- The video discusses the challenges of investing and making investment decisions.
- Dalton emphasizes the importance of having a consistent process and evaluating founders and their potential for growth.
- PB shares his perspective on investing, highlighting the inevitability of making mistakes and the need to look for ideas that may seem stupid to big companies.
- Michael offers advice on investing and navigating YC Demo Day.
- The session includes networking opportunities and will feature investors who have invested in YC companies.
- Elad Gil, an experienced investor, talks about finding billion-dollar companies and the importance of market-driven investing.
- He emphasizes the significance of market potential and early compounding growth in determining startup success.
- Gil also highlights the importance of building relationships with founders and working with good people.
- He discusses five signs of a great market, including early compounding growth and customers willing to pay more for a product.

- Making a product cheaper than competitors is not always a good strategy, unless going for scale.
- Having large customers paying early is a sign of product market fit.
- The timing and competition in a market should be considered.
- Moats, such as network effects, are important for long-term success.
- The team should have a product, be fast learners, good at selling, and determined.
- Following other investors blindly is a mistake.
- Mistakes include passing on successful companies like Lyft and not considering valuation.

- The speaker discusses the importance of understanding and supporting different types of companies at different stages of growth.
- They emphasize the significance of product-market fit for early-stage startups and the need for operational expertise in late-stage companies.
- The speaker suggests ways for investors to help startups, such as providing hiring and fundraising assistance.
- They also highlight the importance of considering the psychology of founders and providing support in that aspect.
- The speaker mentions examples of investors and founders acting badly, such as prioritizing personal interests over the company's or not rewarding help.
- The summary concludes by mentioning that all the presentation materials will be available online for reference.

- Pejman is a successful angel investor and founder of Pair VC
- He has invested in over 200 startups, with 7 worth over a billion dollars each
- Despite not having a computer science degree or working for a tech company, he has raised over $100 million for his fund
- Pejman shares his life story, from being homeless in Silicon Valley to becoming a successful investor
- He built relationships with tech industry professionals through his job at a carpet gallery
- He convinced his boss to start investing in tech and built an advisory team from his network
- Pejman faced challenges in being taken seriously, but his exclusive gallery and serving Persian tea helped build trust
- He initially had a poor track record in investments but focused on connecting people and hosting events
- Pejman's story highlights the importance of perseverance and building relationships in the investment world.

- The speaker invited over 100 influential people from the Iranian community in tech and organized a fun event with belly dancers and Persian food.
- They made connections and their net worth grew, making good investments in companies like Danger and Dropbox.
- The speaker emphasizes the importance of being welcomed and supported by the Silicon Valley community.
- They share stories of successful investments in companies like Dropbox and DoorDash.
- The speaker admits to making mistakes, including passing on investing in Facebook.
- They started a fund in 2013 and have invested in category-defining companies worth over $25 billion.
- The speaker looks for founders who have a genuine connection to the problem they are solving and are willing to take risks.
- They value self-awareness, confidence, persistence, and paranoia in founders.

- The speaker admires founders who are paranoid in a healthy way and double-check every decision they make.
- Good CEOs are like captains of a ship, knowing where it is going, being loyal to their team, and willing to go down with the ship.
- The speaker looks for founders with a long-term vision rather than just focusing on short-term goals.
- The example of Dropbox's CEO having a mission to reduce workdays from 5 to 4 in 10 years is given as an example of a mission-driven founder.
- The speaker believes there is no perfect formula for success and that they connect well with founders who believe that nothing is impossible.
- The importance of having a driving force or passion that keeps founders going is highlighted.
- When evaluating a situation where a business is not progressing as expected, it is important to consider the stage of the company and have conversations with the founders to understand the challenges.
- The speaker emphasizes the importance of having a good deal flow, picking winners, and providing help to invested founders.
- The speaker looks at the total addressable market and extrapolates potential growth to make investment decisions.

- The speaker discusses three factors to consider when evaluating a startup: company valuation, competitive dynamics, and customer payment.
- They mention that early payment from customers is a positive sign, as it indicates the startup is doing something amazing despite its flaws.
- The speaker also talks about the importance of looking beyond the obvious market potential and trusting entrepreneurs' vision for the future.
- They suggest three ways to get started in angel investing: writing about the industry to attract potential investments, investing in non-competitive companies adjacent to your own, and leveraging your network for cross-investments.
- When it comes to co-founder conflicts, the speaker believes that early conflicts are usually unresolvable, while conflicts that arise later can be fixed.
- They emphasize the importance of communication in resolving conflicts and being there for founders emotionally.
- The speaker apologizes for the limited time and thanks the audience.

