The Hustler's Journey (Arkive)

Tom: And he was like, you know, you're gonna get pushback from people who are very smart, probably not gonna invest, but are gonna take the meeting and they're gonna give you 45 minutes of their time and you're gonna get better at optimizing that 45 minutes every time.

Jason: This is Funded. I show founders who raised millions in venture capital share the gritty side of what it actually took to get that money in the bank. I'm Jason Yeh. Not too long ago, I was trying to get my ideas funded. And back in the day, I was a VC listening to founders pitch me for money. BTC, web three, and FT. For about 14 months between 2021 and the first half of 2022, those acronyms represented the hottest spaces to invest money. JPEGs of monkeys were selling for seven figures and paper millionaires were being minted left and right. Then came the second half of 2022 when a new set of acronyms like UST, 3AC, SBF, and FTX ruled the headlines.

They marked a disastrous crash of the crypto markets and took the shine off of the web three startup market. In the middle of all that back in July of last year, I spoke to Thomas McCloud, the co-founder and CEO of Arkive, a decentralized museum of culture curated by its own members. He had just announced a massive $9.7 million seed fundraise to curate the world's culture on chain and build the web three Smithsonian. Thomas isn't new to the startup world. He's been a founder five times and raised multiple rounds of capital. While the market conditions have changed since we spoke, there was a first principles level of thinking and level headedness that I thought was universal in or out of web three. And in bull or bear markets. Regardless of how many successes Tom has experienced, his work ethic remains the same. And he says fundraising doesn't become easier. You just get better at navigating the process, which is something he started at a pretty young age.

Tom: So Tom, growing up, I'm from New Jersey. I think there's some degree of natural hustle that comes from living in the shadow of major cities. Whether you're on the Philadelphia side or the New York side, you're kind of like, one day I'll make it there. So that definitely puts a little baby chip on your shoulder. My parents were both teachers, so, you know, my mom, she's still around, but worked for years as a public school teacher in Newark, New Jersey. My dad ended up actually running a nonprofit to help homeless people. That was his life's calling, but to make ends meet, he was the gym teacher at every school that I went to. And so I went to a different school every two years until high school. I think personally that some of my success is due in part to that constant switching of schools. So I grew up in a very ethnically mixed hometown. I'm mixed, black and white. So, you know, it was kind of a shell shock to do that. So in every one of these places, I had to learn how to communicate a little differently. We all started doing, we started buying basketball cards. It was like the mid-nineties and basketball cards were having a run. And I, I was collecting them and I started cutting up the little binder sheets that had nine slots.

And I would sell them to kids in the class for 10 cents for the individual sleeves, even though they cost me, I think it was 50 cents for the nine-ring. So I had, you know, I was making a 40 cents margin on those and my mom would front the allowance money so I could sell them to the kids at lunchtime. And then I left that school and went to a Catholic school. I went to Holy Trinity, which was an amazing school in Westfield, New Jersey. And at that school, I sold mix tapes. So I would literally record off of a boom box, I would record physical tapes and make copies of things for people. This was before CD burners came out. But just fast forward a year, I went to high school, sort of stayed in Catholic school. So two years in seventh and eighth grade. Now high school. So this will be my fifth school so far on this journey. CD burners and the internet did show up and I begged my parents for a 1X SCSI CD burner on my 1997 Packard Bell, 166 Pentium. And I would start, there were chat rooms and on IRC where you could get MP3s. This was like MP3s that just started. This was a little pre-Napster. You were getting whole albums at 128 bit CBR rate MP3s. And I would show up with printouts for the kids in school and I would sell the mix CD. And that was, I bought a car. My junior year, I bought a 1986 Mercedes E300, aftermarket AMG for 8,000 bucks from a local guy. And it was already a 12-year-old car, all off the somewhat ill-gotten gains of bootleg CDing.

Jason: So, Tom, let me interject and just ask you this pattern of entrepreneurial hustle as a grade schooler, all through high school. Do you remember where that came from?

Tom: I'll say, I don't know where the drive came from. I know it was always supported, though. And I do think at some level the fact that, "Hey, I want a CD burner. What are you gonna do with it?" I think, "I'm gonna sell some burned CDs," while clearly in an ethically gray area, was met with at least, "He's gonna learn more than just how to bootleg CDs if he spends more time with computers." That became pretty clear. I think even the CD, the card cutting up thing was like, "He's gonna learn a little bit about how to negotiate with people," maybe everything. I think my parents always took a pretty positive spin to, you know, "You can give it a shot," and, you get told that enough. And I do believe you start to say, "Well, I guess taking shots is what I do." And at this point, I'm five personal companies in, at some level, you know, post-college, you know, I definitely still think, "Oh, I'm still shooting. I don't really know what I would do. I don't know how it would stop if I had an Uber-level exit. I think I would still want to start something again." It just, it gets kind of part of your personality and, and when those things work, it's kind of addictive. So I think part of it was that, and my addictive personality kicked in and it's centered around entrepreneurship.

Jason: So the entrepreneurship piece really speaks to me. This idea of like, ah, seeing the opportunity, um, finding margin in card sleeves and realizing that just with a tape recorder, you could create a mix tape and create value for other people. There's something in between that and actually getting money, which is selling, which is talking to people and asking for money. Do you remember if that was a natural thing for you or was it just kind of part of doing business that you had to get through?

