- The speaker, Paul Buchheit, has been involved in startups and investing for many years.
- He spent time analyzing the patterns that led to favorable and unfavorable outcomes in his investments.
- He believes that good startup ideas often appear bad because big companies would have already pursued them if they were obvious.
- He shares his experience at Google, where he joined because he was a user of their product and was interested in their use of Linux.
- He then discusses how he became connected to Y Combinator, citing Paul Graham's insightful essays as the reason.
- Overall, he emphasizes the importance of luck in investing and the value of interesting and unpredictable opportunities.

- The speaker cold emailed PG and started hanging out at Y Combinator (YC)
- Made first angel investment in YC company called Wufoo, which was successful
- Invested in YC company Justin TV, which struggled initially but eventually pivoted to Twitch and sold to Amazon for a billion dollars
- Founders of Justin TV have gone on to do remarkable things
- Started own company called FriendFeed, which generated buzz but struggled to compete with Facebook, so sold to Facebook for a good deal
- Emphasizes the importance of finding founders who are better than oneself
- Gives examples of successful investments like Meraki and unsuccessful ones like Juicero

- The speaker discusses several examples of companies he invested in and sold too early, missing out on significant returns.
- He highlights the importance of founders who are willing to take on seemingly impossible challenges and have absurd ambition.
- The speaker emphasizes the need to invest in non-software industries and not dismiss opportunities due to lack of expertise.
- He shares personal stories of missing out on investments in Dropbox and Airbnb due to poor investor behavior and slow decision-making.
- The speaker warns against investing based solely on a good price, as it has not resulted in returns for him in the past.

- The speaker reflects on past investment mistakes, particularly avoiding investments due to high prices, investing out of pity, investing in cynical ideas, and being blinded by impressive numbers.
- The speaker suggests investing in optimism and the future you want to see, rather than the future you fear.
- The speaker outlines a checklist for evaluating startup founders, including clear communication, fast execution, accomplishing a lot with limited resources, implausibly ambitious or frivolous ideas, being a talent magnet, making something people want, and being determined and committed.

- The speaker discusses the challenges faced by startup founders and the importance of taking risks and embracing failure.
- They highlight the need for founders to have a sense of urgency and the ability to iterate quickly.
- The speaker mentions investing in a group of founders who had a simple and unpredictable idea, as well as the importance of clear and concise communication during the interview process.
- They caution against overanalyzing and overlearning from past mistakes, as investing in startups involves a significant amount of luck.
- The speaker briefly mentions ICOs and their potential as a funding source.

- The speaker believes that most ICOs are scams or companies that would only be able to raise a small amount of money if not for the ICO.
- Having too much money can be a liability for startups as it allows them to avoid facing reality and not focus on customer interaction.
- The speaker invests in things they are excited about and relies on the expertise of the founders.
- Determination is an important quality in founders, but it is difficult to determine if someone has it.
- Asking about the history of the company can help determine determination.
- The speaker tries to avoid relying too much on their own knowledge and experience.
- The speaker is burnt out on email startups but has invested in successful ones that have a clear story and are not just a feature in Gmail.
- It is important to learn from past mistakes but also to ignore the past in some cases.
- Being a good investor is not easy, but it is a learning process.

- Paul Buchheit, an experienced startup investor, emphasizes the importance of luck and seizing interesting opportunities.
- He shares his experiences investing in successful companies like Wufoo, Justin TV, and FriendFeed, as well as missing out on investments in Dropbox and Airbnb.
- Buchheit highlights the need for founders who are ambitious, determined, and able to take on challenging tasks.
- He advises against investing based solely on price and warns against investing in cynical ideas or being blinded by impressive numbers.
- Buchheit outlines a checklist for evaluating startup founders, including clear communication, fast execution, and being a talent magnet.
- He discusses the challenges faced by startup founders and the importance of taking risks and embracing failure.
- Buchheit cautions against overanalyzing past mistakes and relying too much on one's own knowledge and experience.
- He believes most ICOs are scams and warns against startups having too much money.
- Buchheit invests in things he is excited about and relies on the expertise of the founders.
- He acknowledges that being a good investor is a learning process.

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/

Meeting founders and making decisions is way more of an art than a science.

And as Dalton says, unfortunately in this game I think you have to lose some money before you can really become an expert, as much as anyone is an expert at answering the questions you need to answer to make an investment.

The next person who's about to come up has more wisdom and knowledge about this than perhaps anybody I know.

