- The speaker admires Ali, the founder and CEO of NEO, for his work as a social entrepreneur and for bringing coding privilege to as many people as possible.
- Ali's career began with LinkExchange, the first advertising network on the internet, which he joined immediately after hearing about it.
- He emphasizes the importance of hiring great people in startups and investing, as he learned through his own experiences.
- Ali initially invested in companies based on his business judgment rather than the person behind the idea, but later realized the importance of investing in brilliant individuals even if the idea seemed bad.
- He believes that investing in big ideas with a small chance of success can still be a good investment, while investing in small ideas with a high chance of success may not generate significant returns.

- The speaker believes that investing in big, audacious ideas is better than investing in something with a higher chance of success but smaller potential.
- The speaker learned a lot from early investors in their company, including the importance of speed and decisiveness in decision-making.
- The speaker's first real money came from a venture capitalist firm called Draper Richards.
- The speaker emphasizes the importance of speed and decisiveness in the investing world.
- The speaker's twin brother is also an angel investor, and they work together to make investment decisions.
- Having a second person to provide a different perspective is important in making smart investment decisions.

- The speaker believes that having a second person to provide advice and checks is beneficial for making smart decisions in investments.
- They sometimes make decisions without consulting each other, but only for entrepreneurs they have previously agreed to support.
- It is important to make decisions quickly, within days, to avoid missing out on opportunities.
- Reference checks on people are crucial, and it is more effective to find someone who knows the person rather than relying on the references provided by the person themselves.
- The speaker and their brother have made successful investments in companies like Facebook, Dropbox, Airbnb, and Uber, with a focus on evaluating engineers and helping with recruiting.
- Their new venture, Neo, is a community for promising undergraduate computer science students, where they invest in startups started or joined by these engineers.
- The speaker finds it challenging to decide on follow-on investments in companies that have already grown significantly.
- They have not done many follow-on investments due to psychological difficulties in evaluating the potential for further growth.
- There are concerns about the speaker and their brother taking away potential deal flow from other investors.

- The speaker is unsure about the Thiel Fellows program but believes that YC and NEO have a cooperative relationship with angels.
- NEO aims to take a 2-4% ownership in companies and believes there is still room for individual angels in the ecosystem.
- YC and NEO create opportunities for angels to make money and want them to invest in their companies.
- The speaker believes that YC has increased the number of companies being started and created value by providing opportunities for investors.
- The speaker has limited experience with secondary sales but believes it is a good investing opportunity.
- Tactics for expanding the pool of talent include staying in touch with exceptional people and asking for introductions.
- The speaker surveyed startups to find top engineers for NEO.
- There is no well-formed strategy for exiting positions and liquidity can be challenging in the private market. The speaker admits to making wrong decisions in selling or holding investments.

- The speaker admits to always selling too soon
- They encourage others to also sell too soon
- They thank the audience for staying late
- They request applause for someone named Ali

- The speaker admires Ali, the founder and CEO of NEO, for his work as a social entrepreneur and for bringing coding privilege to as many people as possible.
- Ali's career began with LinkExchange, the first advertising network on the internet, which he joined immediately after hearing about it.
- The speaker emphasizes the importance of hiring great people in startups and investing, as he learned through his own experiences.
- Ali initially invested in companies based on his business judgment rather than the person behind the idea, but later realized the importance of investing in brilliant individuals even if the idea seemed bad.
- The speaker believes that investing in big ideas with a small chance of success can still be a good investment, while investing in small ideas with a high chance of success may not generate significant returns.
- The speaker learned a lot from early investors in their company, including the importance of speed and decisiveness in decision-making.
- The speaker's twin brother is also an angel investor, and they work together to make investment decisions.
- Having a second person to provide a different perspective is important in making smart investment decisions.
- It is important to make decisions quickly, within days, to avoid missing out on opportunities.
- Reference checks on people are crucial, and it is more effective to find someone who knows the person rather than relying on the references provided by the person themselves.
- The speaker and their brother have made successful investments in companies like Facebook, Dropbox, Airbnb, and Uber, with a focus on evaluating engineers and helping with recruiting.
- Their new venture, Neo, is a community for promising undergraduate computer science students, where they invest in startups started or joined by these engineers.
- The speaker finds it challenging to decide on follow-on investments in companies that have already grown significantly.
- There are concerns about the speaker and their brother taking away potential deal flow from other investors.
- NEO aims to take a 2-4% ownership in companies and believes there is still room for individual angels in the ecosystem.
- YC and NEO create opportunities for angels to make money and want them to invest in their companies.
- The speaker believes that YC has increased the number of companies being started and created value by providing opportunities for investors.
- The speaker has limited experience with secondary sales but believes it is a good investing opportunity.
- Tactics for expanding the pool of talent include staying in touch with exceptional people and asking for introductions.
- The speaker admits to making wrong decisions in selling or holding investments, and admits to always selling too soon.
- They encourage others to also sell too soon and request applause for someone named Ali.