Tom: I'm actually very good at fundraising. I do think I'm very good at fundraising. I actually don't think I'm good at asking people for money and I think they're somewhat different. So I think I'm really good at asking people to support something I care a lot about. And my conviction comes out in the fact that I'm not good at lying. So if I had to pitch something that I didn't like, I would never be able to raise a dime. If you want me to pitch your idea, I'll never be able to do it. I'm not a salesman for hire in that manner, though I think I'm very good at selling things that I have deep belief in, and usually the support in the form of capital comes less about, "Hey, I need you to invest in this company because I know you have the money and I think this could be a great  deal for you." It's more like, "Hey, I have to do this thing. I'm obsessed with it. I'm gonna do it regardless. If you're gonna put it somewhere else, I'm gonna give it as much of a good shot to get it back and return more to you because it's all I want to do is make this thing real. And if it's real, these numbers work out in your favor." That's kind of how I've always come at it.

Jason: So the card sleeves were top quality. You knew it, the mix tapes. Amazing. You knew it.

Tom: I will tell you, even when I'm pitching those, I take the mix CDs, right? I would print out the, you know, I would, I would take paper and I would print out every one. I'd put them in alphabetical order. Every single song that I had, and my pitch was, "Hey, you get to make your own mix." So I actually thought that was a pretty cool value prop. It was a little different than just, I think it wouldn't have been as attractive if I was like, "Oh, here's the DMX album. I'm just gonna give you the DMX album." You know, I'm sure I did that a couple of times too, but largely it was like, "Pick 15 songs. I have a thousand songs," which seemed amazing to people that you could have a thousand songs to choose from in 1998, 1999, give or take. And I would show up with these papers and people would put their initials next to 15 tracks and I would go home at night and remember a one-time burner was 45. It was one to one. So, you know, if you were doing a 48-minute CD, it took 48 minutes. If it was 72, it took 72. And you know, I would queue them up and they would go overnight and they would break, you wouldn't always get successful burns, but I was passionate about it. I thought it was a pretty good product. I was passionate about the product.

Jason: No, that's awesome. I just pulled you back there because you were rushing ahead. Talking about your philosophies on fundraising, which is what I'm really excited to talk about, hearing the underpinnings and where you came from and kind of what your background has been, is great. It tells me a lot about how you think about the process. And you, you referenced this a little bit, but you've started five companies. I know you've raised money for multiple companies, tens and tens of millions of dollars. By the time you went out to decide to one, start Arkive, but two, think about it as a company that might need outside capital. You are starting from a very different place than other people, but I think there's still going to be a lot that we can learn that we can pull apart. That should be universally applicable. So the first question I wanted to ask you is when you thought about the idea for Arkive, did you know it was necessarily going to need outside capital? This might be a simple question, but like, as you thought about it, what kind of company was this for you?

Tom: Yeah, I think when I started it, when it was just an inkling, I assumed there would have to be some way to acquire an item. So I started at the tiniest piece and for Arkive to be a museum of physical assets on chain, you need to get physical assets. And you could potentially build out like a 501(c)(3) and start going after donations, but even that would require capital for legal, etc. So there was always going to have to be some upfront expense to get off the ground. I think there are novel ways of fundraising now because of web three and venture, and in this case, it could have been grants. I could have gone fully academic on this, but it seemed pretty clear that if the end game would be that this could actually have a multiplicative return, and when you start looking at where capital comes from for multiplicative returns, venture, while being, I personally believe, an expensive cost of capital net to where you believe your end state will be, and, you know, if it's a billion-dollar business or a $10 billion business, this was extremely expensive equity to give away. But it is aligned with, go for that. And it became clear and clear as we started diving down a roadmap that I thought that was the outcome of possibility. And when that happens, it's like, okay, well, this is actually a venture-backable business. So how do you align those interests? How do you create something that works in that space? So how it got there.

Jason: That's good. It's an interesting starting point, right? It's a museum, a public museum on chain. You use different words to describe it, but like you said, like most museums are public goods and can be nonprofits and funded through grants. But when we think about this company in today's new world of web three and venture capital blended, starting out from the beginning being like, okay, we're gonna need to raise outside capital. It's a new story for us, for us, you know, within funded we've, we've largely talked to web two companies, and I know that process really, really well. In fact, I will tell people. It's so fun for me to interview people on Funded because I can guess where the story goes. I can kind of lead them along. This conversation starts from a very different place. Um, one that includes things like ideas of tokens and outside capital and drops and all these different ways that web three companies have raised capital. So I wonder if you could talk to us a little bit about now that you've confirmed with your team, this is what we're working on and we need to raise money. How did you think about the first steps of fundraising for a company that straddles the old and new worlds of fundraising?

Tom: Yeah, so I looked at it from the perspective of some things will be the same. So, you know, there has to be a business that can show how it gets to a significantly higher number than whatever the number an individual is valued at a company at. These are always gonna exist. You have to have some degree of a business model that someone believes can create a flywheel that accelerates, or why would they invest? And you have to have a semi-capable team, even if it's just a skeleton of one early on that people are like, "You know what, if those three people get it right, or those four people or two or one, I think there's something there. They have a good chance to get it." So that was there, and I felt like we were establishing that right out of the gate. The vision, all those things tracked. What becomes different, I think, in web three is you're dealing with a huge amount more of like externalities around the broad-based crypto economy and whatever the meta is at the time. So, you know, in gaming, there's this idea of the meta.

So it's, you know, what character you play in a fighting game might change depending upon the update. Maybe they make their fireball more powerful, and then suddenly that person is better, etc. And for crypto, that happens consistently with the overarching market forces. So maybe NFTs are really popular. Maybe DeFi suddenly becomes where people start to rotate their capital, maybe it's token sales. And in this case, we knew that over time, the community would be part of the fundraising story, that membership through NFTs will at least jumpstart the flywheel. They'll be a part of how that happens. But do you do that ahead of time or after proving value? And I think historically, in a very short history of the 18 to 20 months, most Web3 crypto NFT-based projects have said, 'We are going to entice you with NFT purchase and then prove to you the value,' which, to me, I didn't, that doesn't sit terribly comfortably with me.