Before I introduce PB, however, first for the live streamers, I apologize for the problems we're having with the live stream.

said, this is the first time we've done this here in Mountain View, so we're bound to have kinks.

The good news is that everything is going to show up on the site.

And once it shows up on the site, it will be more immune from networking issues.

They're less likely to be ours and more likely to be yours at that point.

All of the slides will appear on the site within 24 hours after the session.

So I believe it's true, all of The slides from yesterday are now up with the transcripts from yesterday at investor.startupschool.org.

And we'll do our best to make the livestream work as well as possible.

So the next investor, the next presenter, excuse me, he's also an investor, obviously, is Paul Buchheit, who has been a partner at YC with me as long as I've been here.

I think it's probably 7 years he's been hanging around YC for even longer than that.

He has also notably the inventor of Gmail, which sucks for me because I was part of the team that invented Yahoo Mail.

He also created a company called Friend Feed, which he sold to Facebook.

I guess that's the best way to talk about Paul.

But 1 of the things he does know a lot about is investing.

Here's a quote from Paul that is actually an important 1, and I would think about it a lot as you think about investing.

I think the best kind of virality is a product that people like so much that they just want to tell people about it.

So here's 1 of the smartest and best investors I know in the world, Paul Bouquet, to talk about that.

That was probably setting the expectations too high.

So, as Jeff mentioned, I've been involved in startups for a while, probably about 20 years now.

I've been investing for the past 12 years.

And so last year I kind of came to the realization that I needed to stop and actually like think about what I had done Because I spent most of those years just making somewhat haphazard decisions.

So I spent a bunch of time trying to actually figure out like what are the patterns that gave rise to favorable outcomes for me and what are the patterns that gave rise to unfavorable outcomes with the idea that in the future I can maybe do better.

So really this is like something I more did for myself in my own investing process.

It may or may not work for anyone else, but it's what I intend to do.

And so the structure of this is I'll tell a series of stories.

First of favorable outcomes, things that went good for me, and then some unfavorable outcomes, things that did not go good for me.

And then finally followed by some conclusions about how I plan to invest going forward.

So first, there's this idea I'm not limiting myself to good ideas.

And this actually started out as a joke about 20 years ago, but then I kind of realized it was true.

But it's also really relevant to startups because oftentimes the bad ideas, I mean the good ideas, look bad.

And the reason for this is that if the idea were obviously good, like, the opportunity wouldn't exist.

Like if they thought there was this, you know, $10 billion business sitting there, They would just go do it themselves.

So necessarily, for it to be a good startup, it kind of has to be something that inside of a big company would get shot down for being stupid or unimportant.

And actually, the example I like the best is this company, I don't know who recognizes that logo, that's the original Google logo.

When Google was a research project at Stanford called Back Rub, it's Larry Page's hand in a flatbed scanner.

And so, you know, Google started out as this research project at Stanford.

Larry and Sergey were PhD students there.

And they actually wanted to continue being PhD students and finish their degree.

So they went off and tried to sell Google to 1 of the big Internet companies of the time.

They made their rounds to all these companies.

They wanted a million dollars for Google.

No 1 thought it was worth a million dollars.

They thought it was just like a commodity, sort of a flavor of the month thing.

They're like, oh, you're hot now, but next month it'll be some other startup, and we'll just hop from 1 to the next.

So again, like, if this opportunity were obvious, Google wouldn't exist.

So necessarily, it has to look kind of bad.

And the reason here is I think I really want to emphasize the absolute importance in this game of being extremely lucky.

So the good news is you're all accredited investors, supposedly.

That means you're already among the luckiest people on earth.

But I also like to think about this a lot because, you know, being a startup employee is actually a lot like being an investor, except you can really only do 1 at a time.

And so I've asked myself, how did I end up at Google?

And the first thing is just that they actually had a product that I used.

They had made something people want, namely me.

And the second thing, the second reason is Linux.

So I was really, really, really into Linux.

A friend in college once put it, shut the fuck up.

So when I went looking for a startup to go work at, really my only criteria was that they'd be doing cool stuff with Linux.

And so that was how I ended up at Google, is they were building these clusters of Linux machines and nothing could be more exciting than that.

And when I interviewed there, the people were really smart.

I interviewed at another startup where the people asked dumb questions and you could really tell the difference.

What I didn't know was that it was a good business.

I actually expected that Google would get squashed by AltaVista or something.

I didn't go in thinking I was going to make money.

I went in thinking I would learn something about startups.

And in fact, I did learn some stuff, which was good.

So I had a good time there, as Jeff mentioned, launched Gmail.