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/

Ali is the founder and CEO of NEO, which he can explain what that is.

But he's also an entrepreneur, a social entrepreneur, who I admire a ton for the things he's done.

We met, like I said, too many years ago when him and his brother founded LinkExchange.

He's also the founder of iLike, and again with his brother, Code.org.

In fact, the quote I'd like to pass on from Ali is that both of us are engineers and coders and I really resonate with this, that coding is a privilege, but that privilege is not available to most Americans.

He is doing more than, him and his brother are doing more than any other people in the world, in the country, to bring that privilege to as many people as possible.

And I'm extremely grateful for you guys for doing that and I think it's gonna make a big difference in our country in the future.

So, I thought, so Ali's done a ton of angel investing and the reason I really asked him up here is because he's extraordinarily good at it.

He has made as many great bets as anyone and what we should try to tease out here for me is how the hell He does that.

But I'd like to start off maybe talking a little bit about his experience as an entrepreneur.

Maybe you can tell us a little bit about that.

Start in the beginning, I guess with LinkExchange.

How old were you and what was on your mind there?

So yeah, my career started, I had studied computer science at college and I was working in a software company here but I really knew I wanted to start my own company.

And I had been evaluating different business ideas every week, exchanging email with friends, considering what I was going to start.

And then I heard that a couple of my friends from college had already started this company and were looking for someone to join them.

And essentially I think what was really the key to my success in terms of that company was that I was so ready to do it.

And I had basically agreed to join them by 2 a.m.

The next morning I told the other company that I was no longer working there.

And immediately began working on LinkExchange with Tony and Sanjay.

LinkExchange, this was back in August 1996, and LinkExchange was the first advertising network on the internet.

There are a lot of things that, maybe not the most proud things to say, I helped write the first ad server on the internet.

So banner ads, a lot of those things, we coined the term click-through rate.

So a lot of the early concepts in internet advertising were invented by that team.

But really, I'd say the most important thing I learned from being in a startup was the importance of people.

In fact, after we sold the company, I was 26 years old when we sold the company to Microsoft and I went from being Financially insecure to suddenly being financially independent My my twin brother hottie at that point was preparing to start his own startup and he emailed me and said hey listen I'm collecting advice from different people could you tell me what are the 3 most important things, 3 most important pieces of advice that you would give me as a new founder?

And I said, that's easy, number 1, hire great people, number 2, hire great people, Number 3, hire great people.

And this had been something I feel very lucky to have learned when I was in my early 20s.

And then through a series of, I would say, humbling mistakes, I started also learning that it applies to investing as well.

And that was kind of a little bit further down the line.

So when you started investing, you didn't necessarily apply that same advice you had given to Hadi.

We talked about 1 of the great characteristics of a great founder is that they're a talent magnet, but that connection didn't happen right away.

Yeah, so I should start by saying I didn't think of it as, oh, my new occupation shall be angel investing.

It was more like I had just come into wealth.

I'd never, ever experienced having more than a small amount of savings before in my life.

And I was a little kind of scared of what to do with it, what if I mess it up and I suddenly have to learn what 1 does with wealth.

And while normal people I guess put it in, I don't know, funds or higher investment helpers or so on, an obvious thing for me to do was that some of the smart people in my own network were starting companies and so it seemed like it made sense for me to support some of them.

But I would say I had a lot of hubris in that I was 26, I was clearly the best because I had just sold my company, and so I thought that I had this great business judgment.

And so when some of the smartest people I knew were starting companies, I was applying my enormous business judgment to decide whether it was a good idea or not.

And in hindsight, I might have done better to just focus on the fact that somebody brilliant that I know is starting a company and I should just invest based on the person rather than the idea.

So to put in context there was this amazing software engineer who worked for us at LinkExchange.

He had his own contract programming company of 1 person.