Jason: Very speculative.

Tom: It's very speculative. I think you've seen it also puts you in a cohort, with a lot of cases where people were unscrupulous, where they presented that and truly just, you know, rug-pulled on people and disappeared. And I was like, 'Ah, I don't ever want that to be attached to my name. It's kind of all I have at this point.' And while I would never do that, that seems like the type of thing that you might see if someone pitched a wild idea. So I was like, you know, we're gonna prove value first. We're gonna actually acquire some items. We're gonna go and actually start backing the individuals and artists and creators over a course of time. We're gonna put stuff out in the world, we're gonna create content. And we're gonna prove that we can use that capital, that we've raised, to go out and drive real revenue from the membership side.

This is actually a business part of the model, not a fundraising tool at its core. And I think that was a big moment for us. And, frankly, you know, not to, to my own horn or toot our own team horn, but, you know, if we hadn't done that, if we hadn't sort of stuck to our guns, we would've been raising three to four months later, after probably a significantly less successful NFT environment, when we would've been debuting instead. We're announcing a fundraising there and pushing an NFT debut out until we've proven value. So I personally think, you know, we said we are not gonna be as impacted by external market forces. And by doing this, by raising capital, we are gonna move ourselves into a degree of self-sufficiency that lets us build the company that we want and not be always tied to the price of Ethereum at any given spot moment.

Jason: Amazing. So, uh, this is good to clear this up because you are a museum, a Web3 museum. And if anyone sees that headline, the thought might be that you did raise initial capital by selling tokens like so many Web3 companies did. Um, but what I heard you say, and just kind of synthesize, is that you did have the choice of, should we issue tokens, sell NFTs, uh, out the gate to raise capital? You instead decided that that would come after taking other sources of capital in order to prove value and then in the future actually issue something like that. So that means when we're starting, actually does look a little bit more similar to what I'm used to. So you decided to go raise money from traditional sources of capital, angels and venture capitalists. As you committed to that path, sort of a more traditional fundraise path, something that you've done multiple times before. How did you, how did you think about this? Like, like we started this conversation talking about your experience, some of the exits that you've had, the money that you've raised. And so you have a well-rounded perspective on how this motion happens. You said yourself, you think you're a pretty good fundraiser. I think the results speak for themselves. But I think it'd be interesting for you to kind of talk through your philosophies on this and how you decided to go, uh, set up a fundraise and execute.

Tom: Yeah, so this, I will say, this is different. You know, this is, I went about this slightly different. I think when you're just starting out, on your, you know, however you wanna look at entrepreneurial journey, startup journey, the first time you're going out for capital, you know, you, unless you come from a network of some overlap, maybe it's, maybe you went to Stanford and you have a lot of individuals that, you know, you might be able to tap from your network there. Maybe you, maybe you're coming out of Bain or McKinsey. And there's a lot of people who have now been placed in operational roles at other startups or high-level companies. If you have that network, you know, that's probably where you tap first. If you don't, you, you kind of have to be just, I need opportunistic capital. So you're usually looking for people to just give you a shot. And that is extremely hard. If you're 24 with no network, and you're asking to have someone back you, it's very tricky. Um, in this case, you know, I'm, I'm not currently at that spot. I've had these opportunities and I thought the idea was good enough. And specifically, the founder-market fit was good enough that my track record of specifically the businesses I've started, and where, where their outcomes have been and the successes in what they were developed, aligned about as perfectly with founder-market fit for this idea, as you could get. So I've run physical logistics businesses, I've run mobile app companies.

I launched 17 iPhone apps. I've, you know, I've dealt with the bridging of physical objects onto online. I've worked with crypto through a large-scale Ripple deal. I exited a company to Coinbase. I kind of checked all these boxes. So I was like, All right. I'm gonna have at least a degree of leverage that if people see me shooting the shot, they're gonna take interest, which means I probably can put together a round of the right folks for this business as well. And so I legitimately sat down and started making a note of like, who are one, the type of people that I want to deal with for the next six years, which I think people underestimate how often people are gonna be a part of your inbox, your email, your cell phone. Uh, who do you want to have to hear from, if you're gonna have to hear from folks every day, who you're gonna, you're gonna have to want to talk to these people. You're entering in a relationship, both professional and personal. Like you're gonna go to dinners with folks. Like this is matter. So who do you wanna hang with? That actually starts to matter.

And then I started looking at, uh, people who I felt were aligned in terms of what they talk about publicly openly and care about in terms of their hobbies, interests, where they've placed capital before, where they are philanthropic. Are these folks that are on boards of museums? Are these people whose LPs are museums? Are these people whose last six or seven investments have touched the intersection of collecting and Web3? Or, you know, where do they sit? What are their hobbies? Do you care about vinyl? Do you care about art? And I kind of researched people on Twitter. Like I looked at like, what do they talk about when they're not doing random posts for engagement bait. Right. And I think I put together a pretty compelling list of folks that I was like, everyone here is gonna get it. Whether they believe this is a business or not, I might have to convince them, but internally they're gonna want it to exist because they're, they're gonna want to be a member. Like they would love to be. And they'd love to see the things that they care about be represented in this space. And that's kind of how I did it. My hit list was aligned with that first.

Jason: When we come back, Tom dives into his history of pitching and how he sees each pitch as a valuable opportunity for improvement. If you're a startup trying to sell into enterprises, I'm sure you've been dreading getting some sort of certification like SOC 2 or HIPAA. I know I did when I was running my last company and it costs us some important deals. If that's you, you're in luck because not only is there an awesome solution called Vanta that makes the process dead simple. But also, funded listeners get a thousand dollars off the service by going to vanta.com/funded. That's vanta.com/funded. Check it out.