- The video discusses the challenges of investing and making investment decisions, emphasizing the importance of having a consistent process and evaluating founders and their potential for growth.
- The session includes networking opportunities and will feature investors who have invested in YC companies.
- Elad Gil talks about finding billion-dollar companies and the importance of market-driven investing, highlighting the significance of market potential and early compounding growth in determining startup success.
- The speaker suggests ways for investors to help startups, such as providing hiring and fundraising assistance, and highlights the importance of considering the psychology of founders.
- Pejman shares his life story, from being homeless in Silicon Valley to becoming a successful investor, highlighting the importance of perseverance and building relationships in the investment world.
- The speaker discusses successful investments in companies like Dropbox and DoorDash, admitting to making mistakes and emphasizing the importance of being welcomed and supported by the Silicon Valley community.
- The speaker looks for founders who have a genuine connection to the problem they are solving and are willing to take risks, valuing self-awareness, confidence, persistence, and paranoia.
- The speaker emphasizes the importance of having a good deal flow, picking winners, and providing help to invested founders, and discusses factors to consider when evaluating a startup.
- They suggest ways to get started in angel investing and discuss the importance of communication in resolving co-founder conflicts.

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/

Just yesterday, the main topic, as you could tell, was really focused on the hardest thing about investing, I think, which is how do you decide to invest?

So we heard from Dalton, who talked about founder meetings, talked about process, how you should get organized and have a consistent process that makes sense to you and helps you organize the deal flow, the set of founders you meet, and helps you think clearly about the set of decisions you're going to make.

And then you just merely have to meet the founders and decide if you love them, their business, their product, and believe that it has the potential to grow and scale and thrive.

Then PB came and gave his always PB-like perspective on things.

PB said it, as he pointed out, there is not a great investor in the world who has not made great mistakes.

And He's had some epic ones, and it's kind of cool that he's comfortable enough to share those.

Part of the reason, you know, between us and the world that he's comfortable in sharing those is he's had plenty of great successes as well as I pointed out.

He's a fantastic investor, but, you know, it's hard, And it's hard, and you don't know, because some guy named Brian Chesky sent you an email.

You don't know if that's the 1 you should have responded to.

You only know that in retrospect years later.

But I thought that was some incredible, every time PB speaks I derive a little bit of wisdom for that.

1 thing he said that that I loved was that You should look for ideas that would seem stupid inside a big company.

I've actually been in a big company and had stupid ideas.

Mostly they were just stupid, I don't think they were, and of course that's the hard part, is that some of the ideas really are stupid.

But some of the great ideas almost have to be stupid.

Because if not, they do have resources and skills and talent.

So you need the ideas that are stupid, look bad, but are good, and that big companies won't naturally do.

Don't restrict yourself to what you know.

You might miss, you know, the next big crypto company if you're not a big crypto person and you have the opportunity to invest in them.

He was very Yoda-like in saying do or do not.

And he put it on a whole bunch of founders traits in a slightly different way that I thought were pretty cool from moving fast to accomplishing a lot with just a little to to finding someone who's a talent magnet.

By the way that's as an aside if you're not evaluating that when you talk to founders, you're making a mistake because if you think about it, every giant company is built with an incredible team.

And if you don't believe that the founder you're talking to can recruit and build this team of people who could have thousands of people underneath them, then the chance of them building a big company is that much smaller.

And lastly we heard from Michael and his his sort of personal advice on investing and and how to deal with YC Demo Day.

Can I have a show of hands, how many of you plan to attend the virtual Demo Day and check it out?

Good, his advice is very good for Demo Day.

And feel free to approach us at the breaks and ask for more advice on demo day.

Reminder, tomorrow we heard you asking for more networking.

Some of you asked for beer and wine apparently because we're having beer and wine.

And networking after the session tomorrow should end around 12.30 and we'll go to around 2 p.m.

I don't know if people asked for pizza, but we're giving you pizza.

Today is a little different, a little change of pace.

We're going to have investors who are not YC folks, who have invested often in YC companies, but who are investors on their own, on their own right.

All of them have done angel investing, some of them have done professional VC investing as well.

The way this is going to work is that We have 2 sets of 2 investors.

So the 2 folks are going to speak, and then we're going to do a Q&A.