And when he started PayPal, the original idea was crap.

It was a app for your Palm Pilot device to send money to someone else's Palm Pilot device.

No 1 even knew what a Palm Pilot device was at the time.

And needless to say, PayPal was an excellent investment opportunity, even if that original idea didn't make sense.

And it's largely because Max was so smart.

And roughly at the same time, 1 of my smartest friends from college, a guy named Craig Silverstein, basically Craig, my brother Hadi, and I were always competing for who was the best computer programmer.

And then over the few years after graduation, He had gone on to do, he went on to academia, pursue graduate school.

I clearly had become the best because I was running my own company and sold it successfully.

So when Craig emailed us saying, hey everybody, I'm finally doing the Silicon Valley thing, joining up with my PhD friends, Larry and Sergey, and I'm gonna start a new search engine.

And I'm gonna be the CTO and first employee of Google.

I remember thinking, poor Craig, I mean, did no 1 tell these guys that there's already 10 other search engines.

I don't even remember if I responded or not.

But again, the same thing applies where it wasn't a great idea.

I mean, if I told you today that I was starting a new search engine, you probably would not think it's a good idea either.

It was extremely, Yahoo dominated search queries and there were several other companies.

The point is that when a genius starts a company, it's probably a good idea to invest in it, even if you don't necessarily believe in the idea.

We've heard a lot about that over the last 3 days.

You will see a lot about this in your careers as investors that the right ideas to invest in are the bad ones that are really good.

And sometimes brilliant people have lousy ideas.

Drew Houston's first idea was a test prep.

He didn't get into Y Combinator with that idea.

It was probably right of us to refuse it if he had gone down that path.

How do you know when it's truly a bad idea that's gonna crash and burn, no matter how brilliant they are, and when it's just, you just sort of, you know, hold on tight and write the check and go with the brilliance of the founder.

Well, you know, I think each person has different things that they're comfortable evaluating or investing in.

But for me, I probably don't think of it about bad idea or good idea.

I think of it more in terms of big idea or small idea.

So if someone is pursuing something that could be enormously huge, but has an extremely small risk of success.

It'll never make it because 99% chance it'll fail.

That might still be a good investment because, not because it's necessarily a good idea, but because it's a big idea.

Whereas if something seems like, oh yeah, this is a sure thing, but it's a very small potential space, like an incremental improvement for a specific field that only a small number of people are in the market for, I would not say it's a bad idea, but that's not gonna generate enormous returns.

And so it might be a great investment for some people, I just, it's not a great investment for me and it generally doesn't fit the model for VC investing.

So I guess I would say, sorry, I think what I would say is that for me at least, I care more about whether something feels like a really big idea.

And To put in context, Airbnb, most people, when they first heard about it, myself included, thought this will never make it.

I mean, it was just, it was crazy that ordinary people would open their homes and let some rando show

Yeah, But in the off chance that it would make it, it was an enormous concept.

And I would say it's better to bet on extremely audacious, enormous concepts rather than something that seems like a higher chance of success, but that would be small.

Look for the 3 B's then when you're investing.

You want a brilliant founder with a big idea that seems bad.

Did you have any angel investors in LinkExchange?

It's so long ago, this was more than 20 years ago, but it was truly friends and family.

So, you know, like there were distant members of my family And my co-founder Tony Hsieh, who's now at Zappos, had 1 or 2 family members who invested.

But I wouldn't have called them angel investors, because they weren't people from...

We got Ariel Poehler as a board member and I think he put in a little bit of cash as well.

But really our first real money was Draper Richards, which was a VC run by, not by Tim Draper, but yeah, by the sort of granddaddy of venture capital, they put in a small bridge round towards our series A.

I think they put in 300 grand and our series A was 3000000 dollars and that was the only money we ever raised.

I know it's a long time ago, were there any lessons you learned from those early investors in Lake Exchange either immediately or that later looking back helped you as you as you entered your investing life?

Yeah, I think I would say I learned a lot from Mike Moritz.

Mike Moritz led the Series A investment in us and he actually loved our company so much that he would come by the office multiple times a week, which was insane.

You know, no VC does that anymore these days.

But we were, I guess in terms of the investment side, I was impressed by the speed and decisiveness of the investment decision.

You know, he, granted he had a little bit of extra information because he knew that Yahoo had just tried to acquire us and he was on the board of Yahoo.

And so he had visited us to evaluate us on behalf of Yahoo.

