- The presenter notes that the rest of the course will focus on perspectives on investing from outside of YC.
- The presenter will address questions about ICOs and crypto on day 4.
- The presenter shares his experience as an angel investor, stating that he does it more as a form of charity.
- He emphasizes the importance of writing a big enough check when investing.
- He advises creating a system to invest quickly and efficiently.
- The presenter mentions the "FOMO slash friend rule" of investing in companies started by friends.
- He provides tips for investing in YC companies, including doing prior research and maintaining relationships with founders after Demo Day.

- The speaker discusses how the crowd at demo day may not be as knowledgeable as they seem and how investors can manipulate the room to pump up their investments.
- The speaker mentions that their company and another company in their batch were not the best investments, but another company called Gusto was.
- The speaker talks about the importance of check size in investing and how they changed from smaller checks to larger ones based on their learnings and convictions.
- They emphasize the importance of conviction in making bigger investments and mention specific traits they look for in founders before making larger investments.
- The speaker mentions that impactful investors can change the direction of a company, but this is rare.
- They discuss the statistics of YC companies, stating that the majority will fail and only a percentage will raise follow-on funding.
- The speaker explains that they missed out on investing in some big companies due to being on the fence and being busy with their own companies.
- They highlight the hard work and dedication required to be a successful investor.
- The speaker expresses that party rounds do not scare them, but unequal equity splits and founders selling a large portion of their company early do concern them.
- They discuss the importance of founders having a significant amount of equity after series A and B rounds for motivation and a successful exit.
- The speaker mentions that YC often helps companies clean up their cap tables and convince previous investors to make changes.

- The speaker is unsure if large companies are better at identifying talent for hiring or acquiring startups than in the past.
- Startup founders are often unemployable, but the speaker believes in helping them take a shot and making opportunities available.
- YC has an open application process and values talent over networking and raising money.
- YC grades itself internally by assessing how the organization feels and implementing programs to help companies raise series A funding.
- Office hours with alumni help to learn from their experiences and improve support.
- The speaker advises founders to be cautious of investors who claim to be A-plus investors, as luck plays a significant role in their success.

- The presenter discusses perspectives on investing from outside of YC.
- ICOs and crypto will be addressed on day 4.
- The presenter shares his experience as an angel investor and the importance of writing a big enough check.
- Tips for investing in YC companies are provided, including prior research and maintaining relationships with founders.
- The speaker talks about the crowd at demo day, their own investment experiences, and the importance of check size and conviction in investing.
- The statistics of YC companies and missed investment opportunities are discussed.
- The speaker emphasizes the hard work and dedication required to be a successful investor.
- Concerns about unequal equity splits and founders selling a large portion of their company early are mentioned.
- YC's approach to talent and support for founders is highlighted.
- The speaker advises caution with investors who claim to be A-plus investors.

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/

If you've noticed a lot, maybe all of the presenters thus far are YC people.

However, the rest of the course is mostly, almost exclusively, perspectives on investing from outside of YC.

So don't worry, we're not completely staring at our own navel here.

However, I will also argue vociferously that the lessons that you've heard from YC partners thus far, excuse me, are in fact quite general and relevant to investing in startups inside or outside of YC.

You still should invest in a lot of YC companies.

There's good reasons to do that, however.

Also, I know there's a lot of questions about ICOs and SAFs and crypto.

If you can contain yourselves, please try to hold those questions till day 4 because we're going to be, we're going to have a presentation by Andy Bromberg, who's the CEO of CoinList and the right person to whom to pose those questions.

Our next presenter is going to briefly talk about whatever he wants to.

He's 1 of that no-talent group of 4 people from Justin TV who, it turned out, did okay founding his own company, Social Cam, selling it for a couple bucks, And is now the CEO of Y Combinator and doing great amazing things here.

Michael is an extraordinary person to have in front of us.

He is the person who said, you need to find problems so dire that users are willing to try half-baked, V1, imperfect solutions.

It's been a long day, so I'm going to be pretty fast.

First, how many of you in the room are doing angel investing to make money?

So, I'm going to tell you about my experience raising, I'm sorry, doing angel investing, but I'll tell you straight away that I'm not doing it to make money.

In effect, I feel like where I came from on the East Coast, when people wanna give back, they give money to charity and they go to Golis, which I never understood.

And strangely, here in the Valley, when people wanna give back, they write angel investing checks.

