Serves Important Need- Ultimately, for companies to be truly large, they need to serve an important and durable need, either for businesses or consumers. Carta’s ability to provide companies and employees real-time visibility into their equity holdings ultimately gave them a platform for allowing secondary transactions.
As part of our series about “5 Things I Need To See Before Making A VC Investment” I had the pleasure of interviewing Steve Sloane.
Steve is a partner at Menlo. He joined the firm in 2015 as an associate, became a principal in 2017, and a partner in 2019. He is focused on investments in Menlo’s Inflection Fund, which looks to write 20M-30M dollars checks into fast-growing Series B/C companies in the 5M-15M dollars ARR range. He has invested across robotics, fintech, and marketplace companies (Chime, 6 River Systems, and Rover) and enterprise SaaS applications (Observe, Enable, Scout RFP, Carta).
Prior to Menlo, Steve worked in growth-stage investing at Insight Venture Partners in New York and founded a YC-backed company in the social space. Steve graduated from Princeton University with bachelor’s degrees in both mechanical and aerospace engineering and a minor in robotics and intelligent systems.
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 started a company in the social space in 2010, and went through YC. I wasn’t so great at building the startup, but really enjoyed the opportunity to learn and work with the other companies in the batch.
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?
Catastrophic Care by David Goldhill. It paints a terrifying picture of healthcare in the US, but also a number of ways in which things could get better. It helped to inspire my most recent investment in Sidecar Health.
Do you have a favorite “Life Lesson Quote”? Do you have a story about how that was relevant in your life or your work?
How do you define “Leadership”? Can you explain what you mean or give an example?
Leadership is the ability to marshall a group of people to carry on during tough times when they wouldn’t otherwise have been able to. Winston Churchill during WWII.
Ok, thank you for that. Let’s now jump to the main part of our discussion. Can you share a story with us about your most successful Angel or VC investment? What was its lesson?
Chime. The prevailing sentiment at the time was that neo-banks wouldn’t work in the US and that it was impossible to make money serving Chime’s target population. However, the customer love and retention spoke louder than the experts, and the company has been able to succeed with a win-win proposition for their business and consumers.
Is there a company that you turned down, but now regret? Can you share the story? What lesson did you learn from that story?
ZScaler was a painful pass due to price — over the last decade it seems like passing due to price when everything else is great about the company is a mistake!
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.
At Menlo, we have an investing “bulls-eye” framework that guides many of our decisions. Our target investments sit at the intersection of the following 4 characteristics:
- Serves Important Need- Ultimately, for companies to be truly large, they need to serve an important and durable need, either for businesses or consumers. Carta’s ability to provide companies and employees real-time visibility into their equity holdings ultimately gave them a platform for allowing secondary transactions.
- Scalable Growth Engine- Almost all successful VC backed businesses grow quickly at some point in their lifetime, and they need to have a mechanism by which they could maintain that growth into the hundreds of millions of dollars in revenue. Observe.ai is able to sell to customers directly, through channel partners like BPOs, and through product integrations with companies like Talkdesk.
- Uniquely Capable Team- The best founders generally didn’t stumble upon their idea, but have unique insights developed over many years in the industry. Andrew Butt (CEO of Enable) developed custom software for distributors for a decade before founding Enable, and truly understood the needs of the industry.
- Attractive Business Model- High-gross margin, recurring revenue streams are the gold standard in tech investing. Chime’s ability to create a durable, primary bank-account relationship with it’s customers creates a high-margin stream of payment revenue over time.-
This was really meaningful! Thank you so much for your time.