And I think the things he was most impressed by were like subtle clues, not the actual business.

So for example, he arrived to meet with us at I think 8 a.m.

And myself and 1 of the other co-founders were sleeping under our desks when he arrived.

So, literally, I remember someone shaking me and me, like, opening my eyes, and they were like, someone's here to see you, and it was Mike Moritz.

And I think that was probably the single most important factor in the whole thing.

But then after we declined the Yahoo acquisition, we got a one-liner email from Mike Moritz.

We had a one-liner email from Mike Moritz saying, let's talk.

And so we went and visited him at Sequoia.

And He basically, it was a very short meeting, and he just said, we are going to invest in you.

We've decided we're going to invest in you.

What we value more than anything is speed.

And every minute, every hour, every day that you put distance between you and your competition counts.

And so we're gonna evaluate you by how quickly you're gonna be able to accept our investments.

This is, this by the way, is what, a Y Combinator we call a ninja technique.

Founders have, there's ninja founders who can do this to investors, and there's ninja investors who can do this to founders.

Not necessarily recommended unless you're very sure you're a ninja.

If you have questions about whether you're a ninja, you're not.

So we at the time had met with 5 or 6 other VCs.

I think we actually had an offer from another VC that was not 1 that we were planning on taking, but we left the conference, or yeah, we left the meeting room, we walked down the stairs, we huddled outside the office, and then went right back up and said, okay, we're doing it.

Yeah, so you've heard, You are starting to hear themes here.

There's a fair amount of repetition, and I consider this to be a very positive thing because these are things to pay attention to, and speed, right?

Those are sorts of things to pay attention to.

I'd say the common thread between several of these different little anecdotes that's just occurring to me is my decision to join LinkExchange was, you know, within hours I changed my career to join this startup.

It wasn't because I'm an impulsive person, it was because I had.

But also because I had spent a year of preparation of evaluating business ideas, so when I saw this 1, I knew it was it.

It wasn't the first time I had thought about starting a startup or joining a startup.

And presumably, same thing for Moritz, you know, he didn't need to spend a lot of time evaluating us.

He, on a very intuitive level, felt like these are the right people to back.

And likewise for us, by the time we met him, we had had maybe 3 or 4 other VC meetings.

When you have a strong intuitive feeling, you should basically go with it.

This industry is not very sympathetic to people who hem and haw and take a long time to make decisions.

So you will find, and you've heard this, there's a nugget of incredibly important truth in this conversation we just had, and it's tied to what other people have said, when you begin angel investing, and I know many of you have already done angel investments, everything will seem good and it will be really hard to make your decisions, but if you can't make decisions quickly, your chance of being a very successful angel investor are pretty small.

So you need to do enough of it so that you start to be able to, you know, you heard Paul say it, do or do not, and do or do not rapidly.

So this is the task in front of you is to get to the point where you can and be comfortable like you're playing poker with shoving all in when you know there's a pretty good chance that they're holding the nuts.

Or in this case, they're holding nothing at all.

And when you shove all in it goes away but you have to create the ability to be decisive.

Well, yeah, so I have a twin brother, Hadi, and we have very similar backgrounds.

So besides being genetically identical, we both studied computer science, we both went to the same university.

After college, he joined Microsoft, I joined Oracle.

I had my own startup and I sold it to Microsoft.

He then had his own startup, he sold his startup also to Microsoft.

So we basically are, our careers kind of intertwined.

When it started coming to angel investing, I think we have some minute differences.

I would probably say I'm a little bit more risk taking and he's a little bit more guarded and thoughtful.

But I would generally say what's applicable to everyone is that angel investing is better when you have someone else to essentially to double-check you or to keep you honest because it's I'd say it's a lot like falling in love when if you fall in love with a person you see only their positive traits your brain I think human the human brain is literally designed to ignore negatives about something that you've fallen in love with.

And so, you know, just like sometimes if you have a friend who's in love with the wrong person, you have to like tell them there's real problems with this person that you can't see, but trust me, I see them.

I think that also applies with investing in a company, that if you fall in love with a company, you sometimes are unable to see obvious negative signals.

And if a second person who is not in love sees them and you trust them as an equal and as an advisor, then you're more likely to make smart decisions.

Does that slow you guys down, where you have to check each other instead of being able to say, I'm in?

Or do you both independently sometimes just say, yeah, we're in, and then you sell it to people?

