- The speaker mentions that taxes can be a complicated issue when it comes to angel investing, but suggests looking into qualified small business or section 1202 for potential tax benefits.
- The previous day was focused on angelic advice, with speakers discussing topics such as finding billion-dollar companies, the importance of personal brand, and portfolio construction.
- The speaker emphasizes the importance of having choice in deal flow and being professional and organized in angel investing.
- The speaker mentions that many successful companies have been built by software engineers, and suggests looking for brilliant founders in big markets with seemingly bad ideas.
- The upcoming day of the Startup Investor School will feature speakers discussing early stage investing, being good, and the insights of a famous angel investor.

- Private equity firms started using the structure of investing in companies through friends, family, and principal investments before venture funds.
- In the 1970s, venture capital firms like KP, Mayfield, CRV, 7 Rows, Sequoia, and NEA were founded, with smaller fund sizes compared to today.
- Angels emerged in the 1970s, investing in technology startups for the first time.
- Major companies like Apple, Genentech, Tandem, Cray, Compaq, and EA were founded in the 1970s and early 1980s.
- The 1980s saw a boom in venture capital, with an increase in the number of funds and institutional capital investing in venture.
- The market for tech IPOs fluctuated in the 1980s, with a rise in the number of funds and the stock market crash affecting the number of IPOs.
- In the 1990s, there was a massive boom in capital availability for venture capital, with companies being backed for their potential to go public.
- The early 2000s saw a cooling off period in venture capital returns, but the rise of accelerators like YC and Techstars contributed to the decreasing cost of starting a company.
- Convertible notes became popular in the mid-2000s, thanks to YC standardizing their terms, making it easier and faster for companies to raise money.
- Super Angels and Micro VCs emerged in the mid to late 2000s, contributing to the growth of seed funds and smaller venture capital firms.

- The early 2000s saw the rise of Super Angels and Micro VCs, providing more capital for startups.
- In 2010, there was a trend of more angels and seed funds investing smaller amounts, but seed rounds also reached a million dollars for the first time.
- Preferred stock became more popular due to increasing institutional capital at the early stage.
- Platforms like AngelList and perks-based funding platforms like Indiegogo and Kickstarter emerged, making it easier to raise capital without selling equity.
- The Jobs Act in 2012 led to significant changes in the early stage funding ecosystem, including exemptions for venture funds and crowdfunding options.
- YC introduced the SAFE in 2014, leading to a return to convertible structures for startup fundraising.
- 2017 saw the rise of ICOs, allowing companies to raise money without meeting with investors.
- There is a trend of "everyone an angel" with ICOs, equity crowdfunding platforms, and angel investor education programs.
- The early stage fundraising ecosystem today includes normal seed fundraising with SAFEs or convertible notes, and token fundraising through ICOs with SAFs for future tokens.

- The speaker discusses the differences between early stage fundraising mechanisms and traditional seed fundraising.
- Token holders do not own a stake in the company and have limited governance rights.
- Valuation of tokens is different from seed fundraising and the investment process is more decentralized.
- Token holders may not have personal interactions with the founders and exits can happen much faster.
- The speaker categorizes tokens into three categories: protocol tokens, application tokens, and securities tokens.
- Caution is advised when investing in ICOs due to the newness of the industry.
- The speaker explains the concept of tokens using the example of Filecoin and its incentive model.
- The future trends in fundraising include a continued search for liquidity and easier and cheaper ways for companies to start and raise funds.

- The ICO market is still evolving and investors are seeking both equity and tokens in companies.
- Meeting with the founders is important when evaluating ICOs, but in the current market, it is not always possible.
- Evaluating ICOs involves looking at technology, team backgrounds, and interaction with the team through channels like Slack or Telegram.
- Following experienced investors and accessing their diligence notes can also be helpful in making investment decisions.
- ICOs are a global phenomenon with significant capital raised in both the US and Europe.
- Regulation is increasing in the ICO market, and investors need to be aware of relevant securities laws.
- There are venture capital lobbyists and industry advocacy groups in the crypto space, but more lobbying efforts are expected in the future.
- Modifying the SAFE agreement to account for ICOs is challenging due to the unknown implications of owning equity and tokens.
- In a token world, owning equity in a company may be similar to owning tokens, as the company's value will come from its holding of tokens.