There's a lot of difficult stuff that goes into fundraising. For many founders, pitching can be one of the most dreadful parts because of the fear of not being understood by investors. But Tom took advantage of those misunderstandings by making them opportunities to evolve. It didn't matter how many companies he raised for and how many pitches he had done. He knew there was always room for improvement and being misunderstood. I was just another step towards perfecting his pitch.

Tom: I did 60 or so pitches in three weeks.

Jason: I love that you said that. Let me just, the reason I like the, the, let me just like underline that and highlight that. We've talked about how you've started five companies, you've exited to Coinbase, you've raised tens and tens of millions of dollars beforehand, before Arkive, and when we think about the business that you're running, experienced founder, who has had experience with logistics, cryptocurrency, mobile apps, all the things that are gonna be important to execute an idea like this, you have it. It's like a crazy match.

And you even started describing the type of perfect investor that you'd want, like you would very, very specifically be picky about because you wanna spend time with them and you want them to love your business. And yet your initial list was still 60 people long. Do you know how many first-time founders like come to me, frustrated in processes when they've gotten 10 nos? I mean, so like, I love that you shared that number, which is low because of what you bring to the table and your network. But still, it's 60 people that you had to pitch.

Tom: Yeah, I can tell you the difference between Omni, which when I was pitching in 2014, and this is on Omni, I had an advisor, Aaron Batalion, who was a co-founder CTO of LivingSocial, and he came on real early. He was an early advisor to the company, and we shared a little bit that he had been in DC at the same time. I was in DC for college. So he kind of knew what it was like to run companies in, in less of a tech-savvy fundraising environment as the Bay. Right. And he actually sent me back to DC and I was, this was a long time ago.

So this is eight years ago. I'm 29. I'd never raised venture before. I had some, some money from like small angels for some of the other businesses, but never had really gone out that way. And I pitched like government defense venture folks and like people that would invest in, you know, like dolphins with lasers, like that's what they were looking to put money into. And he was like, they are all gonna say no to you, and I was like, what do you mean? He was like, this is a gauntlet. I don't think they're gonna say yes, but there's part of the fundraising process is you learn how to better figure out how to pitch your business. Like, you've got a lot of words in your head, you know what this is gonna be, but you communicate in giant, run-on sentences about it right now, And he was like, this will get you, you know, you're gonna get pushback from people who are very smart, probably not gonna invest, but are gonna take the meeting and they're gonna give you 45 minutes of their time and you're gonna get better at optimizing that 45 minutes every time. And I believe I did, like 18 pitches in our week in DC. with people asking me, you know, the questions around, could you, this was Omni was on-demand, physical storage. Right.

And I was dealing with, could I store the deeds to a second property and like things that were not all aligned and by the 18th pitch, you know, let's call it 18. It was somewhere in that range. Uh, they passed, but one of the partners emailed me and said that he would like to personally invest, even though it didn't match the fund strategy. And I forwarded it to Aaron and he literally wrote me something to the equivalent of like, you can come back now, like, like you can come back now to Silicon Valley, back to back to the Bay. you know, that's, that's the sign we were looking for that at least you convinced these individuals that, and then I did another, I remember I pitched Andreessen. I pitched a robot. Like there was a, an iPad robot, a Double robot. And like the partner was on a robot one time, like pitching is a crazy, a crazy, crazy thing, but you get used to it because once you get the reps in, you know, you're talking your book kind of, right.

And you just get really used to how to deliver it. Your conviction grows because, also, if people are constantly poking holes in your idea, either they're real holes—maybe they're real holes, so you have to at least start to assess these things. These aren't people that got capital from nowhere; they've succeeded on some level. You gotta go back and look at your deck and say, "What if we don't? What if self-driving cars never show up?" You know, like these things start to matter, right?

Jason: No, totally. The fundraising process is such a valuable journey to go through. It's like this cliche I always tell people, where the destination is the journey. The journey is the destination. Like you said, you need to come up with a story that's concise, that you believe in, that gets to a point that other people believe in. And then, as you go through the gauntlet of talking to venture capitalists, they're going to pressure-test your ideas. Some of them will be dumb and not give you great feedback. But for the most part, like you said, these people make money off of seeing hundreds and hundreds of deals, thousands of deals. They have great pattern matching and they know what questions to ask. So if you can't stand up to that gauntlet, if you don't have this confidence about you, then you should be reconsidering what you're doing to start with.

So going back to Arkive, though, you raised... or you started to talk to about 60 or so investors. Maybe you can tell me a little bit how that process went, especially vis-a-vis your time with Omni.

Tom: Yeah. With Omni, I'm sure I talked to more. I've probably blacked out some of that, you know, how many times I've pitched that. Certainly, if you include angels into seed into series A, I'm sure I've pitched Omni in that three-year time of fundraising hundreds of times. I mean, I'm sure it went there. In this case, I think, you know, benefits of a network for sure. I was able to reach out to people and say, "Hey, you know, I'm shooting again. This is what it looks like. I would love to get a chance to speak with you about this." If I didn't know someone, I could find a way to get a friendly, warm intro, at the very least a warm intro would look like, "I don't know what Tom is building again, but I'd take the call." And that's enough to at least get yourself in the door a little bit. And I recognize that's somewhat unique to my case, but if you can get a warm intro, I do think that is by far the best thing. And I want to call out that that is one of the hardest parts to have in the beginning because who's giving you warm intros if you need warm intros to the warm intro people, right? Like that makes it pretty tough.