Someone described it to me as taking money, flushing it down the toilet, and then very rarely Walking up on the street to a million dollars just laying there and being like holy shit And so that's kind of how I see it.

So take all of this advice with that in mind So I wanted to give you a very realistic vision of my scorecard.

I've made 50 total investments, invested in 4 angel funds, 47 companies, only 3 of them were not YC companies.

46 of them were early stage, 1 was late stage.

I hope it's going to continue to do well.

12 are post-series A, and 6 have over a $50 million valuation.

So I don't really actually consider myself that good of an angel investor, I'm fairly certain that there are really big companies that have gone through YC since I've been here that I have not invested in.

Thankfully because I work at YC I own a percent of every 1 of them.

The first lesson I actually learned about angel investing is you have to write a big enough check.

And it's funny because the second I started writing angel investment checks, Sam told me this lesson, and then I ignored him for 2 and a half years.

What you really need to think about when writing angel investment check is, what are the realistic chances that I'm going to get a return, and how much would I make at a billion dollar exit?

I talk to a lot of people who invest a check size that if the company were to become a billion dollar company they wouldn't make enough money to really impact themselves at all.

So then I kind of ask the question, why are you doing it then?

And so I've kind of made the mistakes of writing $25,000 checks, and I don't do that anymore.

So really the way I think about this is like model out a billion dollar exit with dilution, with taxes, and make sure you're making enough money so that when you brag about investing in that company to your friends, you're not whispering in the back of my head, oh, but I only made like $250,000.

The next thing that I learned is you have to create a flow, a system, to invest quickly.

Like oftentimes you have hours or a day or 2 to make a decision.

So you need to be set up to be able to hear a pitch, sign a clerky document, and wire money.

And like, investors who like don't know how to set that up, just Talk to your banker, whoever else handles your money, figure that out.

1 of the things we tell YC companies all the time is that an A investor, grade A investor, gives you money quickly, signs the paperwork quickly, and shuts the hell up.

There are very, very few A plus investors in the world.

There are very, very many less than A investors.

So don't be 1 of those people who founders are waiting for signatures, who you sign the paperwork, but I can't send the wire because the money is over here and it's gotta come over here.

Like, if you're in this game, be able to write checks quickly.

The last rule that I've learned, Justin, my co-founder, taught me, and he calls it the FOMO slash friend rule.

If 1 of your friends is starting a company and you would have FOMO if it would become a billion dollar company, just shut up and write him a check.

Like basically I would have been much more wealthy.

So when it comes to investing in YC, And this is kind of where I will end here and open up for questions.

The first thing that I think about is if you're there on demo day and you have done no prior research, you need to be prepared to move extra quickly.

Because you're going to be in a room of people, some of whom have done their homework.

And this isn't the first time they've seen the name of this company on the screen.

So don't be surprised when you see a founder moving quickly because there are a lot of people in that room whose primary job is to make money and they've done their work.

The second thing that I would think about is you can do your homework too.

These companies are launching often, many of them are launching publicly before demo day.

You can read about them on Product Hunt, on Tech Crunch, on Hacker News.

There's really no reason why you shouldn't already be interested in a large number of YC companies before Demo Day.

They might not want to meet straight away.

They might want to wait till after Demo Day.

But certainly, you don't have to see your work starting on Demo Day.

The last thing I'll say about demo day is that I think not enough investors spend time thinking about what happens after demo day.

Oftentimes even very good companies will raise a little bit of money before series A, 6 to 12 months after demo day.

So even if you didn't get a chance to get into a company on demo day, or you didn't know they were good, make sure you're maintaining a relationship with that founder.

And oftentimes there's actually an opportunity to invest later that I think people don't realize.

And I would argue that for some people who are not gonna put in the work up front, it might be better to take a pause and to think about investing 6 to 12 months after.

You're definitely going to pay higher valuations.

And then 1 thing that PB said that I can't say enough, the most hyped investment on demo day is often not the best 1.

I think what's interesting is that the crowd on demo day is just not as smart as it appears and I've been the beneficiary of investors who are very good at working the room and pumping up the investments they've already made.

And it's great when you're a founder, because you get to raise at a $20 million cap, which is nice.

But needless to say, in my batch in winter 12, my company was by no means the best investment.

He raised it uncapped, super hyped, also wasn't the best investment.

