- Investor School is a four-day class teaching the basics of startup investing.
- It aims to give back knowledge gained at YC and create more effective angel investors.
- The school is open to accredited investors who can afford the high risk involved in angel investing.
- The curriculum covers the basics of angel investing, including the history, mechanics, and vocabulary.
- It also focuses on evaluating companies and conducting meetings with founders.
- The passion and belief of the founders is a key factor for potential investors.

- The speaker discusses the process of vetting potential investments and what they look for in founders and ideas.
- They emphasize the importance of being a thoughtful and helpful investor, rather than just providing financial support.
- The speaker mentions that there are different styles of angel investing and that they personally invest in companies they feel excited about.
- They acknowledge that angel investors typically have a limited impact on the companies they invest in, but still believe in the value of their investments.
- The speaker suggests that in the beginning, it is important to calibrate and meet with multiple companies before making an investment.
- They mention that some people become angel investors with the hope of finding the next big success story, like Google or Airbnb.
- The speaker advises that angel investors mentally prepare to potentially lose their investment and recommends investing in a space they are familiar with.
- They mention that the course they are teaching will cover topics such as being a good investor and understanding what companies need and want from angel investors.

- The video discusses the role of angel investors and how the investment landscape has changed in the 21st century.
- It mentions the importance of staying updated and involved with invested companies, as well as the excitement of watching their progress.
- The video highlights the emergence of new investment paradigms such as Y Combinator and AngelList, as well as the rise of initial coin offerings (ICOs).
- It also mentions the professionalization of angel investors and the need for deal flow.
- The speaker emphasizes the importance of being passionate but not emotional in investment decisions, learning to say no, and being honest and kind in communication.
- The video advises angel investors to focus on big wins rather than small returns and to prioritize maintaining positive relationships with founders.

- The speaker discusses the concept of saying "no" in investments and relationships, emphasizing that "not now" often means to check back later.
- The speaker advises against trying to be the last investor in a company, as it demonstrates a lack of confidence and usefulness.
- The speaker shares a successful angel investment story, highlighting the importance of investing in people rather than solely focusing on the industry or space.
- The speaker admits to making mistakes in investing, such as investing in family, not thinking through investments, and being fooled by founders.
- The speaker rarely invests internationally and prefers to invest in areas where they have understanding or belief.
- The speaker mentions the possibility of adding more information on investing in international companies in future courses.
- The application for the program can be found at investor.startupschool.org.

Investor School is a four-day class that teaches the basics of startup investing. It is open to accredited investors and covers topics such as evaluating companies, conducting meetings with founders, and being a thoughtful investor. The video emphasizes the importance of passion and belief in founders, staying updated with invested companies, and maintaining positive relationships. It also discusses new investment paradigms and advises against certain investment strategies. The speaker shares a successful investment story and admits to making mistakes. The application for the program can be found at investor.startupschool.org.

This episode covers Startup Investor School - https://investor.startupschool.org/. Startup Investor School is a free, 4-day course designed to educate early stage investors interested in investing in startups. You can sign up at - https://investor.startupschool.org/

Geoff Ralston - https://twitter.com/gralston - is a Partner at YC and before that he cofounded Imagine K12 - http://www.imaginek12.com/

The YC podcast is hosted by Craig Cannon - https://twitter.com/craigcannon

So why don't we just start with the basic facts.

Yeah, so Investor School is a four-day class that we're teaching for the very first time here in Mountain View, across the street and in the original Y Combinator building 320.

And it's a school that's going to teach the basics of startup investing.

So we think we're going to get a lot of folks who want to come, but also doing a live stream.

We're going to make it a MOOC, a massively open online course, just like we've done in the past with startup schools.

So we're really excited about the potential to give back a whole bunch of the knowledge that we've gained at YC over the years and how to be a really effective angel investor to the community at large.

And what gave you the impression that folks needed a school?

Well, what gives us the impression that folks needed a school is we've seen lots of, shall we say, not so effective behavior and approaches to angel investing.

And, you know, we're not being conceited in thinking that.

Most of us have at 1 time or another in the partnership at YC been angel investors.

I personally have made so many mistakes angel investing that I feel if nothing else qualified to tell you a whole bunch of things you shouldn't do.

So we're trying to help people avoid a lot of the pitfalls and we're also you know there's ways to be a better investor.

And we think we can help teach people those.

And so again, make them better at their job, even if it's not a job, better at the discipline of angel investing, and that makes it better for the companies in whom they're investing.

And is there a particular type of person you're looking for to participate in investor school?

Like do they need to have you know been an engineer and had an exit or they just like have some cash that they want to invest?

Well, the 1 qualification is that you're an accredited investor.

And the SEC has a set of rules as to what comprises accreditations in terms of income and wealth.