- The value of owning equity in a company may be the same as owning tokens if the company does a successful token sale
- Understanding the history of venture capital is important in predicting the future of the token industry
- Slower liquidity can lead to bigger returns, but early liquidity can kill a company prematurely
- Early investors in token companies are offering locked up investments to provide support
- There is uncertainty about how a second round of fundraising would work in the token world
- ICOs are more similar to seed fundraising than IPOs
- There is a need for mechanisms to stabilize ICO prices and create liquidity in the token market
- Regulators may require ICOs to treat tokens as securities, which would include lockups and protections against price fluctuations.

- The speaker discusses the complexities of taxes in angel investing and suggests looking into qualified small business or section 1202 for potential tax benefits.
- The previous day of the Startup Investor School focused on angelic advice, including topics such as finding billion-dollar companies, personal branding, and portfolio construction.
- The speaker emphasizes the importance of having choice in deal flow and being professional and organized in angel investing.
- Many successful companies have been built by software engineers, and the speaker suggests looking for brilliant founders in big markets with seemingly bad ideas.
- The upcoming day of the Startup Investor School will feature speakers discussing early stage investing, being good, and the insights of a famous angel investor.
- The history of venture capital is discussed, including the emergence of private equity firms, venture capital firms, and angel investors in the 1970s.
- Major companies like Apple, Genentech, Tandem, Cray, Compaq, and EA were founded in the 1970s and early 1980s.
- The 1980s saw a boom in venture capital, but the market for tech IPOs fluctuated.
- The 1990s saw a massive boom in capital availability for venture capital, and the early 2000s saw a cooling off period in venture capital returns.
- Convertible notes, Super Angels, and Micro VCs emerged in the mid to late 2000s, contributing to the growth of seed funds and smaller venture capital firms.
- Platforms like AngelList and crowdfunding platforms like Indiegogo and Kickstarter emerged, making it easier to raise capital without selling equity.
- The Jobs Act in 2012 led to significant changes in the early stage funding ecosystem, including exemptions for venture funds and crowdfunding options.
- The speaker discusses the rise of ICOs in 2017 and the trend of "everyone an angel" with ICOs, equity crowdfunding platforms, and angel investor education programs.
- The speaker explains the differences between early stage fundraising mechanisms and traditional seed fundraising.
- Tokens in ICOs have different characteristics and categories, and caution is advised when investing in ICOs.
- The future of fundraising includes a continued search for liquidity and easier ways for companies to start and raise funds.
- Regulation in the ICO market is increasing, and there is a need for mechanisms to stabilize ICO prices and create liquidity.

Startup Investor School is a free, 4-day course designed to educate early stage investors interested in investing in startups. We'll cover the fundamentals of investing, from investing instruments to legal and accounting basics to evaluating startups and managing deal flow. Our hope is that more people, from a wide range of backgrounds will consider investing in startups and that those who do will be better at it.

Learn more at https://investor.startupschool.org/

There was 1 note that someone had that I thought was a little interesting.

And he pointed out that, Carl, thank you, that we haven't really talked about taxes.

I can't imagine why we haven't talked about taxes.

Well, Taxes are an interesting issue when you're doing angel investing.

Actually, if you're new to this, you actually realize it's a pain in the butt because when there's an exit, it's not like a simple thing.

You have to do this thing called an installment sale because usually there's an escrow and you get paid and you have to figure out how to, what your basis is.

But there's also, there's other thing that's worth investigating called qualified small business or section 1202, which can have an impact, a significant impact.

In past years it had a huge impact on your potential tax liability, so look it up.

Because I don't know anything about taxes.

Just a quick summary of yesterday before we get going.

So yesterday was our day of angelic advice.

Whether you realize it or not, those people up here are amazing investors, so hopefully you paid close attention to their words of wisdom.

Allad talked about how he finds billion-dollar companies, Which, you know, if the game you're into is to make money here, actually, raise your hands if the main reason you're an angel investor is to make money.