Yeah, there's been occasions where I've committed on behalf of both of us without even asking him.

But those are rare And even those are ones where, I mean, usually they have to do with a person that we had already agreed that we would give a blank check to.

So there's entrepreneurs in the past where we've literally said anything that this person starts, we would back.

And the person says, I'm starting something and I'll take a meeting and I say, okay, we're in without having to call Hadi.

But I would say that's, you know, that's not the situation I was just describing.

I think in general, it is good to decide quickly, but I think having to do that basic checking with your partner is not, that's not a big enough slowdown, as long as the discussion can be fast.

So you don't usually have to decide on the spot, and it shouldn't be interpreted that we're making that claim.

You need to be decisive and you need to decide with alacrity.

That will often mean, you know, within days.

Weeks means you're gonna miss out on the deal.

So, the way I interpret this, and Ali can correct me if I've got it wrong, is they talk that night after they met with the company and decide the next day not, well let's sit on it for a little while and see how it percolates, because

I mean, the other thing I'd say is if you're taking weeks to decide, that basically means you've said no, but in a kind of douchey way where you haven't told them no.

And all you're doing is hurting your reputation, because you'll get a reputation for someone who, instead of rejecting people, just kind of whatever the term is, ghosts them.

So, you know, I think you should do diligence.

So it's just a question of if you see something you're excited about, get on top of it quickly.

So, you know, the type of things, when I say the word diligence, it actually usually means reference checks on the people, because I'm personally, I'm fiercely, intensely focused on the caliber of people.

So I'll email Hadi, not that night, usually that hour, and say, hey, I just saw this company, I'm really excited about it, blah, blah, blah.

Here are the reasons I'm excited, here are the things about the people, here's the negatives.

Sometimes he'll say, this is terrible, and he'll essentially kill the interest.

But sometimes he'll say, yeah, It is great.

Who do we know who can do a reference check?

I know somebody from this place that would know this person.

Reference checks are usually more effective if they're done sort of stealthily, meaning find someone you know who knows them.

The reference checks that somebody provides are obviously going to be positive.

They're going to be their friends or their best relationships.

And so those don't really give much signal.

But finding someone who was a previous manager I'd say that's the sort of worthwhile time to spend before making a decision.

So I want to give the people who've managed to hang out in our great lateness here the chance to ask some questions and if we have some from online.

But before then, I have a combined question.

You've made a whole bunch of incredible investments and incredible companies.

And I'd like to maybe, if you can sort of give a little color on that and especially tie that to your new venture with NIO?

And because I think you're thinking about those.

I think NIO is almost a result of the process of figuring out how you made all these great investments.

So maybe you can just speak briefly to those 2 things.

I'd say the hallmark or the sort of common theme in my investing together with my brother has been a strong connection with young engineers, you know as young as University and a very strong focus on evaluating engineers and Most people don't realize the most successful companies in America were all founded by computer scientists, and not just the tech companies, but also companies like Netflix, which is really an entertainment company and started out mailing DVDs.

We'd hastily started a company, look it up, called Pure Software, which was an incredible company.

And Jeff Bezos is a computer scientist, and obviously Bill Gates and so on.

So we really began focusing on people and evaluating companies as well as then after investing in the company, helping them with recruiting people.

So our foremost successful investments are tour early stage and tour later stage.

So I'd say the hallmark of the later stage ones is helping them with recruiting more so than discovering them.

But basically they're Facebook, Dropbox, Airbnb, and Uber.

But the early Facebook, I clearly remember Hadi coming back from this meeting saying, I just met this company, they're working in a house, but this young guy reminds me more of Bill Gates than anyone I've ever met in my life.

And he had this intensity and ambition to him, but with a level of belief and confidence that he was actually going to accomplish these things.

And it was a very chaotic company at the time.

But we decided to get involved and then we started pushing them to hire younger people than themselves, which is not what anyone else was telling them.

They were, average age was 21 or something, and we convinced them to bring on a 19-year-old intern.

And I remember interviewing Stanford students for Facebook and helping refer people to join early Facebook.

And that process of interviewing students led us to discover Dropbox.

So there was a MIT student named Mackinday who my brother interviewed him and sent him to Facebook but also asked him, who are the smartest kids in your class at MIT?

And that's how we met Arash Ferdowsi, who was still enrolled at MIT and was developing Dropbox.

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Ali Partovi - Startup Investor School Day 3