As long as you're accredited, we want everybody.

In fact, we actually think this is an opportunity to add greater diversity to the ranks of investors.

So yeah, anyone who's accredited, Which is a little bit the equivalent of what you said, is you have some spare cash to invest that you can afford to lose.

This is a very high risk investing paradigm.

So if you're going to invest in startup companies, you have to be prepared for extraordinary upside, but also a perhaps more likely downside.

And are you giving anyone certain criteria of what they should think about?

It's like, this is an approximate amount of money that if you're gonna get started angel investing in the valley You should be ready to start putting down putting to work.

I think we'll give some guidelines as to how to think about creating your portfolio.

Think about doing asset allocation across that particular portfolio.

But how much you invest is a very personal thing.

It's sort of how much you will care about losing, how much upsize you want to have, what percentage of a company it's important for you to own, if you think about it that way.

So I think the amount that people invest is incredibly variable.

Most people aren't investing $5,000 when they do angel investing.

It sort of tends to be a minimum in the tens of thousands of dollars, up to a maximum of, you know, hundreds of thousands of dollars usually.

Okay, So maybe we ought to walk through the curriculum in like broad strokes.

So where day 1, what are you guys going to start with?

Well, day 1, we're going to start with, as you might expect, the basics.

Sort of how and how you should start, why you should start angel investing.

I'm gonna talk a little bit about the history of investing and where angel investing came from.

You know, there didn't used to be such a thing as an angel.

There was people pretty much finance companies on their own.

It was $538 of capital that Dave Packard and Bill Hewlett scrounged together to build an audio oscillator.

And much of Silicon Valley came from graduates of the Hewlett Packard School of building products.

It was only later that venture capital started, and you had a whole bunch of people coming out to Sand Hill Road and figuring out that they could make lots of money.

I mean, there's an early venture firm invested $70,000 in Digital Equipment Corporation.

That was 1 of the earliest angel investments and they made $35 million, not angel investments, VC investments.

Well, that's the kind of return that people look at and say, I want a piece of that action.

So a lot of companies set up on Sand Hill Road and you had sort of the classic early VCs from Draper starting Sutter Hill, and Kleiner Perkins, and Sequoia all began back in those early days.

And so there was sort of An intermediate path to raising capital between putting together your own money, putting money on credit cards, maybe getting friends and family to put a little money in, and then IPO.

There was a big gap in between, and venture came and filled in some of that.

But eventually what happened was it was harder to get started at a small level.

Friends and family, who were kind of the original angels, expanded to be people who really just gave smaller checks, which was really the amount needed right in the very beginning to get a company ready and able to accept venture investing.

So I'm going to tell a little bit about that.

I'm going to have a couple of partners from YC go over some of the mechanics of startup investing that are a little, frankly, mysterious.

How is it that these weird convertible notes work?

Used to be when Back in the early days of venture investing you just bought a share of the company equity in the corporation now we have these different instruments that are much cheaper and faster and simpler to use but also a little mysterious So we want to demystify that explain how it works we've we've built up a bunch of standards as to how an angel investor or any sort of investor will interact with founders.

There's something we call the handshake protocol, which is how you go about sort of cementing a deal verbally before you do it on documents.

So the beginning of the course is sort of getting the-

The vocabulary, getting the, dotting the I's and crossing the T's of how you actually act as an angel investor.

How you should think about when you're investing, how much you're gonna own of the company, how dilution works, how cap tables work.

All those basics that kind of, you know, you sort of run into and no 1 tells you what's this document they're giving you.

What about evaluating a company if you're a non-technical person who wants to invest in software?

Right in the very beginning, the question is, so you want to invest in a company?

Well, yeah, there's actually a simple answer to that you meet with the founders and talk to them So we're gonna quite extensively go into when you go into a meeting with founders how should you conduct that meeting?

If I'm meeting with you and we're talking about your company, how do I make judgments about whether this is a company I want to invest in?

So you want to kind of help people through that exact, answer that exact question

So yeah, let's get specific on some of these.

Like, you're meeting with a founder for the first time.

What's a red flag when you're like, say there are 2 or 3 co-founders, you're talking to them about a product, and it's just, I don't know.

What's something that you might spot that you're like, I don't know if I wanna put money into this startup?

Well, for me, the very first thing comes with sort of how I read the founder's belief in what they're doing.

If you have this passion, people usually talk about passion.

I remember listening to Mike Moore talk about this once and he talked about it being at a different level, like almost an obsession with what you're building and why you're building it.

You have to care so deeply that everything that's going to happen to you as a startup founder will be something that you will think nothing of overcoming.

You know that if you don't have the resilience you need, the toughness you need, the determination you need, the belief you need, none of the other things matter.

How big the opportunity is, how much of competition there is or isn't, how much money you raise, how smart you are, none of that matters because it won't happen.