Like, none of you are here to make money.

Because maybe because you want to change the world and you care about things, which is great.

But you know, investing in billion dollars companies gives you more fuel to do that.

And he talked a lot about how he helps companies.

And 1 of the things you hear, if you ask people, again, it is a very tight network.

If you ask people about a lot, they'll all tell you incredibly helpful.

Well, that matters because everyone knows he's incredibly helpful, so you want him on your cap table.

And if there's 1 thing you should take away from PageMon, other than the fact that T is really helpful, it's that anybody can get deal flow.

Anybody can figure out how to get deal flow.

And getting deal flow matters because you have to have choice.

Jeff talked about portfolio construction and asset allocation And I think the takeaway for me there, what I've really learned from Jeff is that, even, you know, most of us who are angel investors are not pros, we're amateurs, we're dabblers in the game.

That doesn't mean you can't be professional and rigorous about how you go about doing this.

And that's the right way to do it, to be organized, to think about your portfolios, to remember that it's a long game, and to pay attention, to pay attention to what goes right and wrong.

He pointed out his portfolio construction was ex post facto, right?

He looked back and said, oh yeah, I have a portfolio now, that's awesome.

That doesn't mean it you have to do it that way.

Budgets matter, check size matters, sectors matter, etc.

And then Andrea talked about personal brand and how much that matters.

Do not think that every 1 of those folks isn't successful in particular because they have fantastic personal brands.

And I liked what she left us with, is think like a boss.

That's back to what I was saying before about being professional and thinking through how you're doing this.

And I think Ali had a little bit of a different perspective on things, which is interesting.

He points out that so many of the great companies, huge companies, have been built on the backs by software, founders who are software engineers.

I mean, Microsoft, Facebook, Amazon, Google, Yahoo, Netflix, all of those.

There's a quite a bit of market cap if you had those up together.

Thinking about, I guess we came up with our little little aphorism at the end, which is you want to look for the 3 B's, right?

Brilliant founders in big markets with ideas that seem bad, right?

So today's the conclusion of Startup Investor School.

We're going to start with Andy Bromberg, who's going to talk about early stage investing in the past, present, and the future.

He is the CEO of CoinList, the person who will answer every single 1 of your questions about the past, present, and future of startup investing, and who has said, for the first time, we can give someone a product without them considering whether they want it in advance.

After Andy, we're going to have Aaron Harris, who's going to talk about being good.

And then our final guest is a special guest, my friend Ron Conway, who's probably the most famous investor, angel investor ever.

Let's see if we get this clicker to work.

We are the platform where the best digital asset companies run their token sales and where investors like, hopefully you all, find high quality deals in the space.

But that is mostly not what I am talking about today.

We're talking about the past, present, and future of early stage investing.

And we're going to start with some trends that we'll see throughout the entire history of early stage investing, move on to some history, the early days of venture, 1940, 1950, 1960, 1970, 1980, the Middle Ages, up to 2000, and then kind of recent history and going all the way to the present and then going back to some trends and talking about that.

I think It's really important to talk about the history of venture to understand what's happening today.

A lot has happened in this space, and it is a relatively new space relative to other industries.

And what has happened in the past really informs what's happening today.

And you'll see a lot of the same trends surface throughout all of these decades.

So some of the trends that we'll see over and over again talking about early stage investing.

First, decreasing costs to start companies.

1940 was very expensive to start companies as we'll see.

For investors like you all or for funds, the cost to invest and the barrier to entry there has gotten lower and lower over time.

And We see that happen over and over again in this ecosystem.

And then the last is the arc of the market bends towards liquidity.

And we'll see this over time, starting early and going all the way to now, that liquidity and faster liquidity is something the market's always pushing towards.

Now There's a caveat here, which is there are speed bumps in all these trends.

And certainly in the last few years, we've seen the speed to liquidity go down.

We think that's gonna revert back and we're gonna see that come faster again.

And then the kind of mega trend that we'll see through all of this and all of these in form is more and more capital being available to startups.

