you’re going to scale if you ever obtain traction. All of which ultimately becomes a recipe for us not being able to write a check to them because the business is too risky even for an early-state startup."

Anything else you would like to share with founders that you think might be helpful?

"I think the biggest thing that I've learned is that there’s an emotional hurdle when you start fundraising. I think a lot of the less experienced founders feel that they need to wait to reach out to start the pitch to formalize things, which is justified because pitching feels like a formal process.

Whereas I think experienced founders are happy to reach out to investors right off the bat and begin building a relationship. It makes sense, because you’ve already fundraised in the past, built the company, and exited, I think you have the comfort and the confidence to just reach out to investors, begin talking about your idea, begin building a relationship with someone that you might want to work with and partner with because they understand the long-term nature of the relationship and that there has to be a lot of trust there.

However, the same ought to be true for first-time fundraiser or a first-time founder -- don't hesitate to just build a relationship with investors rather than formalizing the entire process and starting the first call with a pitch deck, et cetera. You can usually find a way to connect, to add value to them, to connect with portfolio companies, kind of get into their network before the formal process starts, and usually, that's going to end up with a better result.

And the irony is, it's easier for an investor to take a non-fundraising call because then they don't have to say no or yes, they can just learn. If it's a founder working in a unique space, you can probably find a way to teach the investor something versus asking for time and money."