The world's oldest and most prestigious startup gas pedal holds training sessions for those who want to get into early stage investing as Angel Investors. Here are some interesting tips from Sam Altman, president of YC, who has seen the likes of Airbnb, Dropbox and Stripe go through.
The Angel investing market
- Don't base your investment decisions on what other investors think, make up your own mind
- Today, the founders of the best startups have a choice of investors, as there are now many business angels on the market (in Silicon Valley)
The Power Law
- Be aware of the importance of the "power law" in early stage investing:
only 1 or 2 of your portfolio companies will make you a lot of money
it doesn't matter what the failure rate is because if you have a company that does x1000, you'll be fine anyway
YC has funded 1700 companies and only 5 of them represent 2/3 of the value of their portfolio! And only 1 = 1/3 of the value.
the majority of these companies are created by people who are "out of network
so "Be open to that random emails that comes in" = the opposite of what the market does (especially in France) by asking for recos and staying in a vacuum. 9 times out of 10 you can waste your time, but 1 time out of 10 it's a nugget...
Building a reputation as an investor
- Your reputation as an investor is very important for the long term
- It's very negative to try to get some money from a dying startup, because it affects your reputation in the long run and therefore it can cut you off from the best future deals
- The reputation of an investor is built especially when the startup is not doing well
- Founders check the reputation of investors with their portfolio companies and other investors
- Today, all BAs ask for "advisors shares" because they say they bring a lot of work, network etc, more than others... the problem is that they all say that...
The best deals
- When Sam Altman looks at his best deals: there are either companies that nobody else wanted to invest in (so he saw something that the others didn't), or companies whose value seemed stratospheric, SO: "value investing is not a good strategy in startups investing !!!! "
- His only rule: invest in companies that can become "$10b companies", any stage, any sector, any Business Model
The founding team
- The key is "the founder's rate of growth / improvement / learning". Look at this as a metric.
- Easier to start hard company than an easy company": because you will attract high level people, who will help for free. You have to create companies where the CEO can attract hundreds of people who could have started their own company.
- You have to look for these personality traits in founders: obsession, focus, frugality, love
- Good founders are people who have ideas all the time" = IDEATION talent!
- We need to look for a type of intelligence that allows us to see problems in different ways
- You need to find founders who are good at communication
- Speed of execution is key
- The most important thing is the speed of growth of the market, more than the size of the market: think about the size of the social network market 15 years ago, it was tiny! Prefer a small market that grows fast rather than a big market that stagnates
- Look for "real trends" instead of "fake trends". Sam Altman's first reaction to a so-called "big trend" is skepticism. "The best things are things where not many people are participating at start but they fell like it has a huge impact, like the first iPhone"
- For example, on VR headsets = he says people don't use it every hour, or every day, not even every week, so that's a sign that it can't be a good investment right now
- What you are looking for is "good ideas that look like bad ideas" and not the other way around !!! But he says that this is what most BAs do: they fund bad projects that look like good projects!
- What do you understand that other people don't ? That's important and it can pay off!
- When the company in which you have invested in seed raises a Series A with a top quartile VC, you have to exercise your pro rata, statistically you have a very high chance of winning
Corentin Orsini - founder of Super Capital and Angel investor
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