As it becomes easier to start companies and you see more and more companies being started, and as it becomes cheaper to invest in companies and easier to invest in companies, this availability massively increases, which means more startups, more people trying to change the world, all the things we've been learning about for the past few days.

1940s to 1960s, Jeff told me actually that when he talks about the history of venture capital, he starts even earlier than this, back around 1492 when, as he says it, Spain VC with partners Isabella and Ferdinand invested in Christopher Columbus Labs on a venture to find a new world.

They got 90% of the equity in that company, which is a great deal for them.

Unfortunately for you all, it does not happen anymore.

But we're going to skip, you know, 4 or 500 years to the 1940s and 1950s when the first venture capital firms emerged.

And these are kind of the 2 that we talk about most often as the earliest ones, J.H.

Whitney & Co and ARDC, emerging in the 40s.

And ARDC really had what we consider to be the first venture win.

So they invested in Digital Equipment Corporation and returned about 500x in 11 years there.

And that was the beginning of this trend towards our first kind of recognizable venture funds, what we think of as venture funds today.

In the 1950s, 1958, we saw small business investment companies, which was legislation introduced by the US government, which effectively pushed this forward.

They said, if you wanna start a company that's a venture fund, as we would call it today, we'll actually give you leverage.

We'll loan you money to invest in startups and allow that to increase.

And so that really pushed the industry forward way faster than it could have otherwise because there just wasn't capital available at that point to invest in startups.

And then, you know, as we look towards the early days, some names you might recognize funded around this time, Venrock, Greylock, Sutter Hill, Draper and Johnson around then.

And at the same time, and we won't get into this history, the Valley was coming into its own.

So we saw Fairchild semiconductor, some of the first Silicon Valley companies were started around this time.

A couple other noteworthy things about this period.

1, this is the first time we saw the 2 and 20 structure emerge, so 2% management fee, 20% carry.

That hadn't really existed up until this point.

And private equity firms, for the first time, started using that structure.

And we still, obviously, use that today for a lot of venture funds.

And then briefly, you know, talking about what these deals look like.

In this period, what we saw was that hundreds of thousands of dollars, which is obviously even more in today's dollars, was invested into these companies by the principals, by friends, by family, before it ever got to a venture fund.

So we're not talking about having a product at the seed stage or having a really good deck or anything like that.

We're talking about something being out in the market and making money on the basis of having a lot of friends and family and principal investment going in.

What we'll see as we go through this is that that didn't change for 40 years.

We saw that for basically the first 40 years of venture, you had to invest hundreds of thousands of dollars of your own money or scrounge it up from someone before a venture fund would invest in you.

And that feeds into the trends that we were talking about earlier.

Some more names that you might recognize here, KP, Mayfield, CRV, 7 Rows, and Sequoia, NEA, all founded in this time.

In 1970, CRV was a $5 million fund, and KP was a $7 million fund.

Those are smaller than most investments those funds make today in raw dollars, but that was the entire fund size at that point in the 1970s.

You know, we also saw the emergence of angels in the 70s.

As a historical note here, we think the term angels actually came about in the 1920s, but it was obviously not in startup land there.

The first angels were theater angels who were investing in shows on Broadway to get them off the ground and allow them to start to make money.

But we saw technology angels emerge in the 1970s for the first time.

And then some major companies in the 70s that you will certainly recognize, Apple, Genentech, Tandem, Cray, Compaq, EA.

70s to early 80s, all of these companies were founded and obviously still massive success stories today.

And we started to see more and more funds being founded as you can see here, and a lot of that was because angels, which were emerging, were becoming funds for the first time.

But that could only happen because there was capital available.

And what was happening in the 70s to make that trend start is that institutional capital was investing in venture for the very first time.

Endowments and big corporations created a new thing called alternative assets that they were willing to put money into.

And they were investing in non-traditional assets for the first time.

And so angels that had successful track records in the early 70s went on to found some of these funds on the basis of, for the first time, institutional capital being available to them.

Moving into the 1980s, I've got a few charts here, actually courtesy of a great website called Reaction Wheel that I recommend everyone check out, some really good articles about the history of venture on there.