But eventually, it was kind of turning into a big company, and I'm interested in startups.

So I kind of got the itch again to get back involved in startups.

And then in early 2005, I see this thing, the Summer Founders Program.

And this is sort of funny, because I don't know, a lot of you probably don't know this.

The very first batch of Y Combinator, it was pitched as like a replacement for a summer job.

So the idea was college students, instead of going to work at Google as an intern, would just come to YC and start a company.

And this actually looked like a really bad idea to most people in 2005.

In fact, the original lawyers they tried to work with refused to do the work.

They said, this is terrible, we're not gonna do it.

They're like, no good company is ever gonna come out of this.

And the answer is that Paul Graham had written a lot of really good essays.

And I thought this was a really intriguing idea.

Not necessarily a good idea, but intriguing, interesting.

And for me, I think interesting kind of includes this element of unpredictable.

Like if I know what the outcome is, then there's no point in getting involved.

It's the things where I don't know the outcome where I can learn.

So basically, I just cold emailed PG, and it was like, hey, can I help out?

And so I started hanging out here, got to know the first batch that was in this building, which was the Winter 2006 batch.

I actually since then have invested in every batch.

But my very first angel investment was in a YC company called Wufoo.

And here's what the internet thought about it.

For those of you who can't read it, which is probably most of them, the person says, is anyone keeping a list of all these new Y Combinator startups?

Seems like it might be entertaining a year from now after all the hype has died down to go back and look at it.

I mean sure it seems like it's written in Python and it uses XML HTTP requests as being confused with stuff like I have a business plan and my product satisfies a demand that consumers actually have.

And I like this because it's both kind of like making fun of YC and Wufoo.

And it was very characteristic of the thinking at that time.

And in fact, you know, Wufoo never did IPO, but my investment on that returned like 44x when Survey Monkey bought them and the founder Kevin Hale, who's extremely talented, ended up being a partner here at YC some years later and no doubt therefore helped earn me more money by helping our startups.

So, you know, there's both an immediate return and then there's like the long-term return.

The following year, I invested in this YC company.

The idea was that Justin here was going to stick a camera on his head and then live stream it to the internet.

And at first, I was like, are you joking?

Because again, this is really unpredictable.

What's going to happen when you start live streaming your life 24-7?

And I guarantee this is not the idea that would come out of Google.

You're not going to see Larry Page with a camera strapped to his head 24-7.

So again, this was just like an unpredictable thing.

And in fact, the company struggled for quite a while, which I mentioned, because someone asked earlier, Dalton, what if the company is kind of going sideways?

Should I, I mean, I think the implication was, should I kick the founders until they give me my money back?

So this company, they actually even tried to do an acquihire several years in, but no 1 would acquihire them because they thought they didn't have any talent.

They couldn't do a talent acquisition because the acquirers thought there was no talent.

Fortunately, They eventually pivoted to Twitch, which was focusing on just the 1 part of their product.

People were streaming all kinds of things on Justin.TV, but Emmett became interested in specifically video game streaming.

People were streaming their games, which I never would have thought was a business.

But that turned out to be a great business, which they sold to Amazon, unfortunately, for a billion dollars.

It's probably worth way more than that right now.

But the other interesting thing I want to point out here is this company had 4 founders.

So Emmett, who is the CEO of Twitch, is still the CEO of Twitch at Amazon, where it's estimated to be like a 20 billion dollar business at this point.

Justin Khan has started a bunch more startups.

He was here as a partner at YC for a couple of years.

Now he has a new company called Atrium, which if you invest in any of our companies going forward, you'll probably interact with because they're doing kind of like the default legal legal provider now for YC companies.

Michael Seibel started a company called Social Cam which actually was a Justin.TV spin-out, sold that to Autodesk for 60 million and then became a YC partner and actually he's now the CEO of Y Combinator.

And finally, Kyle Vogt started a company called Cruise, which you may have heard of, because GM bought them for $1 billion.

So that 4 group of people who had so little talent that no 1 would talent acquire them have done some pretty remarkable things.

So eventually I wanted to start my own company.

I was like, all right, I think I see how this is done.

Now, when I decided to start a startup, I actually had a lot of ideas.

Probably most of them were genuinely not good.

But the 1 idea that was totally correct is that I thought the most important thing was having a really great team.

And so that was sort of the original focus is just like figuring out who I can get to join on to this.

And fortunately I managed to convince this guy Brett Taylor to co-found FriendFeed with us.

And Brett is someone that I knew from Google.

