Galatians you've made it to the very last day of start-up investor school thank you all again so much for being here and for being part of this I am excited to provide the last day so finally you guys can get some of your questions answered about icos
so can anyone tell me where you're not supposed to park there okay there's parking there's plenty of parking there's fewer of you today so there shouldn't have there sort of been less of a parking issue I hope I hope I hope it wasn't too bad and I apologize
for the issues with that for for people online again hashtag YC sis for questions during Q&A and there's still the check the slack channel of course today we'll try to stay more on time than we did yesterday I trust we'll be we'll be better but the
good news is as you know there's wine and beer wine do we have wine or just beer wine and beer and pizza afterwards for those of you were gonna say yay right no sushi just nothing nothing there will be nothing healthy just we're
investors we can take it so there was one note that someone had that I thought was a little interesting and he pointed out that that Karl Karl thank you that we haven't really talked about taxes I can't imagine why we haven't talked about taxes well taxes are an
interesting issue when when you're doing angel investing actually if you're new to this you actually realize it's a pain in the butt because when there's an exit it's not like a simple thing you have to do this thing call it in a an installment sale
because usually there's an escrow and you get paid you have to figure out how to what your basis is it's a pain in the butt so I'm not going to talk about it but there's this also this other thing that's worth investigating called qualified small biz
or section 1202 which can have an impact on a significant impact in past years it had a huge impact on your potential tax liability so look it up I won't say any more than that it was there a question on taxes because I don't know anything
about taxes oh okay high five just a quick summary of yesterday before we get going so yesterday was our day of angelic advice the web whether you realize it or not those people up here are amazing investors so hopefully you paid close
attention to their words of wisdom I always do I've learned a ton from all of them aloud talked about how he finds billion-dollar companies which you know if the game you're into is to make money here actually raise your hands if the
main reason you're an angel investing is to make money I think only like two or three of you raise your hands raise your hands like none of you are here to make money what are you doing here because maybe because you want to change the
world and you care about things which which is great but you know investing in billion dollars companies gives you more fuel to do that so it's still a good idea and he talked a lot about how he helps companies and one of the things you hear if you ask people again it is a
dear very tight network if you ask people about a lot they'll all tell you incredibly helpful and you know why does that matter well that matters because everyone knows he's incredibly helpful so you want him on your cap table page Mon is kind of special and if there's
one thing you should take away from page Mon other than the fact that T is really helpful it's that anybody can get deal flow right anybody can figure out how to get deal flow and getting deal flow matters because you have to have choice
Jeff talked about portfolio construction and asset allocation and I think the takeaway from me there what I've really learned from Jeff is that even you know most of us who are angel investors are not pros we're amateurs word-a blurs in
the game we're doing it for for personal reasons that doesn't mean you can't be professional and rigorous about how you go about doing this and that's the right way to do to be organized to think about your portfolios to remember that it's a long
game and to pay attention to pay attention to what goes right and wrong he pointed out like you know his portfolio construction was ex post facto right he looked back and said oh yeah I have a portfolio now that's awesome that doesn't mean it you have to do it that
way budgets matter cheque size matters sectors matter etc and then Andreia talked about personal brand and how much that matters do not ignore that do not think that that every one of those folks isn't successful in particular because
they have fantastic personal brands and I liked her laugh - Swiss is think like a boss that's back to what I was saying before about being professional and thinking through how you're how are you doing this and I think Ali had a little
bit of a different perspective on things which is interesting he points out that so many of the great companies huge companies have been built on the backs by software founders were software engineers that's kind of interesting right
I mean Microsoft Facebook Amazon Google Yahoo Netflix all of those there's a quite a bit of market cap you had those up together so it's something to think about think thinking about I guess we came up with our little little um aphorism at the end which is you want to
look for the three B's right brilliant founders in big markets with ideas that seem bad right so today's the conclusion of start-up investor school I think it's gonna be a great day we're gonna start with Andy Bromberg who's going to talk
about early stage investing and the past present the future he is the CEO of coin list the person who will answer every single one of your questions about the past president of future start investing and who has said for the first time he
can give someone a product without them during whether they want it in advance the best guerilla marketing ever after Andy we're going to have Aaron Harris who's going to talk about being good you'll want to pay attention to that one and then our final guest is
a special guest my friend Ron Conway who's probably the most famous investor angel investor ever so please welcome Andy Bromberg thank you all right good morning everyone see if we get this clicker to work nice alright my name is
Andy Bromberg I'm the CEO and co-founder of coin list we are the platform we're the best digital asset companies are on their token sales and we're investors like hopefully you all find high-quality deals in the space but that is mostly
not what I'm talking about today we're talking about the past present and future of early stage investing and we're gonna start with some trends that we'll see throughout the entire history of early stage investing move on to some history the early days of venture 19:40
1950 1960 1970 1980 the Middle Ages up to 2000 and then kind of recent history and going all the way to to the present and then go back to some trends and talking about that I think it's really important to talk about the history of
venture to understand what's happening today a lot has happened in this space and it is a relatively new space relative to other industries talking 70 or 80 years old and what has happened in the past really informs what's happening
today and you'll see a lot of the same trends surface throughout all of these all these decades so some of the trends that we'll see over and over again talking about early stage investing first decreasing costs to start companies 1940 was very expensive start
companies as we'll see today it's very cheap that cost is constantly going down second a decrease in cost to invest for investors like you all are for funds the cost to invest and the barrier to entry there has gotten lower and lower over
time and we see that happen over and over again in this ecosystem and then the last is the arc of the market bends towards liquidity and we'll see this over time starting early and going all the way to now that liquidity and faster look quiddity is some of the markets always
pushing towards now there's a there's a caveat here which is there are speed bumps and all these trends and certainly in the last few years we've seen the speed to liquidity go down we think that's going to revert back and we're
gonna see that that come faster again and then the the kind of mega trend that we'll see through all of this in all of these inform is more and more capital being available to startups as it becomes easier to start companies and you see more and more companies being
started and as it becomes cheaper to invest in companies and easier to invest in companies this availability massively increases which means more startups more people trying to change the world all the things we've been learning about for