So if you would hold your questions until the very end, when the 3 of us will get up on stage, and we'll take questions until the end of the session.

And then we'll do the same after 11 o'clock.

The first person I'm going to introduce is an amazing investor.

He's founded Color genomics and mixture labs and has an incredibly broad set of knowledge in software, in biotechnology, and probably everything.

So he's an extremely smart person and a great investor and he has said something that I agree with completely is that startups are not about working on a great idea.

They are the relentless pursuit of doing stuff for customers.

So thanks to Jeff and Y Combinator for inviting me and thanks to you all for attending.

So Jeff asked me to talk about finding billion dollar companies and I also wanted to talk a little bit about Helping companies as well because I think ultimately your primary role as an angel is to help the companies you're involved with versus just giving Them money.

So I think that's very important Jeff mentioned my background as an investor here are 10000000000 dollar companies that I've invested in, Airbnb, Stripe, Square, et cetera, at different stages.

Many people, and I'm sure during the last few days, People have been talking about what's the most important determinant for startup success at the angel level.

And ultimately people tend to say it's the team or it's the market or it's luck or maybe it's the number of hipsters that you have working for you.

In my case, I'm a very strong believer in markets first and then teams.

And I think that differs from a lot of angels as well as how a lot of other investors think about the world.

And indeed my ranking would be markets number 1, markets number 2, team excellence is number 3, and then number 4 is related to team.

If somebody gave you a call at midnight on a Friday, would you actually want to pick up the phone and talk to them?

And so sort of a no jerks kind of policy.

The founders of Stripe, for example, called me at 10 o'clock at night on a Saturday asking if I could meet them for a glass of wine to talk about the first acquisition that they were thinking about doing.

And so I jumped in an Uber and headed over.

So I think you really want to view this both as a service model in terms of you're helping the founders that you're involved with, but also people that you'd want to work with for a long time.

Because when you invest in something, if it actually does well, you may be involved with that company for 789, 10 years.

So it is a very long-term relationship that you're forming.

And at least personally, I only want to work with good people.

Andy Ratcliffe, 1 of the founders of Benchmark, I think, phrased what I believe is a very good view of startups as follows, great team, terrible market, market wins.

So it doesn't matter how good the team is, the market really dominates.

Great market, terrible team, the market wins.

There's examples of terrible teams that do amazingly well because the market really pulls the product.

The market is driving sales even if the team is semi-incompetent.

And then great market, great team, something magical happens.

And that's when you get a Google or a Facebook or 1 of these outside successes.

And so I really follow this as an investor and I wanted to walk through 5 signs of a great market early on when you're investing in a company because this is really about how can you tell what's going to be a billion-dollar company.

The first 1 is early compounding even off of a small base And so often if you meet a company and they're doing $10,000 a year in ARR or $100,000 a year in ARR, you think, my gosh, how will this ever be big?

It's so little revenue, but if they're growing 15% a month, 20% a month, if you compound that out even just for 4 years in this case, 100K ARR turns into $630 million in annual recurring revenue.

Once you're down to 13%, it's 35 million.

And so that's the difference between a company that's on track to be a $10 billion company and a company that's probably somewhere in the low hundreds of millions in terms of valuation at that stage.

So it makes a huge difference in terms of that compounding rate.

And sometimes you actually get very strong early signals of this.

You know, Airbnb at the Series A was sort of growing rapidly.

Checker would be another example of a company that's a more recent 1 that always had a nice compounding growth rate.

The second sign of a great market is people actually paying you for your product and potentially paying you more than other companies in the market.

So the typical thing that a founder will do, especially if they're a more technical founder, is they'll say the way I'm going to win is by making this cheaper than anybody else, which actually tends to be a really bad strategy unless you're truly just going for scale.

But in general, if you can command a premium and you have large customers paying you early, it's a great sign that you have product market fit and that people really want your product.

Because when you talk to customers, they'll always say, oh yeah, that sounds really interesting.

And so in the case of PagerDuty, when I invested, at the seed they had Google.

I think they actually had Apple as a customer.

They had a lot of larger companies as paying customers.

And it was an interesting dynamic, because that was a company that for the first month or 2 of fundraising, nobody was funding it.

And then maybe 3 months in, suddenly became a really hot company, and everybody wanted to invest.

And at least to me, this was a very clear signal.

They were compounding the prior point, and they had some really marquee brand name customers.

And for some reason, people just miss that.

So I think sometimes there is a sort of herd instinct that gets lost.