I hadn't worked with him, but I kind of knew him.

And the story I like to tell about Brett is he was the PM on Maps, or maybe like an APM, not even an engineer.

And he was frustrated that the product was so slow and clunky.

And so finally, 1 weekend, he was just like, you know what?

And so he rewrote the entire JavaScript front end over a weekend, made it a third the size and 10 times as fast as what an entire team of developers had been working on for a long time This is the kind of person you want to invest in right like that is an absolutely great bet Let's see so frankly generated a lot of buzz Unfortunately it didn't generate a lot of growth.

In part because we ended up competing with this company Facebook.

So they turned out to be a very formidable competitor.

And eventually, I came to believe that Facebook was unbeatable.

And that it would, therefore, be like a Google-sized success.

So we sold FriendFeed to Facebook for about half a percent of Facebook's equity, which turned out to be a pretty good deal.

And so the lesson here I really want to emphasize is find your betters.

You want to find people who are smarter in everything, more insightful than you are.

And I think Brett and Zuck and the team at Facebook are great examples of this.

They were just clearly better at it than I am.

So that's 1 of my criteria when I'm meeting a founder.

If I'm thinking, oh, I could do this job better than you, like, I shouldn't fund, right?

I only want to fund people who are better than I am, right?

And so this is why, it's not that I think idea and market don't matter, Like those things are of critical importance.

You're not gonna build a big company in a tiny market.

But my belief is that if the founders are actually better than me, then they're gonna have better insights.

So I can kind of outsource that part of the thinking to the founder.

And then I just have to figure out like, does the founder believe it?

And so what you want to do here, I believe, is use your knowledge to probe, to ask intelligent questions, to see if they really do know what they're talking about, right?

But not using it to decide, not being like, oh, you know, I'm an expert on air mattresses.

The challenge, of course, is finding these great founders.

So I want to go through a couple more examples that I think highlight some traits.

This is another early investment, 2006, and when I went in to meet them in their little office in Mountain View, they showed me around, they introduced me to the team, they showed me some of the hardware, they were building these little mesh wifi boxes at the time.

And I was like, wow, this is really impressive.

And I was shocked, because they had hardware there.

And they did it all by kind of like scraping together money here and there.

They got somehow a deal on this and a deal on that.

And they were able to string the whole thing together for 0 dollars, which is exactly what I like to see.

And so this is another 1 that I like to think about as an example of what you want.

And then just kind of for laughs, I'll give you what would be an opposite of Meraki, I would say is Juicero.

Like they spent a hundred million dollars on their like juice bag squeezer without ever talking to a customer, without ever trying to sell someone a bag of juice, which by the way is what it is.

It's just a bag of juice and it squeezes it out.

So you want the opposite of Juicero, you want Meraki.

And this was, Cisco bought this for 1.2 billion, which was like a 73x return.

That company's worth 10, 20 billion dollars now.

Founders always sell too early because you're like, wow, a billion dollars.

Cruise, I mentioned earlier, 1 of the founders of Justin.TV, Kyle Vogt, started this company.

And my favorite Kyle story is actually from the early days of Justin.TV, where they came to me with this problem.

I had invested, and then they came to me with this problem where they were burning up all of their money on streaming, because it turned out streaming video was very expensive.

They could either use these streaming CDNs that were really expensive, or they could license some kind of software to run their own streaming CDN.

We're going to burn all of your money, which I don't like.

This doesn't seem like a hard problem to me.

You should just write your own streaming media server.

He's like, well, okay, I guess if, you know, PV says it's possible.

And actually I told him he should be able to do it in an evening.

I was like, you should just build this tonight, launch it tomorrow.

Like I don't get wet so hard, just make it work.

It turns out it took him maybe like a whole weekend.

But he did in fact write their own streaming media server.

And this is actually the reason that Justin.tv survived at all, right?

Because there was no way the business was viable if they were paying so much for streaming.

And so again, it's a founder who's willing to do something that a more reasonable person would say is impossible.

Like 99% of engineers, if I told them, oh yeah, you should replicate this other company's product and you should do it tonight.

Like you don't know what you're talking about.

It would give me a big long list of reasons why it's impossible.

And so the cruise idea actually seemed 4 years ago kind of in a similar boat.

Now, self-driving cars are really, self-driving car startups are really hot.

But 4 years ago, it actually seemed like an absurd idea.

Like, this is too much for a little startup.

See all Y Combinator transcripts on Youtube

Paul Buchheit - Startup Investor School Day 2