Founder authenticity and curiosity: A lot of what I discussed above requires founders that have experienced the challenge their product is solving first-hand and have a unique perspective to not only deeply understand the problem, but be the best in the world at solving it. The interesting thing is that the most successful companies all solve problems that have been around for a while, but usually go overlooked — only later do they become apparent to everyone else. A founder’s authenticity allows them to understand the pain point and their relentless curiosity doesn’t let them let go until it’s solved. Those founders are able to see around corners and always seem to be a step ahead of the competition.
As part of our series about “5 Things I Need To See Before Making A VC Investment”, I had the pleasure of interviewing JP Sanday.
JP is a partner at Menlo Ventures focused on inflection-stage investments. Focused on vertical SaaS and enterprise software, JP is particularly excited about companies defining the future of work, infusing our lives with intelligent automation and democratizing data analytics. JP came to Menlo Ventures from Summit Partners in 2019, where his board and investment experience included Smartsheet (NYSE: SMAR), Clearwater Analytics (acquired by Welsh, Carson, Anderson & Stowe), Ascentis, and Teaching Strategies.
Thank you so much for joining us in this interview series! Before we dig in, our readers would like to get to know you a bit. Can you please share with us the “backstory” behind what brought you to this specific career path?
I didn’t have a traditional path to VC; out of undergrad I got started in private equity at Summit Partners where my job was to find interesting companies and build relationships with entrepreneurs. That job first opened my eyes to the intersection of entrepreneurship and private equity/venture capital. Shortly thereafter I went to business school, before pursuing a career as an operator for 7 years. I eventually returned to Summit where I was able to translate some of my experience with venture-backed startups into investing. One day I got a call from my good friend from business school and Menlo partner Naomi Ionita, who let me know that Menlo had just launched its inflection fund. The rest is history!
Is there a particular book that made a significant impact on you? Can you share a story or explain why it resonated with you so much?
Legacy by James Kerr. This is a book about the culture created to form the most successful sports team in history, the New Zealand All Blacks (rugby). They have a unique combination of principles and values they live by that unites the team, brings the best out of everyone and allows the whole to perform at a world class level. This is a book about building culture, leadership, life and overcoming adversity. It applies to all of us, whether we are leaders at companies or individuals trying to be the best version of ourselves. The two principles that stuck with me were, “Sweep the sheds: never be too big to do the small things that need to be done” and “Be a good ancestor: plant trees you’ll never see.”
How do you define “Leadership”? Can you explain what you mean or give an example?
My experience in operating roles and venture capital has led me to speak with many different entrepreneurs and founders. A key difference I’ve noticed between those that succeed and those that don’t is the ability to lead versus manage. To achieve success, leaders must hire amazing people to work for and with them. A leader’s role lies within bringing the best out of people individually and collectively. Someone who’s able to do that is an effective leader.
Ok, thank you for that. Let’s now jump to the main part of our discussion. The United States is currently facing a very important self-reckoning about race, diversity, equality and inclusion. This is of course a huge topic. But briefly, can you share a few things that need to be done on a broader societal level to expand VC opportunities for women, minorities, and people of color?
If 2020 taught us anything, it’s that there is much to be done to expand opportunities for women/minorities/POC across all industries, not just VC. Personal networks can be a really powerful forcing function to increase diversity. I am Argentinian and Peruvian, and met my friend and fellow Latinx Naomi Ionita at Stanford. It was through her that I was introduced to Menlo Ventures where I eventually joined as a partner.
There’s also great technology out there to help businesses access talent which previously may have gone unnoticed. One of my portfolio companies, CodeSignal, allows employers to remove bias in their hiring process of technical roles, going “beyond resumes” to find the best talent regardless of personal background or other details that can inspire bias, like where they got their education.
Can you share a story with us about your most successful Angel or VC investment? What was its lesson?
Smartsheet, a collaborative work management tool in the broader productivity SaaS market, was an investment that opened up my eyes to the power of leadership at scale and the benefit of being obsessed with customer feedback to build an amazing product. Behind every successful company is an amazing team. I was able to get to know the co-founders and CEO and came away impressed with their horsepower, hustle, strategic perspective, extreme curiosity and willingness to roll up their sleeves. Their product was incredibly successful at being adopted by teams of all backgrounds, across all departments and industries — this is very difficult to do and it only happens when you have a relentless pursuit of customer affection and never rest on your laurels. It didn’t happen overnight, but the patience and deliberate product direction and vision proved to be enduring in an otherwise “hit-driven” market like productivity SaaS.
Is there a company that you turned down, but now regret? Can you share the story? What lesson did you learn from that story?
Before I came to Menlo, I had an experience with Roblox which I’ve learnt a lot from. While we didn’t turn the company down, we saw the signs of something special but didn’t act quick enough. Roblox had undergone an amazing transformation and had started inflecting, but we didn’t lean in hard enough soon enough. The lesson here was — when you see something great, go for it. Don’t overthink.
Can you share a story with us about a problem that one of your portfolio companies encountered and how you helped to correct the problem? We’d love to hear the details and what its lesson was.
Before I became an investor, I was VP of Growth at a venture-backed mobile gaming startup. During my tenure, the company went from being five people working out of a garage to over 250 employees distributed across two offices and several time zones. I was able to experience what we refer to at Menlo as the “inflection stage.” This is really valuable because there’s so much uncertainty at that stage. There are things that I empathize with simply due to my operating background, and I try to put this into practice across everything I do as an investor.
Super. Here is the main question of this interview. What are your “5 things I need to see before making a VC investment” and why. Please share a story or example for each.
- Customer love: Do customers love this product? If it suddenly stopped working or vanished, would people be upset? On some level, customers have to love the tools they use in order to be references for future customers and evangelists for the company. Great retention is the output metric that measures it, but stellar customer satisfaction is the input.
- Virality and/or network effects: The most spectacular successes in the world of SaaS (where I spent the majority of my time) all benefit from some form of “free” growth — either through viral user adoption in customers (the “bottoms-up model”) or a broad application of their technology that ends up permeating the organization. The most special companies also have an element of network effects, where the more people that use the tool or systems that are connected to the platform, the more valuable it becomes to the company and each individual user. These days, the differentiation and defensibility of a SaaS application is probability not based on some technological breakthrough — it is usually anchored around the data the system generates that can be leveraged.
- Large markets with (timely) tailwinds: I was once given the advice to never be on the opposite side of inexorable trends. The key is to understand what trends are forming today or have formed in the past that lead to the growth a company might be experiencing. Companies can have a great product, but with a limited market opportunity it never takes off — a market can be “limited” not just by size but also by timing. What is happening in the world that is causing customers to prioritize this product and adopt it at increasing rates? The high quality, enduring demand is generated from market forces, and founders that time that market just right are able to disproportionally reap the benefits.
- Good relationship with the founder: I always say that the next investor a founder will work with is one of the most important “hires” they will make. Spending time understanding the person that they will choose (and vice-versa) is incredibly important to build a relationship of trust to take on the inevitable challenges that will come up down the road. Are they willing to spend the time with me ahead of a fundraise? Are they trying to get to know me?
- Founder authenticity and curiosity: A lot of what I discussed above requires founders that have experienced the challenge their product is solving first-hand and have a unique perspective to not only deeply understand the problem, but be the best in the world at solving it. The interesting thing is that the most successful companies all solve problems that have been around for a while, but usually go overlooked — only later do they become apparent to everyone else. A founder’s authenticity allows them to understand the pain point and their relentless curiosity doesn’t let them let go until it’s solved. Those founders are able to see around corners and always seem to be a step ahead of the competition.
This was really meaningful! Thank you so much for your time.