Next is something that your company would actually use, or that you would actually use.

And so all these companies here that I invested in, in many cases, were on the left-hand side, at least, companies that my first startup, Mixter Labs, would have used.

So we would have used Stripe for payments because the payment solutions were crappy.

We would have used Gusto for payroll because we were using ADP and paychecks and we kept switching because it was a bad experience.

We would have used Zenefits for health insurance, Optimizely for AB testing, PagerDuty for PagerDuty.

And so it was really by starting a company that it was clear that these were needed products, and these were things that it made sense to get involved with.

The fourth reason is really around a why now statement, as well as what's the real basis for competition in a market.

And so I think people often misunderstand markets and they either think that they're overly crowded.

So for example, when Dropbox and Box got going, there were a dozen different cloud storage providers and it looked like potentially a crowded market.

And Same actually with social networking.

I remember around 2010, everybody saying that the era of social was over and all the companies that will ever exist will exist and it's sort of game over.

But I think what they failed to see was the rise of mobile, which really led to Instagram and Snap, as well as sort of the Chinese equivalents of many of these companies getting up and running.

And so there's a whole wave of really interesting investable companies that a lot of people missed because they just weren't looking at social products anymore.

And so the real question is when is a market truly over or really crowded and when is there still big gaps?

And that's a key piece of analysis I think that's worth doing.

And if you want to have a long sustained company, then you need to have it be defensible.

And I think there's real moats and fake moats.

You know, network effects are real moats.

In most cases, every once in a while, they're a fake moat, because I mean, MySpace doesn't exist anymore.

So in hindsight, their poor execution meant that the network effect unraveled just as quick as it sort of spiraled up.

There are very, very few companies that actually have data moats and so I think that's often a red herring.

I think maybe in genomics right now there may be interesting data moats to be formed but in most industries Data moats don't really exist.

And so I think some of the signs of a company having a moat is, number 1, what's its long-term margin?

And so really thinking about the underlying fundamentals of the business, like how much money are they making per customer, per dollar from a customer?

And again, there's Amazon or scale-centric models where that doesn't matter as much.

But then that has to be an explicit part of their model.

The compounding scale we talked about, revenue renewal or recurrence is really important.

Having a customer paying you over and over on a long-term contract is much more valuable than a churn and burn customer.

So Internet of Things, for example, traditionally have been bad investments for startups, great investments for big companies, because if you have a smart light bulb company, you buy a light bulb once, and especially if it lasts 20 years as an LED light bulb, you're never going to go back to that customer again unless you try to cross sell something.

So you really have to be thoughtful about that recurrence.

And again, there's business models where potentially you're generating data or other things so the occurrence matters less.

How dependent are you on 1 or 2 customers?

If you have very high customer dependence, they have enormous bargaining power, which means that you're kind of screwed from a negotiation perspective.

And so a lot of people who sell into pharma, for example, may only have 10 real customers.

That makes it much harder than if you have a longer tail.

But those types of businesses can work very well.

If you actually look at this long-term margin compounding scale and customer mix, I mean, that's basically Google, for example.

They don't have the revenue recurrence in terms of locked-in contracts, but they do have revenue recurrence from the perspective of the advertisers keep wanting to reach this unique user base.

So that was sort of the main market signals that at least for me have sort of helped me in terms of choosing some of these companies.

On the team side, which I view as sort of the next most important thing, there's really 4 things that at least stand out in my mind.

1 is do they actually have a product at the time that they're pitching?

And product may mean a really crappy alpha that kind of breaks, but at least they built something when they're talking to you.

Some of the worst investments I've made were 2 really smart people with a PowerPoint deck And I was like, oh my gosh, their vision, and they're so articulate, and they're so smart, and it never tends to work.

Unless there's a reason that they couldn't have built something, and that could be, maybe there's a regulatory constraint.

Maybe they need a partnership with a bank, or other things like that, And so it takes a year or 2 to actually build something.

But even then, most smart people, I think, have at least some sort of demo.

Or I should say not smart, people who get shit done, which is different from being smart.

Ben, the CEO of Pinterest, is a great example of this, where every time you talk to him, 6 months later, he'll have internalized everything and have learned way more than you ever knew about a topic.

And so that's an example of somebody who's constantly scaling.

Or Brian Chesky is sort of notorious for having very rapidly ramped in the role of CEO.

Third is good at selling, which Jeff mentioned, because ultimately, founders are gonna need to sell their team to join them, they're gonna need to sell investors to give them money, and they're gonna need to sell customers to pay them.