And then I will say my pattern matching has now changed also. When I started Omni, I was a non-technical founder. I have an engineering degree in audio engineering. That's not MIT, Sloan, you know, business plus an engineering degree. I don't know. It's not tracking. I'm not like a white male Stanford grad. Didn't do B-school, didn't do management consulting. I was never an investment banker. You know, like I don't track any of the raw, like historical pattern matching of like, you know, Valley pile on capital. But at that point, I had at least grittily bootstrapped some things. So I had built some stuff that people had touched. There were like 10 million people who had touched an iPhone app that I was a part of. I could say something had occurred. And I think the main difference then versus now is the phrase something to the effect of like, you know, I had made some money, but I'd never made anyone else money.

And I think once that changes, everything opens up a little bit. Then people are like, "Ah, second chance bets." But for all intents and purposes, all the companies I had done up until that point, you know, Omni still becomes kind of the first one. And so now, you know, it's the first one that was like, people would put a note and say, "This guy scaled a business, 180 people, found an exit, landed the ship, returned some capital." Like those things matter. So when I go out for this one, when I go out for Arkive, you know, I'm not blindly emailing folks. I'm not DMing people on Twitter. I'm looking for where my ins are. But once you're there, once you've, the first one, it's the same deal, you know.

It could be pitching an absolute friend. Now, I pitched Ryan Graves, who's one of my closest friends in life and like, I still pitched him. I still did a full pitch. And I think you kind of got to do that. Even with a friend, I still wanted to do that process. I wanted to have a clear business statement on those things. When you go in for that type of capital, also what happens is if you get the right people early, so if you sort of identify who you think can carry the weight of it, they're going to make intros for you. So I went at Offline early.

Jason: Let's talk a little bit about this because I think when someone has such a background to help them fundraise, which was obviously very successful in the first round of funding, totaling nine something million dollars. I want to make sure that these conversations pick on parts that are learning moments or things that can be extrapolated at least backwards to someone who has less of a background. So you're about to talk about this idea of finding the person you called it, "that'll carry the weight." Tell me a little bit about that and let's not glaze over it. Like I'd like you to describe what you think is happening there in the dynamics and why it was easy for you. But then we can talk about what other people would do.

‍Tom: Also, this isn't me saying I take issue, but I don't think it was easy. I still, I mean, the capital is there now for sure. But I warmed up like every day as a championship. It still was a heck of a lot of burn and energy and exhaustion, no different than when I was 28 doing it. I will say, you know, when we're talking about finding people who can do that, I do think investors have a few skill sets that are legitimately valuable. There's a lot of promises that may or may not deliver, but legitimate value is like a good investor will bring you more money. They do this all the time. They talk to other investors, they go to dinner with other investors, they co-invest.

They are interacting with people who deploy capital constantly. Most likely as a founder, you are doing it occasionally, probably still pretty consistently, but not as much as you're dealing with other founders, other operators, your team, your employees, all these folks. You're more in a focused line around operations and they are very much dealing with that. So if you can find an aligned investor that's willing to put a large amount of capital up, they are definitely, I'm gonna go talk to the 20 other people because probably when they said I'm gonna do this, they literally thought to themselves, we so and so will also do this with me.

They started building out their list of people they want to work with alongside you, because they're thinking every other body that's like me will de-risk this investment and increase the likelihood of your success because they think if they think this is a big thing, they're gonna do as much as I'm gonna do. And that helps propel you forward. Right. Money is blood. So like money is, it keeps the body business moving. It keeps it pumping. And so you need those types of things. In this case, I'll tell you this. And I haven't talked about this on any other podcast. We, I originally had 4 million written in the deck. It was 4 million. I was like, that seems like, you know, a web two seed, a big one. That's a big seed in 20 every year. Besides the last three, that's a pretty big seed. And legitimately my lawyers were like, Hey, we've heard this idea. you pitched it to us. We understand what you're building here so we can understand how to do this very complex structure. We think you are not raising enough money.

And I was like, what do you guys mean? They were just like, we've seen, you know, 20 deals in the last month that we've worked on, potentially companies that we do not have as much conviction in their likelihood of success as we do of yours. And they are raising at higher multiples, more capital. We would be remiss if we didn't feel like telling you, you could probably raise more. And I was like, oh, interesting. Okay. And so I, I pinged a few people and they were like double it. And I was like, double it? I was like, can I, can I do that? I didn't know. Could I, can I do that? And they were like, double it, man. And same thing. They're like money is blood. This is a big idea. You are tied going back to the beginning of this conversation, you are tied to those externalities of the crypto market.

If right now everything looks amazing. If it stops looking amazing that money is going to dry up and you are gonna be sitting there with a brilliant idea that falls to pieces simply because external forces stopped you from getting there, get what you can right now. You know, you do do it at this moment. And so...

Jason: I legitimately updated the model, made it more aggressive, increased the use of funds updated, you know, pushed was like, we're gonna push harder, which also frankly probably should do that anyway.

Tom: Right. Should be more aggressive. Should push harder, showed how we were gonna probably burn a little hotter with a slightly increased overall runway, but like how we can take a bigger market share in that. And also, uh, I personally believe that because of the web three unique nature of the way fundraising works, it probably actually allows us to do less overall fundraising. So the pitch suddenly becomes, yes, this is a bigger round at a higher valuation, but we're probably not gonna be diluting you five times. You're probably only gonna get diluted one more time and then we're gonna be out there with some kind of a token, something that we figure out over time that will create liquidity in half the time that you had been waiting in a normal traditional thing.