the past past few days so let's get into it 1942 1960s Jeff told me actually that when he talks about the history of venture capital he starts even earlier than this back around 1492 when as he says it Spain VC with with partners Isabella and and Ferdinand invested in
Christopher Columbus labs on a on a venture to to find a new world they got 90 percent of the equity in that company which is a great deal for them unfortunately for you all does not happen anymore but we're gonna skip you know four or
five hundred years to the 1940s and 1950s when the first venture capital firms emerged and these are kind of the two that we talked about most often as the earliest ones jate Whitney and Coe and an ard see emerging in the 40s and a rdc really had what we consider to be
the first venture win they invested in Digital Equipment Corporation and returned about 500x in 11 years there and that was the beginning of this trend towards our first kind of recognizable venture funds what we think of as
venture funds today in the in the 1950s 1958 we saw small business investment companies which was legislation introduced by the US government which effectively pushed this forward they said if you want to start a company that's a venture fund as we would call
it today will actually give you leverage will loan you money to invest in startups and allow that to increase and so that really pushed the industry forward way faster than it could have otherwise because there just wasn't
capital available at that point to invest in startups and then you know as we look towards the early days some names you might recognize funded around this time Venrock Greylock Sutter Hill Draper and Johnson around and at the same time and we won't in
this history the valley was coming into its own sooo soft Fairchild Semiconductor some of the first Silicon Valley companies were started around this time a couple other noteworthy things about this period one this is the first time we saw the two-and-twenty
structure emerged so 2% management fee 20% carry that hadn't really existed up until this point in private equity firms for the first time started using that structure we still obviously use that today for for a lot of venture funds and
then and then briefly you know talking about what these deals look like in this period what we saw was that hundreds of thousands of dollars which is obviously even more in today's dollars was invested into these companies by the principles by friends by family before
it ever got to a venture fund so we're not talking about having a product at the seed stage or having a really good deck or anything like that we're talking about something being out in the market and making money on the basis of having
a lot of friends and family and principal investment going in so very high barrier to entry and what we'll see as we go through this is that that didn't change for 40 years we saw that for basically the first 40 years of venture you had to invest hundreds of
thousands of dollars of your own money or scrounge it up from someone before a venture fund would invest in you and and that you know feeds into the trends that we were we were talking about earlier so we move into the 1970s you know some
more names that you might recognize here KP Mayfield crv seven rows in Sequoia NEA all fun founded in this time they were different than they are today in 1970 CRV was a five million dollar fund and KP was a seven million dollar fund
those are smaller than most investments those funds make today in raw dollars but that was the entire fund size at that point in the 1970s you know we also saw the emergence of angels in the 70s as a historical note here we think the
term angels actually came about in the 1920s but it was obviously not in start a plan there it was for Broadway the first angels were theater angels who were investing in you know shows on Broadway to get them off the ground and allowed them to start to make money but
we saw technology angels emerge in the 1970s for the first time and then some major companies in the 70s that you will certainly recognize Apple Genentech tandem Cray Compaq EA 70s to early 80s all of these companies were founded and
obviously still massive success stories today and we started to see more and more funds being founded as you can see here and a lot of that was because angels which were emerging were becoming funds for the first time but that could
only happen because there was capital available and what was happening in the 70s to make that make that a trend start is that institutional capital was investing in venture for the very first time endowments and big corporations created a new thing called
alternative assets that they were willing to put money into and they were investing non-traditional assets for the first time that included venture and so angels that had successful track records in the early 70s went on to found some
of these funds on the basis of for the first time institutional capital being uh being available to them moving into the 1980s I've got a few charts here actually courtesy of a great website called reaction wheel that I recommend everyone check out some really good
articles about the history of venture on there 1980s was a boom time for venture capital if you look at this number of funds by vintage year in the on the left side you've got the 60s and 70s and then that first big jump the third bar is
1980 and then it's year by year after that there were a few dozen funds in the early 80s there were more than 650 at the end of the 80s so that was really caused by this trend of more and more institutional capital being available and by this idea of just venture being
an attractive asset class it hadn't been around for that long and people were realizing that there were crazy returns available to them if they started these these venture funds and so this was this was certainly boom times what's
interesting here is that if you look back at kind of the mid 70s not a lot happened so we saw this early boom in the 50s and 60s and then 72 to 78 there weren't a lot of good deals it was kind of a low time for venture and then as we moved into the 80s some of those
companies that I showed on the last slide started to get funded the the Krays and apples and Genentech's they got really interesting again and we saw literally hundreds of firms we started through the decade of the 80s but at the
same time here's a chart of tech IPOs through the 80s 1980 on the Left 1990 on the right early 80s things look really good 1983 we had more than a 50 technology IPOs and 1984 we were down at less than a third of that and it stayed down there for the rest of the
80s deals were changing and these IPOs skyrocketed that fueled the rise in the number of funds and then as things trickled down towards the late 80s the market went down again certainly stock market crash affected that and the number of IPOs went down really really
sharply secular trend in the 80s was that you needed to invest earlier so this is what I was talking about before that up until this point you had to invest hundreds of thousands of dollars of your own money to start a company but
now there were 650 firms to get money from it was competitive those firms needed to beat each other to the deal Eugene kleiner had this quote that it's now a matter of weeks or even days to make up their minds because if they don't someone else will that was not
true for the first 30 or 40 years of venture they could take their time they could take months to sight on a deal because there was just not a lot of capital available but as we moved into the 80s that capital skyrocketed deals
became competitive and funds had to invest earlier and earlier to get the returns that they wanted because otherwise they would lose it on deals and and be left with with the losers in the 80s you'll also see the market bounce around a whole lot there was the
rise of leveraged buyouts a lot of venture investments were actually made in slow growth consumer brands for the 80s which was kind of an odd trend that happened but there was just so much capital coming up the ecosystem it had
to be allocated somewhere and we saw it going to slow growth brands in addition to to fast growth startups and then of course at the end of the 80s the stock market crashed and that kept things down for a few years this is uh you know tech
companies formed in the United States 80 to 84 85 to 89 and and 90 to 93 boom times in the 80s and as we got towards the 90s the stock market crashed amped everything down very very aggressively and and we did not see a lot of companies get found in the early