And are you kind of laying a little trap here and there to see if they'll bite on something?

Like, oh, I don't know if they're quite confident enough?

Well, you make it sound sneaky, saying traps and almost underhanded.

well yeah, everyone gets different styles.

I'm very direct and so what I like to do is I like to push.

So, there's, And it's easy to do after a while because every single idea has a million things that could possibly go wrong with it.

So you talk about those and you see how they react to it.

How they, as you push on them and you say, well, how could this possibly work?

You want to provide ride sharing services to seniors.

You know they don't really use their phones.

And so, I mean, I think that a certain amount of this, you can't teach.

As partners in YC, we've all talked to hundreds, not thousands of companies, right?

But we can, I think, illuminate the process and get people started on the right foot?

And that's, I think, the way we should think about this.

So at sort of 8 sessions total over that 4 day period, it's not a 6 month graduate school investing.

I don't even know what you would cover in that.

It's enough, I think, to put you on the right road to becoming a fantastic angel investor.

And fantastic means not only do they make the right choices for themselves, they help companies more.

They have a better relationship with companies.

They make their decisions in a more effective, Timely fashion.

Yeah, it's not just a spray-and-pray like show up to demo day spend $200,000 and then hopefully I

mean that can be okay Terrible thing for companies generally to get that kind of cash.

Yeah, but but I think it's much more useful for companies to get thoughtful investors who invest for the right reason and who are not painful later, who understand the quid pro quo that's going on when you invest and when you get a piece of a company and how you should be interacting with that CEO and founding team henceforth.

So from a personal perspective, do you only invest in companies where you feel like you can add more value than your money?

Or are you okay just putting money into something you think is attractive, but you don't really know about the space?

A lot of people say that they'll only invest in companies, you know, there are all types of people.

of people say that and then they put money all over

Well, there's what you say and what you do.

There's probably as many different styles of angel investing as there are angels.

Me personally, I think I invest when I get excited about a company.

And it may be a little egotistical, but I kind of believe that I can always help a company because I've seen so many companies.

Now, I've been doing this for coming up on 7 years now, and I've been angel investing 13 years now.

This being what I see, and angel investing for longer than that.

So as those insurance commercials go, I've seen a thing or 2.

But I think that's separate from if you're talking to me and I say, oh my gosh, this guy's amazing, or this girl's amazing.

And do I believe I'll be able to help you?

Yeah, but you know, there's another perspective that's important to have as an angel investor.

Angel investors can, in limited cases, have substantive impact on the companies in which they invest.

You might meet with a company once a year, twice a year, maybe, and you might give them some really good advice.

And sometimes I think angels, or I've heard angels take way too much credit.

Again, sometimes angels are very helpful.

And I like to think that I've been quite helpful to the companies that I've worked with, but they're building the company.

And so if there's a pile of credit for success, 99.9% goes to them and their team.

And sometimes to bigger investors who spend a lot more time with them than angel investors, who go on the board and meet with them every quarter or more frequently and help them recruit.

And most angels don't spend that much time doing that.

At times they do, and some do more than others.

But for the most part, I'm honest with myself and know that, like, whereas I can be pretty helpful.

The main reason to invest, and it's good to be helpful, and it's good to be that kind of investor, but the main reason is because you believe.

Edith Warren So going back to the vetting process, I heard Naval Ravikant in a startup investing talk from Angel Conf like years ago on the Venture Hacks blog, I think he said something like, it wouldn't be strange if you met with a hundred companies before you made your first angel investment.

What I would argue from personal experience is that you ought to wait just because it's hard to calibrate in the beginning.

But at this point, I have no, like I'll meet lots of companies and I know when, and I do think like my calibration's done.

In some combination of the founder, the idea, the opportunity, the execution they've had up to then.

But it is true in the very beginning, before you've made your first angel investment, calibrate.

So do spend I don't know if it's a hundred or 10 or 15 you should this being said It's being said There are 1 of the reasons people angel invest is surely because they want to be Professor Horowitz at Stanford who invested in Google and became a billionaire doing that.

It's nice to be a college, you know, a billionaire college professor.

And those companies don't come along very often.

And so if for whatever reason you believe that the first company you talk to just might be the next Google or the next Airbnb, it will be painful to let that go.

So if you got that belief, now I do think that, the probability is low that you'll ever see 1 of those.

If you saw 1 the very first 1, it'd be a strike of lightning.

But it goes back to what you said already.

Like you have to be able to throw the money away, right?

So if the first company you see, not throw it away, but like, You know what I mean, right?

You have to be prepared to 0 out that investment.

In fact, my default position when I invest in a startup is that that investment is not worth 0.

If I pick a number, $25,000 in a company, and then I track that, it's value is 0 until I have more information that it's not.