So I think also understanding venture returns and what their expectations are means if your pitches suddenly listen, we're gonna get you more liquidity faster, quicker to mark up your IRR, make your MOIC look better, even though you're putting up more capital, your returns are stronger and you won't be diluted. That's okay. We'll go from 200 to 400. There's no big difference. If you have a 70 million fund sounds great. We'll deploy more capital. So that all coalesced. And then through those pitches, um, you know, frankly, very few people were nos. There just wasn't a lot of nos, so it ended up getting over subbed, uh, above that, to that, to that 9.7. So, you know, that's kind of the story.

Jason: Yeah, that's a great story. And the things that I'll pull out of there is I'm glad you talked about this idea of understanding who you're pitching to, understanding their business model. Like, you know, you have a very specific Web 3 dynamic of how they get to liquidity earlier than they would in a normal company and how you know that would juice their returns. That is one very specific deep understanding of venture capital and how your pitch would relate to them. Even the standard Web 2 founder who is just starting out. I always talk about this idea of you have to understand why venture capitalists want to invest in any company because you have to fit that model, right? You have to deeply understand that. And then the thing I was gonna say is finding that person, that investor that will carry the day and bring in more blood, that actually matches quite well to the first-time founder as well. It's going to be harder, and it might not be that 2 million check that brings you to the rest of them. It might be that $10,000 check. They might, you know, like that $20,000 check, the first person that believes in you, the first person that's willing to say, "Hey, this is an interesting founder. I'm gonna put my name and my money behind this. And then I'm gonna go with you to go find the next one." And then the next one. And that's where we get to different levels of momentum, that close these deals out. What was the worst part of your fundraise? Like something that really hurt. Was there a situation that was like, "Dang, this is gonna be tough." Or, or it was just like a really bad reaction. Anything come to mind?

Tom: Yeah. I think there is a current feeling in the overall crypto space that, you know, there are Web 2 founders who didn't get the big win, good founders, solid folks. I would put myself in this category, frankly, that didn't get the crazy X. They, you know, they had a big VI, they shot, they built. So maybe they've even done it twice. Maybe they've been, you know, they've put reps up and suddenly Web 3, like the, you know, the island of lost toys or something, it's like one more shot. Like you get one more crack here because this is where the misfits who didn't make it get another shot, you know, for whatever reason, for whatever reason that is, you know? And I could feel that sometimes. I could feel like, oh, I think I'm not thinking of it this way. I could, I could go and be pretty happy somewhere. Maybe joining another company, adding value there. This isn't a, like, this isn't like my redeemed moment or something, but I could feel that. I could feel people kind of itching, like, "Why Web 3, why? I would get these pieces." And I had a very clear understanding of why I believed like blockchain specifically is an incredible technology for provenance and adding transparency to the art world stuff. And I was like, this actually solves a legit, legitimately solves a problem that I think people are trying to figure out in a, you know, Multi multi, multi-hundred billion dollar industry, but I could feel that and it didn't feel great.

Jason: You're like, "I know what you're saying. And I don't like it."

Tom: Yeah. So even you have that feeling of like anxiety around, you know, people questioning me. That's honestly really comforting for, I think me and others to hear. Hard to, to, to...

Jason: Totally. The other end of that is you've had this feeling a few times in your career now, but, um, you know, do you remember getting, maybe it was the call or the email that you realized like, "Wow, like this is all actually going to happen. We're going to put many, many millions of dollars into the bank to actually start acquiring pieces of art." Do you remember that one moment, at least at this company?

Tom: Yeah. I will tell you, I, so when we talk about that lead moment, you know, I, I kind of knew who the right people were for this pretty early on. I've known Nate Bosshard for a long time. I knew him at Offline. I knew him before Offline. I knew him when he was at Nest. I knew him when he I've I've known him before Tonal, all these different things. And I had a pretty good understanding of Dave Morin from Path. I used to, I was an early Path user. I've I've been on panels with Brit. Like I knew that team pretty well, and I knew they were all physical collector humans. They liked, they liked this. They liked culture. As in, boxes, they liked to think about items and how they affect. And I knew specifically that Nate was one of the probably biggest record collectors in the world as an individual. I mean, his collection would get front run if people knew everything he had. So like, he can't even put that information out, although I just did. And I, once when I had the idea, I literally just pinged him directly and was like, "Dude, I wanna whiteboard this crazy idea I have."

And I went to his, to the, the Offline office and Dave rolled in and we broke out a whiteboard and we kind of mapped it out. And by the end, you know, he was just like, "Listen, we'll lead this. We don't know what the numbers are. We don't know where we're at, but it was kind of an all-on-the-whim statement. It was, it was, you know, when it was 4 million, you know, it was, you know, numbers were really different. The idea was half-baked, but I kind of took him at his word. And I will say they rode with the updated valuation. They rode with the introductions. They moved through the whole thing. They agreed with these different pieces. They actually put more capital in by percentage than they would've seen in the original round. They doubled down, I believe. We're the largest investment they've made off of this current fund. And I would say when I saw that wire hit, I did have this feeling of like, "I'm working with people that, uh, people of their word" seems sort of diminutive, but that's kind of how I felt and it felt great. I was like, you know, we had the first discussion in November and they, they sat with the ambiguity for four and a half, almost five months through holidays, travels everything and still, you know, stuck to it and pushed through. And that was a pretty big moment internally where I was like, "Oh, all right, this thing is...this thing has happened.