90s but in the 90s we did get software and services and jondura funding Netflix and Amazon and for the first time we're seeing some of the recognizable software companies that we know today and the the movement towards funding that from
from venture capital to give you a sense of what happened in the 90s in 1996 the venture industry as a whole had an AUM of about 12 billion dollars in the calendar year 2000 LPS put a hundred and twenty billion dollars into venture so that's not that
it went from 12 billion AUM 220 billion AUM in four years that's that the AUM was 12 billion and then in a single year they put in ten times that for it four years later so massive boom times in the 90s in terms of capital availability
going back to that trend of more and more capital always being available to these startups over time as we know in the 90s companies were getting backed because they could go public we saw this path to liquidity start to increase in people trying to get liquid very quickly
companies starting and we've all heard the stories months or a year or two years later going public and and that was a big part of the driver of this this capital because they saw these immediate returns that they could put in the structure changed a lot Kerry
changed funds were getting 30 sometimes even 40 percent carry on these deals because there was liquid so quickly and people couldn't put enough money into the space so the venture funds could start to do whatever they wanted and and
take a lot more of the the economic upside these were boom times and and there was a bust and I actually won't dwell on the bust here we all know about it it's really not that interesting for the sake of think about the history of venture capital these markets are
cyclical and we see that in early-stage fundraising in late stage fundraising but every once in a while there's a bust and there happen to be a really big one at the end of the 90s early 2000s and and then we we moved on and as we get to
the 2000s things were okay but not great in the early 2000s 2002 to 2009 was about two hundred five billion invested in venture about 220 billion returned so not really the venture returns that were looking for although certainly some of
those companies have since since returned more more capital there but things things cooled off for for a little bit there in the in the 2000s and then for the first time in a while we saw the rise of some new structures some new methods of funding and a new
wave of of models 2005 YC this fine institution that we were standing in right now and then to six tech stars accelerator started to rise and this contributes again to this trend of the decreasing cost to start a company making it easier
and easier to start a company and and there was certainly capital available for those companies obviously around the dot-com bubble bursting Angels went away in a large part because most people lost a lot of money that they would have
otherwise invested but we saw the re-emergence in the mid 2000s leading up to 2008 and the and the recession when of course that got stamped out a little bit more again and this is a really important one for and and I think underrated in the history of venture
capital which is the rise of convertible notes actually in a large part due to YC standardizing the terms and encouraging founders to raise money on convertible notes historically all of these deals have been done with just equity straight
equity selling preferred stock but there are downsides to that as I'm sure you've talked about this week it's you have to close all at once you have to you know go through this extensive legal process you can't do these rolling closes and
get things out there quickly and and YC work to standardize these terms and we saw the rise of convertible notes 2005 to 2009 as as more companies started raising faster than the cost to start a company again went down thanks to thanks to that and then super angels and and
micro VCS soft tech I know you heard from Jeff SV angel you hear from Ron a little bit lower case leases even seed funds first round capital really came into its own in the in the mid to late 2000s and and this was again just more
capital early on and startups lives making it easier and easier to start a company early on some more trends in 2010 after the recession more angels more seed funds investing smaller and smaller amounts at the same time we saw seed rounds crest a
million dollars for the first time and start started to be able to raise really meaningful amounts of money from early stage investors often before they had before they had real real traction in the in the market we saw a little bit of
a reversion to preferred stock likely due to this increasing institutional capital at the early stage in the earlier 2000s most of the early stage seed capital was coming from angels who didn't really want to deal with legal docs on their own they were just
investing their own money now we started to see those funds that I mentioned on an unless slide invest and and their preference was often for preferred stock early on and so we we saw this move back to preferred stock really just from
about 2010 to 2013 there and then as the markets pushed towards driving this cost to start a company down platforms emerged for the first time really two categories here you've got platforms like Angelus that connect investors to or at least at that point connected
investors to to startups and made it easier and easier to raise capital as well as easier and easier to invest in startups an angel has really democratized that process to a large degree as well as perks based funding so IndieGoGo and Kickstarter making it so
that without actually raising equity you could raise early money obviously pebble is a phenomenal example from from around here that was able to really get this business off the ground without selling equity and raising enough money to do
things like build hard Hardware in a time when when that really wasn't being funded effectively with with equity rounds and even a little bit more recently going to the 2010s in 2012 this is another underrated item in the history of early-stage fundraising the
JOBS Act and then subsequent legislation over over the next couple years led to some really massive changes in the early stage funding ecosystem after 2008 all of securities law and investment advisory law got much much tighter and
much harder to invest in things as the government imposed regulation to avoid or attempt to avoid recessions like that happening again except for venture venture is really the one class that got the exception to that you can argue whether or not that's
because it was common sense in the government or if it's because the venture industry Lobby to really effectively but at the end of the day the JOBS Act came out and and and following a legislation and a few things came out of that one venture funds got
this exemption from being a registered investment advisor which made it much easier to operate a venture fund and avoided going down the path of that becoming really heavily regulated we got general solicitation what we call 506 C offerings where you can publish
that a startup is raising on the internet and people can invest in that obviously angellist took took advantage of that in a pretty meaningful way 506 B got further solidified which is private non general solicitation fundraising and
allowing that to be done in an easier fashion and an eventually crowdfunding what we call reg CF equity crowdfunding so the Kickstarter IndieGoGo model where anyone can vest in a startup but small amounts of money and and really lowering
the bar to becoming an angel investor or startup investor and allowing more and more people to get stakes in these early-stage companies and again making it easier for startups to raise money around here as well we got angels got a
no action letter from the SEC which made it much easier to run syndicates and do this general solicitation but really the early 2010's and going all the way to now have been a boom time for angels and making it easier and easier for angels
to invest in startups we did see this this speed bump of liquidity times increasing as startups got some leverage and realized they could stay private longer we certainly think that's gonna revert as we move forward o speeding forward there see here in 2014
YC created the safe which I'm sure you've heard about the simple agreement for future equity and we got back to convertible structures so we'd seen that rise of convertibles largely thanks to YC 2005 2009 reversion back to preferred