1980s was a boom time for venture capital.

If you look at this number of funds by vintage year, on the left side you've got the 60s and 70s, and then that first big jump, the third bar, is 1980.

There were a few dozen funds in the early 80s.

There were more than 650 at the end of the 80s.

So that was really caused by this trend of more and more institutional capital being available and by this idea of just venture being an attractive asset class.

It hadn't been around for that long, and people were realizing that there were crazy returns available to them if they started these venture funds.

What's interesting here is that if you look back at the mid-70s, not a lot happened.

So we saw this early boom in the 50s and 60s, and then 72 to 78, there weren't a lot of good deals.

And then as we moved into the 80s, some of those companies that I showed on the last slide started to get funded, the Crays and Apples and Genentechs, it got really interesting again, and we saw literally hundreds of firms be started through the decade of the 80s.

But at the same time, here's a chart of tech IPOs through the 80s, 1980 on the left, 1990 on the right.

1983, we had more than 150 technology IPOs.

And 1984, we were down at less than a third of that.

And it stayed down there for the rest of the 80s.

That fueled the rise in the number of funds.

And then as things trickled down towards the late 80s, the market went down again.

Certainly stock market crash affected that And the number of IPOs went down really, really sharply.

Secular trend in the 80s was that you needed to invest earlier.

So this is what I was talking about before, that up until this point, you had to invest hundreds of thousands of dollars of your own money to start a company.

But now, there were 650 firms to get money from.

Those firms needed to beat each other to the deal.

Eugene Kleiner had this quote that it's now a matter of weeks or even days to make up their minds because if they don't someone else will.

That was not true for the first 30 or 40 years of venture.

They could take their time, they could take months to sign on a deal because there was just not a lot of capital available.

But as we moved into the 80s that capital skyrocketed, deals became competitive and funds had to invest earlier and earlier to get the returns that they wanted because otherwise they would lose it on deals and and be left with with the losers.

In the 80s you'll also see the market bounce around a whole lot.

A lot of venture investments were actually made in slow growth consumer brands for the 80s, which was kind of an odd trend that happened, but there was just so much capital coming into the ecosystem, it had to be allocated somewhere.

And we saw it go into slow growth brands in addition to fast growth startups.

And then of course, at the end of the 80s, the stock market crashed.

And that kept things down for a few years.

This is tech companies formed in the United States, 80 to 84, 85 to 89, and 90 to 93.

Boom times in the 80s, and as we got towards the 90s, the stock market crash tamped everything down very, very aggressively, and we did not see a lot of companies get found in the early nineties but in the nineties we did get software and services and John Dora funding Netflix and Amazon And for the first time we're seeing some of the recognizable software companies that we know today and the and the movement towards funding that from from venture capital To give you a sense of what happened in the 90s in 1996 the venture industry as a whole had an AUM of about 12 billion dollars in the calendar year 2000 LPS put 120 billion dollars into venture So that's not that it went from 12 billion AUM to 120 billion AUM in 4 years.

That's that the AUM was 12 billion and then in a single year, they put in 10 times that 4 years later.

So massive boom times in the 90s in terms of capital availability, going back to that trend of more and more capital always being available to these startups over time.

As we know in the 90s, companies were getting backed because they could go public.

We saw this path to liquidity start to increase and people trying to get liquid very quickly.

Companies starting and we've all heard the stories months or a year or 2 years later going public.

And that was a big part of the driver of this capital because they saw these immediate returns that they could put in.

Funds were getting 30%, sometimes even 40% carry on these deals because there were liquids so quickly.

And people couldn't put enough money into the space so the venture funds could start to do whatever they wanted and take a lot more of the economic upside.

These were boom times and there was a bust.

And I actually won't dwell on the bust here.

It's really not that interesting for the sake of thinking about the history of venture capital.

These markets are cyclical And we see that in early stage fundraising and late stage fundraising.

But every once in a while there's a bust and there happened to be a really big 1 at the end of the nineties, early 2 thousands.

And as we get to the 2 thousands, Things were okay, but not great in the early 2000s.

