J.P. Sanday on What it Really Takes to Scale Smart

On this episode of Redefining Work, I’m joined by J.P. Sanday, partner at Menlo Ventures. Throughout his career in private equity and venture capital, J.P. has gained a sharp understanding of market dynamics and early-stage growth. In this episode, we dive into his philosophy on scaling startups, assembling powerful teams and making the most of AI opportunities.

J.P. brings a unique perspective to the world of early-stage investing. He focuses on Series B and Series C funding, recognizing that companies need to evolve after achieving product-market fit. This is a critical juncture where founders must transition into CEOs and assemble high-performing teams to scale their businesses. “It is really messy. It’s very risky. It’s sloppy, but it is by far the more exciting part,” J.P. says. “Building is very different than maintaining.”

In this conversation, J.P. discusses his “Four Hs” of founder evaluation, the significance of talent magnets, and how to approach investing in the rapidly evolving world of AI.

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Evaluating Founders for Long-Term Success

Investing in early-stage companies often means betting on the founder’s potential as much as the product or market opportunity. J.P. highlights the challenge of assessing founders who are still developing, particularly those new to the startup world. He stresses the importance of looking beyond a founder’s current capabilities and understanding their trajectory for growth.

“It’s a lot more about projection and understanding ... people’s ‘slopes.’ So how do you find and judge the slope of a human being? Because that’s as important as their absolute ranking, or absolute level at which they operate today,” he says. “And founders, especially, it’s all about slope.”

J.P. advocates for spending time with founders to observe their “slope” firsthand, noting that this often involves tracking their progress over multiple funding rounds. To effectively evaluate a founder’s potential, J.P. uses a framework he calls “The Four Hs.”

• Horsepower: This represents a founder’s raw intelligence and ability to learn quickly.

• Hunger: This signifies the founder’s ambition and the scale of their vision.

• Hustle: This shows the founder’s willingness to roll up their sleeves and do whatever it takes to succeed, even in the face of challenges.

Humility: This, according to J.P., is the most crucial attribute. A humble founder is open to feedback, continuously learning and willing to hire people who are smarter than themselves in specific areas.

Identifying and Cultivating Talent Magnets

The ability to attract and retain top talent is a hallmark of successful startups. J.P. highlights the significance of “talent magnets,” individuals who naturally draw in high-performing individuals. He stresses that the founder’s ability to build a team is as crucial as their own individual abilities.

J.P. explains that as companies grow, founders must shift from being individual contributors to becoming leaders who empower their teams. Talent magnets become increasingly critical in this transition as they contribute to a company’s overall “talent density,” attracting other A-players and fostering a high-performance culture. “What’s really important is to attract those people. They then will attract the next level of individual contributor or manager to that company,” J.P. says. 

To assess a founder’s ability to attract top talent, J.P. suggests evaluating their team composition and speaking with employees at all levels of the organization. He emphasizes the need to determine if the founder’s talent magnet qualities extend throughout the company or are limited to top leadership. “The way I do it is we talk to the founders. Obviously, they have to be incredible,” J.P. says. “They have to captivate you.”

He recounts an experience of traveling to Stockholm for a potential investment. He was impressed not only by the founder but also by the high caliber of employees he met, even those in junior roles. This direct evidence confirmed his belief in the founder’s ability to build a winning team.

Shaping the Future of Venture Capital

As the AI landscape evolves, J.P. sees immense potential, both in terms of investment and operational efficiency for startups. He breaks down the AI ecosystem into two distinct parts: the infrastructure layer, where foundational technologies are built, and the application layer, where specific AI-driven tools and services are developed. 

Menlo Ventures has strategically focused on the infrastructure side, with investments in companies like Anthropic. “That is very distinct from the application layer, because those need to happen first. … That is the plumbing and scaffolding that gets put out there,” J.P. says.

Determining which AI developers to invest in comes back to a familiar theme: People. “We identify an area we think is interesting. We say, here are the four or five players that we think are relevant,” J.P. says. “We have to meet them all very, very, very quickly and decide which one is the best team and which one we think is going to out-execute everybody else. And that’s the one we’re going to want to make the bet on.”

People in This Episode

• J.P. Sanday: LinkedIn

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