And so you actually have to be very good at convincing.

Now there's different forms of convincing.

You know Vitalik who runs Ethereum, you know, he has the ability to create a little bit of a cult around himself in terms of the people who work with him and sort of the broader crypto community.

And that's a different form of selling than somebody who is the slick BD person.

But each form of selling can actually work as long as there's good founder market fit.

If the founder is working in the right market or on the right product, then their form of selling is what's important.

So you can't do a 1 size fits all model for this.

And then lastly, of course, people who's determined.

And Doug Leone, 1 of the sort of old school major partners at Sequoia puts this extremely succinctly, whose voice is driving you?

You know, that was a question that he used to ask in some context.

When you're sitting there and you're working at 2 in the morning whose voice are you hearing in your head?

Who's the person who's driving you to go forward?

And I think that's a really important question or a really important part of founder psychology to understand.

There's a lot of false signals and mistakes.

So I think 1 of the number 1 false signals is other investors.

So just because a lot of people are holding a purple mustache doesn't mean that you should too.

So I think a lot of people sort of follow investors in a crowd or they say, oh, benchmark isn't investing, therefore I must.

But the greatest investors make all sorts of mistakes.

So I think doing your own diligence and actually being thoughtful is a worthwhile endeavor.

Some of the mistakes I made, so Jeff asked me to sort of touch on these.

1 of the biggest mistakes I made from a passing perspective is I passed on Lyft for their Series C, which was a $90 million valuation.

And I think they're now in the $9 billion range.

So I missed 100x, or maybe post-dilution, a 50x.

Which every night when I go to sleep, I'm crying.

And I think in that case, I worried both about valuation at the time they were still doing a ride-sharing service Excuse me.

They were still doing a corporate Ride-sharing service versus what they're doing now is more the transition from Zimride over But second I also thought it was going to be a winner-take-all market and I thought Uber was just gonna win everything.

And in hindsight not every market is a winner take all market.

There's actually oligopoly markets and all sorts of industries and so I think that was a misunderstanding of market structure by me.

I think most angels actually care too little about valuation and so often if you actually look at the return, say you do 10 investments and I'm making up a number just to make it a round number, a hundred thousand each, and 9 of them go under and 1 works, and that 1 ends up at a 200000000 dollar exit valuation.

If you invest it at 5 versus 20000000, it's the difference between breaking even and making 3x on your money.

And so it's a really big difference just for that 1 investment.

It isn't the single most important determinant, but I think you should actually keep it in mind.

And I would be thoughtful about advice that says, oh, don't worry about valuation.

Second is imagining myself or yourself as the founder.

So Joe Kraus, who started Excite, which is 1 of the sort of monster companies of the 90s, and who eventually moved on to Google Ventures, said that his biggest mistake as an angel was putting himself in the shoes of the founder and imagining what he would have done with the business instead of what the founder's actually going to do.

So I think projecting yourself into that situation is the wrong thing to do.

You should be asking, what is this founding team actually gonna go and do?

Because often they're gonna do something radically different from what you're gonna do, if you were in their shoes.

I think this is an issue more for operators than for anybody else.

And then finally, I used to think that having a bad team is a bad signal.

And by bad team, I mean you worked with a person before and in the context of their role they were bad.

There's an example of a company that I actually didn't invest in because I worked with the founders at Twitter and the person was always in the hallway, they were kind of schmoozing, they were never really getting anything done.

I was like oh my gosh terrible founder And then they've started 1 of the most successful post-Twitter companies and I had dinner with them and I asked them in a polite way, what happened?

How did you go and do this amazing thing?

And his response was, I finally feel like my ass is on the line.

So I think context matters, but I never would have guessed that that transformation would have happened.

So, you know, I think ultimately, and I know other people too, I know somebody who passed on what's now a multi-billion dollar company at the seed stage because 1 of the 3 founders worked for him and he felt that founder was bad, not too smart, not very hardworking, et cetera.

It turned out that their co-founder though was exceptional.

And so it's really interesting to ask what team signals really exist.

I think a great team is a very positive signal.

I think a bad team, depending on context, may actually be a neutral signal.

So I was quickly going to run through how to help, since again, I think your number 1 job as an investor is actually to help the companies that you're involved with.

And I think there's big differences between helping early versus late.

So the left-hand side, the egg to me represents an early-stage startup.

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Elad Gil and Pejman Nozad - Startup Investor School Day 3