stock and now with the standardization of of this document of real move back to convertible structures and the vast majority of startups today raised with either a safe or convertible but using a convertible structure and and the core idea there is that and the
core difference or at least one of them between a safe and a more traditional convertible note is that safes don't have interest on them so most convertible notes that startups raise on say that you get a percentage point or two of interest every year and
if your debt gets paid back or whatever you get a little bit more interest if you were investing in a start-up on the basis of a couple points of interest you were in the wrong game and wise he realized that said this is creating
accounting nightmares there's no reason for this let's remove that term from this let's build a structure it's convertible without it being debt and and be able to to move back to this much easier faster a lower cost solution for raising early-stage money and then the
latest and greatest 2017 really in its more profound sense we saw I SEOs initial coin offerings and I'll touch on them briefly here we can certainly talk more in the in the QA after but I SEOs are an incredible trend for early-stage
fundraising it's this proliferation of companies going out that can raise money without meeting with people and that's such a new concept you heard yesterday about how to run effective founder meetings this is a world where companies
don't even need to do that the cost to start a company is so low now you can create something put it out on the internet and have people invest in it online without ever talking to those people and that's not true in every case for every IC o---- and certainly as many
of them still meet with with high quality funds and angels but it's this real move towards absolute democratization of investing in in early-stage startups and then I would argue that there's an even more recent trend than I SEOs in 2017 which is every
one an angel and and there's a couple components here that I would talk about one is ICS so certainly I see us contribute to this idea that anyone can invest online in in these in these companies and get access because you
don't need the company to give you access anymore for a lot of these deals they just fundraise and you invest and you get tokens or you get shafts or whatever you might be purchasing so anyone can do it without having access to those companies second platforms like
Republic and equity table equity crowdfunding platform that allow actually anybody to invest in whether you're accredited or unaccredited in insecurity sales online again thanks to the JOBS Act and subsequent legislation and then things
like this that you all are sitting here right now the idea that angels are getting educated and taught how to invest and learning and meeting each other and engaging in the community is is a really new trend historically that's been just word of mouth you've
known someone who's an angel they've given you the tips but we're seeing this move towards education I would argue probably no or better than then here and and one more program to mention that I think is interesting is a program from a
fund called Maiden Lane called spearhead which is giving founders education about how to become an angel investor and also giving them capital to invest leveraging their investment and I see real real similarities between what's happening
now with everyone being an angel and the earliest days of venture capital which we were talking about earlier in the 40s and 50s when now there's this flood of new money coming in there's education becoming available and there's leverage being offered to people that are good at
their jobs and so you know moving towards this and here the icos and everyone in angel process really speaks to this societal trend of the co-creative process that as companies are starting they need help getting started they need capital they need
advice they need connections and and moving towards a place where angels and anyone can be helpful in that endeavor is certainly a big macro trend one thing I would note here just going back to the regulation is that in the same way we
saw the JOBS Act in 2012 I wouldn't be surprised if the ICO industry needs something similar if there's a non exempt of safe harbor or some legislation around codifying some of the rules and guidelines around ICO ICO fundraising so where are we now
what does the early stage fundraising ecosystem look like today there's normal seed fundraising which you've spent most of this week talking about mostly safes or convertible notes raised from accelerators seed funds angels like yourselves larger funds with with seed
programs usually call it a million to two and a half million dollar rounds obviously we see outliers on either side of that as well and this is what we call what I would call normal seed fundraising but huh also this other thing token
fundraising I see owes mostly raised on what are called saps simple agreements for future tokens you will note that that bears a real similarity to safe simple agreements for future equity its document really modeled off the YC safe structure except
for tokens instead of equity mostly raised from hedge funds venture funds institutions and again angels you're putting money into these icos but they're they're raising ten to two hundred million dollars and so there's a question here of how we could be talking
about these two early stage fundraising mechanisms where one is an order of magnitude or more more money than than the normal normal seed fund raising process so we'll talk briefly about this and again happy to answer questions
about icos in the in the Q&A and a little bit more detail but what is what is going on here it's very different from equity investing and and you have to remember this you own part of a network not part of a company and I'll talk about what a token
is in a second here but this is a really important distinction for a few reasons one governance when you're a equity holder and a company you're a shareholder you can vote on what that company does and you can be a part of that decision-making process not so for
token holders except in token governance mechanisms but they don't own a stake in the company valuation is wildly different we can talk a lot about valuation how do you value these tokens it is not the same as seed fundraising obviously if you're if the normal seat
valuation is 5 or 10 million dollars and a token company is raising 10 to 200 million dollars those valuations cannot be done in the same way the investment processes I alluded to is very different all of a sudden you're not going and
meeting with the company a few times going back and forth sitting down coming to terms and doing it most of the time you're reading information online and then choosing to invest in sending the money and so that's a very different investment process from normal seed
fundraising and the future interactions are really different in the same way if you're an angel you probably get pretty personal investor updates and the founder might come to you and say I need help with this or ask for connections
in a token world they often have hundreds or thousands of investors they aren't doing that for most of their investors maybe they do if you know them already and you've been a helpful angel to them kind of personally but if you're a normal ICO investor you
are not getting that level of interaction with the founders of the network that that you invested in and then last of all exits so you talked about exit slot this week you know you wait five or seven or ten or more years
and then you get a liquidity event but with tokens you're often liquid almost immediately maybe there's a little bit of a waiting period maybe their networks not quite live yet when you when you invest but at some point you're just
liquid and now you're holding a liquid asset often months or a year after you invested and the decision-making there as to whether or not you exit at that point or hold even longer-term is very different from from normal seed investing where you're locked up and you
you don't have a donor of a choice we could take ours on on all these differences one last thing I want to say on the ico front is people break down different categories of tokens differently but I tend to break it down into three categories one protocol
tokens this is an example this would be aetherium where it's a platform that other tokens are built on top of so it's biggest value comes from being a place where other tokens use the protocol to build their own networks there's
