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Y combinator's best practices for angel investors

The world's oldest and most prestigious start-up accelerator is organizing training sessions for anyone who wants to get involved in early-stage investment as Angel Investors. Here are some helpful tips from Sam Altman, President of YC, which has assisted firms like Airbnb, Dropbox, and Stripe.

The Angel Investing market
- Don't base your decisions on what other investors think, trust your own thoughts
- Today, the best startups' founders have their pick of investors, because there are many Business Angels on the market (in Silicon Valley)
The Power Law
- Be aware of the importance of the "power law" in early-stage investing:
only 1 or 2 companies in your portfolio will make you a lot of money
the fail rate doesn't matter, because if you have one company that grows x1000, you'll do fine
YC funded 1700 companies and just 5 of them account for 2/3 of their portfolio's value! And a single one = 1/3 of the value.
most of these companies are created by people who are out-of-network
so "Be open to that random email that comes in" = the opposite of what the market is doing (especially in France) by asking for recs and staying siloed. 9 times out of 10, you're wasting your time, but 1 in 10 turns out to be a gem...
Build a reputation as an investor
- Your reputation as an investor is very important for the long term
- It hurts a lot to try to recover some money from a dying startup, because this affects your reputation over the long term and that could cut you out of the best future deals
- An investor's reputation is especially built when the startup isn't doing well
- Founders check investors' reputations among the companies in their portfolio and among other investors
- Today, all Angels ask for "advisor shares" because they say that they provide a lot of labor, networks, etc. more than others do... the problem is that they all say that...
The best deals
- When Sam Altman looks at his best deals: There are some companies that nobody else wanted to invest in (he saw something in them that others didn't), and some whose valuation seemed sky-high, SO: "value investing is not a good strategy in startups investing!!!!" »
- His only rule: Invest in companies that can become "$10b companies", any stage, any sector, any business model
The team of founders
- The key is "the founder's growth rate/improvement/ability to learn". You have to look at this as a metric.
- "Easier to start a hard company than an easy company": Because you'll attract very high--level people, who'll help out for free. You need to create companies where the CEO could attract hundreds of people who might have started their own company themselves
- Look for these personality traits in founders: Obsession, focus, frugality, love
- "Good founders are people who have ideas all the time" = IDEATION talent!
- Look for a sort of intelligence that makes it possible to see problems in different ways
- Find founders who are proficient in communications
- Execution speed is key
The markets
- The most important thing is the market's growth rate, more than its size: Think how tiny the social media market was 15 years ago! Go for a small market that's growing quickly over a big one that's stagnant
- Look for "real trends", not "fake trends". Sam Altman's first reaction when faced with a so-called "big trend" is skepticism. "The best things are things where not many people are participating at start but they fell like it has a huge impact, like the first iPhone"
- For instance, about VR headsets, he says that people don't use them every hour, every day, or even every week. So this is a sign that it might not be a good investment for now.
And finally
- What you're looking for is "good ideas that look like bad ideas", not the opposite!!! Still, he says that this what most Angels do: Fund bad projects that look like good ones!
- What do you understand that other people don’t? That's what's important and it could be what earns money!
- When the company you invested your seed money in raises a Series A with a top-quartile VC, you should exercise your pro rata; statistically, you'll have a very good chance of winning

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