They're doing it and we're gonna do this thing." And they've been very involved in ever since. That was my conversation with Thomas McLeod, founder of Archive, a startup curating culture for the world to enjoy. When we come back, it's a moment of truth for my producer Paige, as she tests out how much she's really learned over these past few months of working closely with founders. Some people might be surprised to hear that I've struggled with focus my entire life because I got good grades. Went to good schools, landed good jobs. But all that was in spite of being a crazy procrastinator. I tried a bunch of things like productivity apps and planning rituals, but nothing really stuck. When I heard people talk about Magic Mind, this super productivity drink, I was really skeptical, but a friend convinced me to try it and totally changed my mind. When you drink Magic Mind, you just have this focus kind of wash over you.

Like those distractions that normally make you do the things that you don't want to do. Those are gone and it's been kind of amazing for me. I'm a fan of Magic Mind and they've been awesome enough to give a crazy discount to my listeners. My discount code "FUNDED" lasts forever and will get you 20% off your purchase but if you get to the site magicmind.co/funded within 10 days of this episode airing, your total discount will be 50% off. Check it out, it's awesome.

Jason: Paige, I'm really glad that now that you're on board as our official producer and debrief co-host, um, that we got a chance to go back to this conversation because, you picked up on this, but. We actually interviewed Thomas way back in the summer of 2022. Not too long after he had announced his fundraise, which obviously went really well. But, uh, it was just weird timing because he had been associated a little bit with Web 3 and just a couple months prior to that, there was the, the big Terra Luna, the Luna Crash, and we thought, Maybe we would hold off and wait for the dust to settle.

Jason: And then, of course, as we were thinking about publishing, we had, um, the FTX stuff happen. So, we were like, "Oh, maybe this episode isn't great." And then when we tried to do it again in January, stuff around, you know, SVB happened, and now we are ready to go with this. Just excited to know that the conversation still holds up, and it's still a great conversation. So, uh, I was very curious. What, uh, what did you think? Well, I want to get your reactions there and, um, jump into it.

Paige: Well, first off, yeah, it was really cool, um, being able to go back and listen to this conversation, especially because he has founded multiple businesses. So, I think he brings this really interesting perspective to the table where he has been through this fundraising process a few times and it shows. So a lot of my questions are tailored around that. And it's also a little bit funny too because I'm someone who does not know much about crypto, the market or anything that happened last summer. So even you saying that, I'm like, "Ah, interesting."

Jason: Yeah, and you're right. Like I think having someone on this time that has so much experience fundraising, of course, my dog Olive has things to say about it. But, um, no, it's just good to get a different type of conversation in there where, um, unlike other guests we've had who were just getting into fundraising for the first time, Thomas has done it a lot. So, yeah. I'd love to hear what you had to say. Yeah. So, this first question you're probably gonna be like, "Oh my God," but I was literally just wondering, he kept bringing up Web three, and I know, I feel like I might know what that is, but what falls under the title of Web three and crypto?

That's a great question. And, you don't have to be shy for asking about the Web three clarification. I'm sure a lot of people want to ask the same question, but, uh, feel a little bit shy or bashful to do so. So anyways, um, I think it's easiest to describe what Web one and Web two were first. Web one, the first version of the web. People thought about it as read-only, as in, when users interacted with the internet, it meant they could only read websites and do nothing else. Uh, Web two, as it's properly referred to, is when there was a transition from read-only to read and write, as in, interacting with the web was not only just reading, but also posting and uploading and creating.

So that's when user-generated content started coming out. Um, I think the first version of that was like blogs where you could post your own blogs, but obviously, social media took that up to a whole new level. Web three is read, write, own. So that third category is this idea of creating ownership, where by interacting with the web, you also had an opportunity to own part of what you were doing, to have the benefits of being an owner and a creator, uh, as you went through the internet. So not only would you be contributing to the internet by writing, but, but by contributing, you would also have an ownership stake in what was going on in the web. So that's generally speaking, I think what people refer to when they think about Web three. Crypto gets involved in that because of the idea of owning tokens in cryptocurrencies as an attachment to activity on the web. Um, but that's kind of my version of the description of Web three. Does that make sense?

Paige: Yeah. Wow. You're actually a really good teacher on that stuff. I feel like that was very simply put, and it's funny because I'd never heard those terms or maybe I have, and I just, I never noticed them, but yeah. Okay. That gives me a pretty good understanding because Archive is focused on, I believe, if I am correct, um, and like an online museum, so where people can share their art. Uh, similar to NFTs it seems like.

Jason: Yeah. You know, I think if you would talk to Thomas today, um, the usage of the term NFT was never something that he was super excited about anyways. He just always thought about this idea of, um, bringing the power of curation, of culture to the people, to the communities that it most impacted. Um, but yeah, like an, an online museum that was curated by the people, um, is probably where he would describe Archive today.

Paige: Interesting. Since that is now cleared up, uh, that he was talking a lot about using capital to drive revenue. And he was touching on this point, how sometimes founders can get lost in just getting to the next raise and closing the next round, and they don't focus on the end goal being revenue. And I was just curious on your thoughts on founders getting lost in fundraising and not, um, you know, maybe forgetting about the end goal of revenue.

Jason: Yeah, I'm glad you brought up that topic. In fact, like I was emailing Thomas about whether or not we would air this episode almost a year later, and what I told him was like, "Yeah, after I listened to it, I just wanted you to know that you came off, even though you raised in the headiest of times, you came off as like a really experienced founder with a good head on his shoulders and focused on the right things." And you know, I think the reality is a lot of first-time founders, especially the ones that were raising in 2021 at the heights of the market, were only focused on getting that money, and they didn't even really know why they were raising that money other than the fact that it seemed like the thing to do. And in their heads, it was like, "We'll raise that money and then we'll raise another round and into infinity," when in more sober markets people realize that you gotta be raising that money knowing what you're doing with that money.