application tokens which are those tokens built on top of platforms like aetherium an example would be New Marais which is a distributed network of data scientists solving market optimization problems but a very specific use case there and then there's securities tokens
or asset backed tokens where you take an existing security real estate or startup equity or something else and you put a token on top of it that represents that ownership I would say with icos a word of caution be careful it's a new
industry it's a year old really and prices are a little bit irrational maybe norms aren't really set yet and so you know the markets young and and it should be treated as such I won't talk about tokens really quickly what is it
token and I'll speed through this here but I think it's important to understand what you're buying when you're buying into an IC o tokens an incentive layer on top of a network so we like networks Facebook's and Network right it's a social network it's a
series of nodes that are connected together and and now we can build an actual economic incentive layer on top of that network in layer markets on these decentralized networks but what what does that mean so let's talk about an example file coin which was created
by protocol labs which is a YC company and it was the first sale that ran on coinless we were actually birthed out of the file coin sale and and the combination of protocol labs in angel oh so we have some some YC DNA in our in
our company so file coin tries to solve this problem of storing files and the obvious solution to storing files is Amazon s3 which is I'm gonna go people want to store files I'm gonna go buy a bunch of servers then I will allow those
people to pay me for storing their files on my servers great there's a couple things there one is you might not want a centralized party storing files they can censor what you're doing they might go down there's downtime possibilities
there's all sorts of reasons to not like centralized systems and on top of that we've got an Airbnb situation here where there's actually abundant unused resources for storing files this empty hard drives everywhere that aren't
strong files and could be used and so how could we try and fix that how we connect those two sides the market the simple and naive solution to that is put spyware on everyone's hard drives and monitor how much space they have and allow people to pay this centralized
company to store files on unused hard drives but again you run into these centralization problems that there's censorship possibilities that there's a there's other potential downsides of having a central party and people just don't want spyware on their hard drives
so the question is is there a way if Jeff has files to store and I have storage space in my computer to connect us in a trustless way without a central party involved and that's a hard problem because if Jeff has files to store and
he sends them to me he needs to trust that I'm strong those files and that's not something we want to build in people don't always do the right thing it's a quibble the trustless Network and the way file coin has solved this and I'll oversimplify a little bit here actually
a lot it's a very complicated technical system is with a really clever token and incentive model there's two pieces of this one is that when I offer to store files I have to take some file coin and do what's called staking them or bonding
them so I take file coin and I put it out on the network I don't give it to anyone but it's basically an escrow and I'm saying I'm putting these out there if I get caught doing something bad not giving Jeff the reliability guarantees
he needs not properly storing the files then I lose those tokens so I now have an incentive to do the right thing and actually act in the best interests of the network but now there's a second problem which is how do you make sure I'm doing the right thing without
trusting someone to verify they're doing the right thing because I would just always say of course I'm strong as files they're always available and so the second element of the system is what they call the verifiers and the miners and so we could take all
of you in this room and you could try and check if I'm storing the files correctly but how do we do that without actually giving you the files so one example you might do and they have a way more complicated and interesting thing
called proof of space-time which they use is you could all go to Jeff and ask him if we're strong tax files what's the 40th one hundred one hundred and seventy second letter in your file and Jeff would say it's B it's a at C and then you come to me and you ask me
the same questions and I say I've got B a and C and now all of a sudden when enough of you have done that we can get confidence that I'm actually storing the files correctly without you ever seeing those files because we have this
distributed network of verifiers and you now need to be paid for this work so the network mines new tokens it's inflationary and gives you two that gives them to you for doing that work and at the end of the day we have this network of verifiers
of people with storage space of people with files to store who are all connected none of us actually trusting each other but all of us incentivized to do the right thing and we've added this incentive layer on top of this network and we've built a
market on top of it so now there's there's a value for these tokens and as a result of the work that's being done in the network and you can you can value those tokens that way certainly get into that more in QA but that is an example
of what you're investing when you buy into the file coin sale or bought into the Falcone sale in August what you were buying is tokens on this network tokens that will be minted and inflated over time for verifiers and tokens they'll be used to transact
on the network and token that will be used to stake as as stores on the network so really briefly what's next where we going and I think we just go back to the trends on this first of all continued search for liquidity and I think the the trends that we're seeing
there are one tokens as we discussed often instant liquidity are very fast and moving towards faster and faster liquidity there as well as I think moves towards secondary trading and more and more equities secondaries being done in
startups and the market pushing towards earlier liquidity second the trend continuing companies are going to be cheaper to start and cheaper to raise for platforms seed funds and angels legal automation and standardization Clerke a great YC
company that uh that can help with that and and so we're gonna see it be cheaper and cheaper for companies to start and then as always easier for investors to invest tokens reg CF and crowdfunding 506 B and C an education like we're like we're seeing here so these trends will
continue as far as we can see liquidity and and cheaper and easier to start companies and raise for companies that is it early-stage fundraising past present and future thank you [Applause] all right questions about a our DC and
the investing in the 50s yeah yes the question was can you invest in both equity and coins at the same time the answer to that is yes and in the same way we saw structures evolve in the 40s 50 60 70 s we're gonna see the structures evolve in the IC o---- market
there is I would just say the priors are so low on us haven't figured out the perfect IC o---- fundraising structure already we're a year into the market there's no way we've hit the right thing we're seeing a lot of investors push for
equity in the company in addition to tokens you'll hear about the safety the simple agreement for future equity and tokens or people just raising on safes or convertible notes or equity with conditions in the company governance that you know they will also get pro
rata shares of tokens and so it really but at this point it really depends on the company and an investors don't have a ton of leverage at this point in the cycle right now it's very very heavily weighted towards the companies but more
and more companies are allowing you to invest in their equity in addition to tokens or investing in equity and at some point that equity converting into tokens as the network goes live first of all well the question was should you you know you were told
earlier not to invest in companies without meetings and even video calls are probably not enough I am not telling you to invest in anything and in fact I would argue you should exercise a real discretion when investing in icos