If you were investing in my batch, you probably want to invest in a company called Gusto.

So with that being said, I just wanted to give you guys some honest truths from my experience.

So I think that when you're trying to figure out how big of a check to write, what's interesting is that this scales fairly well.

So if you have less money, when the billion dollar company hits, you have to make less of a return for it to have a significant impact.

When you have more money, you need to make more of a return to have significant impact.

So probably the number 1 thing I learned, and the number 1 thing I changed, was going from 25k checks to 50K checks to 100K checks.

If Sam was here, he probably would tell me I should be writing 2 and 50K checks.

I do also think there's something to an investment having a little bite.

Like, just a little bite, just a little like, to make you think a little bit more sharply about whether this is a good thing you should be doing.

I think you should, to make big returns, you have to write bigger checks.

However, to the point, there's a lot to be learned and you shouldn't write bigger checks once you have conviction.

And if you go through your angel career thinking, oh my God, why am I going to put money into Justin TV?

It's such a stupid idea, and the founders don't have that much talent.

But if you can look at this guy and actually notice about Michael that he's actually incredibly articulate.

And if you see Justin and you say, like, he's the kind of guy, and if you meet Justin, you'll see he's the kind of guy, if you punch him in the face and knock him down, he's probably going to get up and punch you back.

And you might think, whoa, these guys, it's a stupid idea maybe, but what do I know?

And once you get that conviction, then you should write bigger checks.

The SocialCam acquisition almost didn't happen and an A-plus investor nudged it in the right direction.

So I would say that it's extremely rare that an investor can have truly big impact.

Another investor of ours, Paul Buhite, he basically, through a piece of advice, is the reason why we built a video system, which is the reason why Justin.tv could exist, which is the reason why Twitch could exist.

I would say there are kind of like very specific moments where like a really impactful investor can actually change the direction of the company, but that's very rare.

So most of the time I tell YC startups to go after A investors.

Many investors claim to be A plus investors.

What are the statistics on YC companies and how well they do?

So actually Aaron works on this a lot more, so he'd be a better person to answer this question.

What I will say is that we tell the batch that the vast majority of YC companies will fail.

And that's been a message in the kickoff meeting since PG was giving it.

And from my kind of memory of the numbers, Series A's tend to happen between 12 and 24 months post-demo day, and between 20 and 30% of companies will raise follow-on funding post-demo day.

You mentioned that you missed a lot of the big companies in YC.

If you could concisely say what went wrong in your evaluation and is there any lessons that can be taken from that?

So when I missed companies, let's say probably 2 things, and PB covered 1 of them.

1 was I was just on the fence and didn't move quickly.

And I think the second 1 is actually strangely unique to YC.

And so my first kind of thought when I go into Demo Day is not, which company should I invest in?

It's how are my companies doing and how do I make sure they do really well?

So I think that, yeah, it's different when you work here a little bit.

So I'll just elaborate for 1 second because I've missed a lot of really great investors.

And I think there is something that people forget about this, which is to be a great investor is incredibly hard work.

Most of you probably don't want to work that hard.

Like, if you're angel investing, the last thing you want to do is kill yourself angel investing.

But if you really want to be successful, you better get your sense of conviction and then do enough homework so that you can chase after, work hard to get in the deals you want.

And if you don't do that, your chances of getting that next big deal go down a lot.

The thing that scares me about cap tables is massively unequal equity splits or cap tables where the founders have already sold a large portion of their company very early.

I think people talk about them as if they're really scary and like, yes, you have to get more people to sign more paperwork, but as long as you're getting good A investors who sign paperwork quickly, I haven't had a problem.

So in terms of how much equity the founders should have, I think the way that I think about this is I model out a series A that's going to be between 20 and 35 percent dilution and a series B that's going to be between 20 and 35 percent dilution.

And I look at where the founder is going to be after that.

You know, and if you're looking at a founding team that's at only 15 or 20 percent equity after those 2 rounds, they probably still have a large amount of work to do to produce a great exit and not very much equity as motivation.

And so those I tend to be a little bit more careful about.

Interestingly at YC, oftentimes some of the work that we have to do when we ingest companies is help them clean up their cap tables and help convince their previous investors that the way the company is set up right now is actually harmful.

So that's actually work we do quite a bit.

You mean from the perspective of acquiring them?

So the question is, are large companies today somehow better at identifying talent, I guess to hire or to acquihire than they were in the past?