Sometimes it's raising that money to get to profitability because you're running a business that's generating revenue and you know how you use that money to invest in the future and off of this raise, get to that point where your company's making more money than it's spending. And if it's not that, then there still has to be a plan in place where maybe not at the end of this raise, but at a very specific point in time in the future, you know that the company is going to evolve to a place where it is a profitable business. It is a going concern, and it isn't just made-up projections into the future where some sort of string of miracles have to occur for it to either be a profitable business or somehow be acquired or go public while unprofitable. Those days are over. And it's just great to be able to look at a conversation that was happening about, you know, the craziest times in the market and still be able to point to these real-life lessons that are much more applicable today, which is raising money, knowing exactly what you're gonna do with that money in order to improve the business, not just randomly grow it.

Paige: Yeah. Yeah. I think you bring up some good points because, you know, I'm not, I'm not as familiar. You have experienced what it's like to have to go out and raise, and you work with a lot of people who are always constantly raising. And I just think it can be, it seems like it can be easy to get lost in the raise, um, rather than hopefully working towards this stable area within your company that gave you the chance to no longer need it, And I don't know, I don't know much about venture capital or I am starting to learn a lot more, but that's where, that's one thing I have noticed, that I feel like we can fall victim to is like staying in this loop of it.

Jason: Well, the reality is that fundraising is the only part of the business up until the very end that gets covered by the media. So, you know, a lot of founders get attracted to the sexiness of it all. That is the only goalpost that they know is like, "How can I get the next announcement about a fundraise?" whereas like people aren't reporting on a company that, inched closer to profitability. It's like, "Oh my God, look at this. Paige Randall's company just broke even." No, no one's reporting on that. So you could see how, for a while, founders were just really focused on the fundraise.

Paige: Yeah, and this, I think this leads me into my next topic that I wanted to touch on with Tom is he seemed very particular in which investors he wanted to choose. And I think he mentioned this point of, you know, just because someone's offering you X amount of money doesn't mean like, what? Say it's someone's offering you a lot of money, they might not be the right fit still, and there might be an investor willing to offer or bring more to the table. And he was talking about how he asked himself this question. He asked himself, "Who are the people I want to deal with for the next six years?" And I think it touches on this investor-founder fit for if you are going to be going in and raising a lot of money and having to work with these investors, there is this other aspect to the raise where like, you gotta be willing to want to work with these people, and you want those investors that you're working with to want to work with you and have the right intentions for it too.

Jason: Yeah. I mean, there's a lot of things to touch on here. one of them, you might not expect me to talk about, which is more about what does it even mean to go into a fundraise? Expecting to be able to choose who you work with, right. If you think about it, it requires a level of confidence in yourself and your ability to fundraise and how this whole process is going to go to even start talking to people in a way that's like, "By the way, I. I'm looking for the best partner, and I know that I'm going to have my pick of the litter because I'm worth it. I'm an amazing company, I'm a great founder," and to like, so to even start those conversations that with that, that amount of confidence sort of sets yourself up and certainly set Thomas up to be successful in the fundraising.

You've heard me talk about this idea of like being confident and showing up into the fundraisers. Confident ends up predicting what the outcome is going to be in your fundraising. The most confident founders are the most successful when it comes to fundraising, so if we even take some steps back, just realize that going to the table, being like, "I expect to have a lot of options and once I have those options, I want to pick the best founder" is a self-fulfilling prophecy. Um, but if we were to go into it, and the reality is like not every founder has. Choices. they, they sort of thread the needle and just have one option on the table. Um, but if you do get to the end and you have options, some might have higher valuations than others, but the reality is valuation isn't the most important thing. there are many examples of the highest valuation being an evaluation that one you probably shouldn't take because of the pressure.

It puts on you for the next round. And then two, the high, the person giving you the highest valuation won't help you get to the next stage, won't actually contribute in the most value. And so there are a lot of different reasons that could happen. Um, uh, one simple one is like, you don't have a great working style compatibility like you're gonna have, this person is gonna be. On the low end, like your close confidant and someone that's going to be, um, giving you advice a lot on the high end in terms of their influence. They may be on your board, they may be technically your boss. They could fire you. And so choosing who. Enters in this role that you'll be with for five to 10 years. That's like how long venture-backed companies last before they exit, um, is super important.

And then the more technical sort of strategic things are, does this person. Have a deep understanding of this type of business. So when they give advice, will they give the best advice? Does this person have a great network that will bring value to the table as we start growing? Like, can they make introductions for new hires, strategic partners, etc.? Um, so there are just a lot of things to consider when choosing between investors and, and choosing which investor to take on.

Paige: Yeah. I think you bring up a good point, like, take what you can get. If you're someone who hasn't been, you know, through the fundraise process and you have limited options, take what you can get. But if you have the option, take advantage of that and, and choose wisely. Yeah. Well look, I think someone like Thomas is very open to learning and exploring and knows that like nothing comes easy, so. We're all on the same page, page. Nice. Wow.

Jason: Um, alright, we're gonna get to this again. I'm excited to, like I said, see how the information sticks and how, how good of a student you are.

Paige: Yeah, I guess we'll find out. This was fun.

Jason: Awesome. if you're looking for more insights, strategies, and support around fundraising, subscribe to our weekly newsletter at fundedpod.com/newsletter. And find me on social. I'm @JayYeh, that's J a Y Y E H on almost every platform. I respond to newsletter replies and DMS. So hit me up. Jason: This episode was produced by Paige Randall.

Paige: Hey guys.

Jason: Thanks also to Jon Lee from Adamant.

Jonathan: Hello.

Jason: And thanks to Thomas McLeod for reminding us to trust the process and stay focused. As always one last thanks to our fantastic sponsor, Vanta, the leading automated security and compliance platform.