as it is such a new market but it's a very good question it's a trade-off and at this point the norms in seed and normal seed investing are such that if a company's not willing to give you a meeting or a video call at the very least there's probably something going
on there unless it's the most hotly contested round in the world the founders don't have time that's a whole separate decision if they're not willing to meet with you that's a problem in the ICL market if you want to invest in the
ico market and you want to see some of the returns that are possible in the ico market it's just a fact of life at this point in the cycle I think that'll change over time I think we'll see more bifurcation between really early IC arounds and later IC
arounds where in the early rounds it'll look a lot more like traditional seed funding than it does today but you know at some point you just have to make a decision as to whether or not the the upside of investing the IC o---- market
in the interest in doing so outweighs the downside of not getting the guarantees and the interactions that you want to have so Andy the purpose of the in-person meeting more than anything else is to get a sense of the quality of the founders and how are you to judge an
IC o---- if you're if there's really I mean if there's thousands of investors you're not getting your in-person meeting how do you make that call if that's the main thing that's going to determine whether this this the the company underlying the IC o---- is going
to be successful yeah it's the the billion ten billion trillion dollar question of how to evaluate an IC o---- you know the first thing I would say is some of the most success one of the most successful angel investments in the past decade was
investing in Bitcoin and if you invested in Bitcoin when the first markets came out for Bitcoin in around 2010 2011 you have made returns unlike almost anything in the startup ecosystem I you could not have met with the founder of Bitcoin
because the founder of Bitcoin is an thirdly pseudonymous and so you had to make a decision there on the basis of the future potential of the product you know a coin list when we think about evaluating these icos we look at things like technology we
look at the backgrounds of the team we try and interact them as much as we can and there's a different mode of interaction so oftentimes these teams are available on their slack channels or their telegram groups and you can try and attract them it's not the same as an
hour-long meeting or a couple meetings or a video call but you can get a sense for their quality and get a sense for their backgrounds you can read and see if they've actually developed some meaningful technology you can look and
see how thoughtful they are about structuring the sale and then you know in what's probably heresy to say here follow-on investing in the ICO market is a real thing right now and you know the biggest funds will get access to these
teams if one of the top crypto funds is investing in a sale and they're investing five or ten million dollars they are not doing that sight unseen they are getting access and so you can either try to get access through one of those funds or you can talk to those
funds and get the sense for their diligence notes or if you want and I'm not recommending this you can follow them and what's maybe a little bit better in the ICO market about following good investors is that the time to liquidity is so much faster so at the
very least you can get out quickly after the the token gets liquid that's not to say it's always gonna be a successful investment and the hype cycle is certainly high right now but at the end of the day looking at things like the
technology the team their history of shipping product how they're structuring the deal as well as the people involved in the deal already that have gotten the chance to do really deep diligence those are some of the the key items that we
look for so a question from out in cyberspace is around the around whether I SEOs and and and token investing is more of a u.s. thing an international thing or how should we think about about how global this new trend is yeah hello hello cyberspace the it's a good
question the right now it is a very global phenomenon so about as much money has been raised by icos based in Europe as based in the United States was raised in ice shields in 2017 2017 saw couple billion raised in AI SEOs and it sounds like real money it's real money
it is real money and and and the speed with which we've gotten to the real money phase of this ecosystem is incredible Bitcoin the original cryptocurrency is less than a decade old less than a decade old and we have already seen hundreds of billions of
dollars of value created at least on paper in this market and billions of dollars of real capital put into the market and so when we look at that the scope one of the beautiful things about crypto is that it is global that anyone
can start and anyone can send crypto anywhere now that has been truly accurate in the early Wild West days of crypto and icos as regulation starts to increase we will see a lot more restrictions put on the fundraising and on the activity by these tokens we could
spend hours talking with a regulation here but you need to follow it and a lot of these tokens are securities and you need to follow relevant securities law but you know certainly it is still a global phenomenon and and we're seeing a
ton of activity in Europe in Russia in China and Southeast Asia awesome more questions yes are there yes are there venture capital obvious are there crypto lobbyists there are absolutely venture capital lobbyists the the National Venture Capital Association as well as
even kind of the Internet Association and some of the other entities out there are very active in in lobbying the government and I would make a very strong argument that the JOBS Act and all the good that it did for the ecosystem in 2012 and a lot of the
subsequent legislation came from really smart and aggressive lobbying efforts by very smart and and connected people and on the crypto side there are some but not a lot you know we as great organizations like coin Center which is
not a lobbying firm but it's an industry advocacy group based in DC that sends a lot of time educating our legislators and other folks in government as well as a few lobbying shops popping up but I think especially given the the attention
given to regulation in the space we will see way more lobbying happening in crypto and in venture capital over the coming years Susan so the question is whether YC has considered modifying the safe to somehow take into account of future ICO by the
company so we're thinking a lot about the implication of ICO s and we think about modifying the SAF all the time unfortunately every single modifier we ever think about would require us to take the s away and make it an agreement
for future equity but it will not be simple and imagining trying to account for what an ICO might mean when nobody knows that and that's the hard truth is what does it mean to own equity and token how do the two different asset classes interact clash what happens in
conflict is is unknown so yeah we think we think there's going to be evolutions and changes here but we don't know what they are so it's premature for us to make any changes actually could I just touch on that really quickly to go back
to the earlier question about equity and tokens there's a question of in a token world what does owning equity in a company mean if the networks built well we would argue that no value actually accrues to the company itself the purpose of the
token is to remove the centralized party and so the the company itself that the LLC of the corporation shouldn't get transaction fees they shouldn't get subscription fees they shouldn't be rent-seeking on the network so what that company becomes is an investment company
that company holds tokens so protocol labs holds a bunch of file coin tokens and in theory these companies as they develop the networks and release these networks out into the wild sure they may still help with ongoing maintenance of
the network they may help with contributing code to it but they should next be getting any any rent from the network they shouldn't be getting fees in any way and so owning equity in the company if they do a successful token sale may actually just be the same as
owning tokens because the company's only value will come from sure a little bit from a small team but then mainly from a holding of tokens that you know hopefully increases over time so if I can translate and you know when when