So whether it's the first investment or the 20th investment, you're still gonna feel that pressure when you're about to write a check and you're like, oh, I don't know if this is it.

But eventually you're gonna have to pull the trigger.

So what other things, how else do you help someone mentally prepare to become an angel investor?

1 of the things we're gonna do in this course, which I'm pretty excited about, is we're gonna get 4 pretty well-known, pretty successful angel investors to come in and kind of tell their stories a little bit, to give what I call angelic advice about how they dealt with that.

I do think the bottom line is you gotta do it eventually.

And you have to meet with a bunch of founders, you have to think about their companies.

Usually it's a good idea to invest in some space that you have some familiarity with so you can actually hopefully make a more educated judgment.

then go for it or not and you'll get better at it.

Well, okay, so I've taught, not much, because again, it's a pretty short curriculum, but We're gonna talk a little bit about how to be a good investor.

It's actually shockingly easy to be a terrible investor.

And so we wanna talk about what it means to be a good investor and how you should think about that and how you should interact with companies and what companies need and want from you as an angel investor.

And that goes from first meeting to whatever rhythm you have meeting with the company once you're actually an investor, if at all.

Some investors just want to invest and like, you know, write me a check when it's all over.

But most want to sort of get updates and talk to the CEO.

That's part of the fun of it, by the way, and watching the progress.

I just got to go and talk to a YC company that's doing great, I won't mention them, but what I also made an angel investor in.

And you know, from 2 people now, there are 50 people and they've got a big valuation and they have all sorts of problems and they're doing incredibly well and it's exciting.

But maybe the last thing I'll say about the curriculum for the course that I'm excited about is we want to talk a little bit about investing in the 21st century because it has changed.

I was talking about HP back in 1957, 1937 excuse me.

That's when That's when HP was founded in 37.

But venture capital really started in 57 and 60.

And then sort of angels came in in the subsequent decades.

Things changed a lot once the 2000s, the 21st century came, probably the first big change was Y Combinator, was accelerators, rethinking how people did early stage investing.

AngelList brings people and companies together in a really unique online way to invest in a different paradigm than before.

Ads Y Combinator was a different paradigm of investing.

We invest in a whole bunch of startups all at once.

Companies are changing the way they think about the availability of capital.

The SEC is looking hard at this right now.

So, I want to talk a little bit about how the space is changing and evolving.

Another thing I didn't mention was that...

I sort of talked about this history in sort of a not very chronological way, and so I'll continue that.

1 of the things that happened sort of after YC sort of began this accelerator craze is there became a lot more angels out there and the angels started to professionalize and some of the angels who were most experienced angels became what we called at the time, super angels.

Or micro VCs and they started creating funds.

So then you had a little bit of fragmentation of VC where there was a bunch of early stage and then series A and then growth after that.

And then you had a whole bunch of evolution of that where VCs started doing both early stage and growth, sometimes in the same fund, strangely, which I don't necessarily think is a great idea.

So there was this, I don't know if fragmentation is the right term.

But this new diversification of styles, of professional investors, professional investors meaning someone who has limited partners who have, who have, who are investing other people's money besides their own.

And so that's changed a lot in the 21st century, but certainly the new ways to raise money, the crypto oriented techniques are pretty radical.

Radical in that like so early, there's an equal amount of money in ICOs being raised by startups as venture money.

Don't really believe it's sustainable, and there's a lot of crap.

So we want to talk a little bit about that.

So people are kind of up to speed with some of what's happening.

That's kind of the gamut of the course where we're covering a lot of the fundamentals, some insider looks at how you become an angel investor and how you think about deal flow and portfolios and making your decisions, And then maybe a little bit of a look towards the future and where we're going.

So we would be remiss if we didn't talk about your personal angel investing experience to share some advice with people, just to give them a taste before they sign up for investor school.

So before you said the good and bad habits of being an angel investor, let's talk about those specifically.

What does it mean to be a good angel investor?

So this qualitative thing is good, like good can mean a few things.

It can mean that you're actually good to your companies, and it can actually mean you get a good return.

I think to be a good angel investor, first is you have to follow your passion, invest in what you care about, but don't be emotional.

You'll make a lot of bad decisions if you're emotional So it is it is a cold hard cash investing decision And you should think about it that way.

You should learn how to say no and learn how to say no explicitly and kindly and with as many real reasons as you can.

But that's part of being a good investor too, 2 companies.

If you meet with me and I say, I'm thinking about it, Craig, you seem to have a pretty good idea.

Sometimes investors do that because it's just hard to say, dude, no.

And so you have to learn how to do that, say no.

Sometimes, as I said, you should be as honest as you can, especially if it can be helpful.

See all Y Combinator transcripts on Youtube

Startup Investor School Preview with Geoff Ralston