2002 to 2009, there was about $205 billion invested in venture, and about $220 billion returned.

So not really the venture returns that we're looking for, although certainly some of those companies have since returned more capital there.

But things cooled off for a little bit there in the 2000s.

And then for the first time in a while, we saw the rise of some new structures, some new methods of funding, and a new wave of models.

2005, YC, this fine institution that we are standing in right now, and then 2006, Techstars, accelerators started to rise, and this contributes again to this trend of the decreasing cost to start a company, making it easier and easier to start a company, and there was certainly capital available for those companies.

Obviously, around the dot-com bubble bursting, angels went away in a large part, because most people lost a lot of money that they would have otherwise invested.

We saw the re-emergence in the mid 2000s leading up to 2008 and the recession when of course that got stamped out a little bit more again.

And this is a really important 1 for and I think underrated in the history of venture capital, which is the rise of convertible notes, actually in a large part due to YC standardizing the terms and encouraging founders to raise money on convertible notes.

Historically, all of these deals have been done with just equity, straight equity, selling preferred stock.

But there are downsides to that, as I'm sure you've talked about this week.

It's, you have to close all at once, you have to go through this extensive legal process, you can't do these roll and closes and get things out there quickly.

And YC worked to standardize these terms, and we saw the rise of convertible notes, 2005 to 2009, as more companies started raising faster and the cost to start a company again went down thanks to that.

And then Super Angels and Micro VCs, SoftTech, I know you heard from Jeff, SV Angel, you hear from Ron a little bit, Lowercase, Felicis, even seed funds, first round capital really came into its own in the mid to late 2000s.

And this was again, just more capital early on in startups lives, making it easier and easier to start a company early on.

Some more trends in 2010 after the recession, more angels, more seed funds investing smaller and smaller amounts.

At the same time, we saw seed rounds crest a million dollars for the first time and startups started to be able to raise really meaningful amounts of money from early stage investors, often before they had real traction in the market.

We saw a little bit of a reversion to preferred stock, likely due to this increasing institutional capital at the early stage.

In the earlier 2000s, most of the early stage seed capital was coming from angels who didn't really wanna deal with legal docs on their own.

They were just investing their own money.

Now we started to see those funds that I mentioned on the last slide invest.

And their preference was often for preferred stock early on.

And so we saw this move back to preferred stock really just from about 2010 to 2013 there.

And then as the markets pushed towards driving this cost to start a company down, platforms emerged for the first time.

You've got platforms like AngelList that connect investors to, or at least at that point, connected investors to startups and made it easier and easier to raise capital, as well as easier and easier to invest in startups.

And Angelis really democratized that process to a large degree, as well as perks-based funding.

So Indiegogo and Kickstarter, making it so that without actually raising equity, you could raise early money, obviously.

Pebble is a phenomenal example from around here, that was able to really get this business off the ground without selling equity and raising enough money to do things like build hard hardware in a time when that really wasn't being funded effectively with equity grounds.

And even a little bit more recently, going to the 2010s, in 2012, this is another underrated item in the history of early stage fundraising.

The Jobs Act and then subsequent legislation over the next couple years led to some really massive changes in the early stage funding ecosystem.

After 2008, all of securities law and investment advisory law got much, much tighter and much harder to invest in things as the government imposed regulation to avoid, or attempt to avoid recessions like that happening again, except for venture.

Venture is really the 1 class that got the exception to that.

You can argue whether or not that's because it was common sense in the government or if it's because the venture industry lobbied really effectively.

But at the end of the day, the Jobs Act came out and following legislation, and a few things came out of that.

1, venture funds got this exemption from being a registered investment advisor, which made it much easier to operate a venture fund and avoided going down the path of that becoming really heavily regulated.

We got general solicitation, what we call 506C offerings, where you can publish that a startup is raising on the internet and people can invest in that.

Obviously AngelList took advantage of that in a pretty meaningful way.

506B got further solidified, which is private, non-general solicitation fundraising and allowing that to be done in an easier fashion.

And eventually crowdfunding, what we call REGCF, equity crowdfunding.

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Andy Bromberg - Startup Investor School Day 4