Eddie's talked about the future might bring maybe this means equity of app doesn't exist anymore so you can just forget about these last four days yeah yeah the question was you know where does the interest in in the history of
venture capital come from and you know I would really answer that as why is that interesting and important and I think it really goes to if we think about the the token ecosystem right now and I mentioned this a few times the presentation there are a lot of
parallels to how this is evolving over time and as you look at the rise of cryptocurrency funds we're seeing a lot of parallels to the early hedge fund industry as you look at the rise of token fundraising we see a lot of parallels to the early fundraising
industry and I think the most important thing as in all these things we're all striving to do in this startup ecosystem is to skate to where the puck is going and if we sit and look at where things are right now that's not that
interesting they're not going to stay there that's not where the really successful products and investments are made they're made by looking into the future and realizing how these things are gonna be structured in a year or two years five years ten years twenty years
and I don't think there's really a better way to think about the future than by looking at the past and seeing how those trends changed and trying to think about how those might apply in the future so for me that the interest comes
from trying to understand how the venture capital industry is gonna evolve how the token industry is going to evolve and and be people to the punch there by looking at the past and then thinking critically about the future what an interesting conversation we've
been having is about liquidity and you mentioned George Torrio's of ard sees investment in in in Dec which in 11 years later yield at a 500x return interestingly Dropbox is going public this year just 11 years afterwards and
it turns out that the slower liquidity is usually the bigger returns you get so is it a positive thing that we have this trend towards faster liquidity yeah I think it's a really interesting question as with anything there are pros and cons
to the markets moving like that and the I would say there's even setting aside returns because I think that you know the longer liquidity may lead to greater returns at the moment of liquidity but if the company continues to be successful in the public markets and you
wait out for a longer liquidity timeline you may make just as much money as if they had stayed private that whole time but there are other considerations here too and one of them for which is really big for token companies right now is
that do you want your big dollar investors to be liquid right after they invest they might get out and one of the greatest things about having early stage investors in your company is them supporting you all through the lifecycle in venture it just so happens that's
forced they don't have a choice once you invest it's really hard to get out and so you're stuck with the company through its ups and downs and as everyone here is as seen companies go through ups and downs and it's often worthwhile not often in the in the right
cases that it's worthwhile to stick through those ups and downs companies can be killed prematurely by early liquidity and so that's what I would say is the real downside of this liquidity trend is if a company has a down time
the market has a down time all of its biggest investors exit that drives the price down that can kill the company and so what we're seeing that in the token market is that even though tokens in general are liquid much faster early
investors are offering locked up now and it's probably not for long enough yet it's for a year or two years or 18 months but I think we'll see a trend towards sure the market trend is towards liquidity the tokens will be live people can buy and sell and trade and move
around but early investors will be locked up for a long time because you need that support and you need that base of investors to stay with you and support the company and in fact file coin did precisely that absolutely yep a
great example okay we'll take a couple more questions and we will have a quick break yet it's another trillion-dollar question the question was a not a problem right now but how do you do a second round in the token world not I don't have a great
answer for that question other than to to say that the the crypto world answer to that question if I were to represent the whole community is you shouldn't ever do one and the reason for that is that and this goes back to what I was
saying earlier the idealized kind of platonic form of an ICO is raise enough money to release this network release the network and then it is not yours anymore it is the world's and and you may be incentivized by you know Holdings that you have of that token to continue
developing it as the as the network developer but you're no longer in need of the company having money and so the the argument that people would make is that in this perfect world you you just don't need to raise again you raise enough to launch it you launch it you
put it out there you develop it over time or at some point you might give up on developing it and someone else takes it over or someone might fork the network and start a new trend of it but at the end of the day you shouldn't need
to raise a second round the reality of the situation is that a massive number of token companies are going to crash and burn because they've run out of money and and their network will never really reach its potential so perhaps
there are ways where we can start to build the entrenched fundraising either scheduled or unscheduled or allow for more support for it for later raises but the ideal form does not involve ever raising again after your first raise okay do we have a last question
absolutely yes the question is IPOs icos might be similar in some ways but with a nuanced perspective of the initial price matters and how can we use what what we have learned in the IPO market to support the ICO market not causing crazy
fluctuations in price early on a couple pieces one and and this is not what you were saying but just to correct a misconception that other people have I don't think I see is there anything like IPOs I think it's a really actually unfortunate naming convention that we
have called them the same thing they're much more similar to seed fundraising that's all we drew the parallels up there between those two things i POS happen when a company's mature they have a million disclosures to make they've got revenue they're supported and and
that's just not the case with icos they're much more similar to early stage seed financing of companies recognizing that that's not what you said there are still some similarities you know and and we've gotten really good as a market at
stabilizing IPO prices for the most part there are always exceptions through a variety of things green shoes and different mechanisms around the the IPO I think that one piece that will be critical here is the divide between really two types of I SEOs there are
sales of securities which I would argue is almost everything that has been sold so far and these things are illiquid so most these securities are offered under what's called a reg d offering which is the same way most of us raise money
which means that the security is actually locked up for a year so once you buy it you actually can't sell it for a year the network might go live and you might have liquidity at that point but that's well after the IC o---- and
so the in those cases it's actually not a huge consideration you buy once you wait a while and then a market gets created and you start to sell into that market the other case is direct icos where you're actually buying the token as it is live and then immediately
starting to trade it I don't think we figured out good mechanisms for that I think there are smart things to do reserving tokens trying to support the market I think there will be investment banks built around concepts like this
but I also think that that latter class is going to be so rare because I think that what will happen is that the regulators are going to say these are almost all securities you can't just sell these tokens to anyone on the public markets you've got to treat them
properly and and when you treat them properly there are built-in protections against you know price fluctuations early on because they're lock ups on on securities once you bought them awesome thank you so much Andy thank you okay ten minute break grab