Yeah, honestly I have no perspective on that.

I actually think the number of things that have to go right for an acquisition to happen can introduce many problems even with very, very smart people.

It seems unlikely to me that anything qualitatively has changed in terms of how big companies evaluate startup founders and their talent.

1 thing to remember and keep in mind is that often startup founders are unemployable.

So, advice on process and getting to yes.

So what I will say is that it's a lot easier for us to get to yes than it should be for you to get to yes.

It's easier for YC to fund the incremental company.

From my, on the angel investing side, 1 thing I think about is kind of how I think a little bit about baseball.

Like when you go up to the plate, you know most likely you're gonna strike out.

And so I think that for me, that's kind of a calming feeling.

It's like I can apply as much intellectual rigor as humanly possible, and I'm still going to have a very, very low hit rate.

So sometimes I think that people over-intellectualize these decisions.

I was talking to 1 investor who said that in order to get a $2 million check, they had to produce a 100-page document on how this company was gonna go.

I think that you have to be confident enough in your process that you're comfortable writing a lot of checks.

But I do think that there's diminishing returns with analysis.

It's funny, Jeff mentioned it, this is a hard game to be very good at.

And that's why, for me, what's comforting is that no matter what, I'm making an impact in that founder's life.

Even if they don't go on to do a billion dollar company, I'm helping them take a shot.

And so even if it all goes to shit, at least I'm kind of continuing that cycle and making a valley a place where people have those opportunities.

That should be, in my opinion, like a very big motivation for an angel.

I would say there's 2 secret powers to YC sourcing.

1 is we have an open application process.

I think investors believe that having the skill to network to an investor is an important characteristic of a good founder.

And I think kind of YC's core position from the beginning is that it's not.

And so, especially in the days now where you can write software with relatively little money that has relatively large impact, the value of networking and being able to raise large amounts of money is less and less.

So I would say that's 1 kind of big secret.

The other peak secret PB mentioned, when I go and talk at MIT, my brother's there now, I basically say like what makes this school, the buildings and the professors and the administration are the students.

You put the same students in a C-level engineering school, that's the best engineering school in the country.

So in an interesting way, I think PG kept a very high bar very early when he didn't have to, and that created this trend where people understood that if I'm going to be at YC, I'm going to be around extremely talented people.

And as long as we don't screw that up, I think that's just perpetuating over and over and over again.

So, I'm sorry, and your second question was?

Can you just repeat the question, Michael?

Yeah, how do we kind of grade ourselves internally at YC because it takes so long to get feedback.

It's actually interesting 1 thing that we do that I witnessed when I first joined was we ask ourselves, how did we feel?

I joined after summer 2012, which was the batch that killed YC, and it looked like a bomb had gone off.

Like literally partners had like this like PSD like look on their face.

And clearly something wasn't great about how that batch experience went.

Not I think for the companies, they were great companies, but clearly something had to change about the organization to be able to to accept that number of companies again.

And so that's a very important thing that we look at.

More recently, we've implemented a series A program that helps companies raise series A's.

And that's basically allowed us to pay a lot more careful attention to what's the path from demo day to the next step.

And then I would say the last thing that is kind of glaringly obvious over time is we do a lot of office hours with alumni.

And so we don't really get caught, like once you are the group partner for a company, like YC in many ways to that company is you.

And so you kinda still have to deal with the new class, but you're always writing the story along with the previous classes.

And in that way, it's actually interesting to learn about what their experience is, how we could help them better.

There's a lot of other things, but I think those are the big boys, And of course we track stats and so on and so forth.

But yeah, I think those are the big ones I've seen make a difference.

Okay, now we are well and truly halfway in.

And for those of you who have left already, you're about to miss my last pearl of wisdom, which is that Michael mentioned what makes an A-plus investor.

And 1 thing that for founders it's easy to tell when an investor is not an A-plus investor is if they claim to be an A-plus investor.

If you've invested in lots and lots and lots of big companies, it's probably a good sign.

But just because you've made a lot of money investing, do not forget there's a significant component of luck involved.

And it's great if you all are the lucky ones that pick the 1 or 2 or 3 companies in this batch of YC, for example, that become multi-billion dollar companies.

But just because you do that doesn't mean you're an A-plus investor.

See all Y Combinator transcripts on Youtube

Michael Seibel - Startup Investor School Day 2