some coffee arrest you or they're still eating I can hear them in there all right who thinks we should dedicate more time to Q&A in these things anyone is it about right okay I feel like that QA could have gone on for another 45
minutes easily a lot of questions around icos in the future but I guess that's natural okay people are filtering back in so as we're concluding a course in start-up investing we're gonna focus on probably the most important aspect of being a great angel
investor and that's how to be good interestingly it's not a neutral question it's the most important question that you're gonna have to ask yourself as you have decisions to make as you do investments and things happen things always happen sometimes not great
things and you have to decide how you're going to act my good friend and partner Aaron Harris is going to walk us through what it means to be a good investor he knows a lot about this he has started companies he has been an investor
himself many times and he's been a YC partner for five years now is that right five years so he has seen thousands of companies like the rest of us Aaron you should note as you listen to him has said that experts are generally right until they're wrong Aaron
thanks Jeff thankfully I don't consider myself an expert and much I don't know if that means I'm right more wrong more but alright so let's get this started so when Jeff and I talked about this idea of doing a session on how to be a
good investor I thought about it for a while and realize there's actually a definitional challenge here in questioning what the word good actually means in the context of being an investor and one of these is really obvious you think of good investors you
think of people who make lots and lots of money right you generate returns that's the goal of being an investor that's what we expect when we hear someone is a good investor but in startups particularly there's another definition that I'd argue is actually
more important than just generating returns and that's in your reputation now it seems a little strange that reputation is something we think about because when we think about investing we tend to think about money because you
give money to generate returns that's about that's how markets work right that's taking risk but reputation actually drives your returns when it comes to investing in startups and here's why in public markets it doesn't matter who you are you can buy the stock
this is why a lot of hedge fund bosses are doesn't matter they make lots and lots of money no matter what they do and so you hear ridiculous stories about the things that they do and the way that they mistreat people I know a little bit about this because I
worked on Wall Street for four years and I can tell you that inside of a standard investment bank where many of my friends worked and where I worked we never really thought of the people we worked for as people we liked or wanted to hang
out with they were simply good at doing deals and making money and the same is true across the hedge fund world but it's not true when it comes to startups and that's because this isn't an open market and the supply and demand of investors to good startups aren't
matched in an opening exchange there is nowhere where you can go and buy access at your discretion in any startup that comes out of YC now obviously this is changing a little bit when it comes to IC OS but even in IC OS if you want to get in on the pre sale or
the pre presale or the pre pre pre pre pre sale you're going to have to know someone and I've watched the way these networks have developed even in that space and what you see happening is people with good reputations get the
best prices and get in on the best and most oversubscribed deals this is particularly true for hot companies for the good startups the great startups this is a little tricky because as people have talked about this week you don't really know who the good ones are
ahead of time and often a rush of investors towards a startup is a contra indicator of that startups long-term success however you have to go with what you can see at any given point in time and if there is a deal that you want to
get into you need to find ways to advantage yourself to get into that deal and that's why you need your advantage when it comes to investing in companies and I think that that advantage is primarily a function of how good your
reputation is here this is how this kind of works being good is directly correlated to your deal flow so let's say you get your first investment what's your job with that investment as an angel well because again these aren't massive public companies that are immune
to your help your goal as an angel investor is to improve the likelihood of that startups success can you help that company be really really really good yeah I forgot to advance that sorry if you can do this if you can help companies do better the
founders will talk about you there just aren't that many founders in the world who are completely unnecessary so if there is a rumor out there that you're really helpful then you'll get more deals and if you get more deals then you'll have more opportunities to help
companies succeed and if you help companies more companies succeed then you'll see more deals it's recursive loop as you do this more you get better at it and more companies talk about you of course the opposite is true if you screw this pattern up if you're seen as
someone who hurts the companies then your deal flow will dry up I know this very very well because I had investors who were not very good to me who did things that I would consider to be bad they don't get many invitations to demo
day I think L odd said yesterday that there was an investor who like tried to screw him on his acquisition or his sale of his company and Jeff was his quote I'll never work with him again yeah founders have long memories and startups are a small world so remember
this this thing reinforces on itself in either direction and it can happen very very quickly so if you want to do this thing if you want to be good if you want to increase the likelihood of success of companies and get more deals how do you
do it in my mind there are four places at which you have the opportunity to demonstrate that you are good to a founder through the course of and through an investment and those four stages are before you make the investment which is in sourcing your
deals during when you're meeting the founders for the first time and negotiating the terms of your investment as you transition into being from being a pursuer to an actual investor or from an investor into a shareholder which is
closing the deal and then after the deal is closed which is your ongoing relationship with the company at each of these places you have the opportunity to become helpful and to become good so let's go through these one by one how do
you source deals well what do you do it's important to find out good places to locate investments I highly recommend demo day will bring out about a hundred and fifty companies all in one day you can do all of your sourcing for six months at one demo day
but you know that you want to try to get an edge in that relationship and so what a lot of people do is they'll start emailing founders they'll find a list they'll find a founder who knows a founder who knows a founder who knows a
founder who's brother heard that a founder was in YC and they'll email that person and maybe that founder won't respond because they're busy and then the investor has a choice and it's a pretty stark choice they can either a respect the founders decision that they
don't want to talk right now and politely email back and say hey I know you're busy is it okay if I keep following up and find a time when you're not so busy to me that's great or they can start pestering the founder they can start stalking the founder and showing
up at coffee shops they can drive around the circle here on pioneer Way hoping that a founder comes out of the building such that they can talk to them these things have happened we've had investors literally hanging around outside the
door in the hopes that they'll find some founder that they want to meet don't do that not only is it creepy it's unlikely to endear you to the founder in a way that will get you the deal that you want and this is weird because you think oh I
need to be persistent I need to do everything if I do everything I'll win I'll get the deal that's not how it works when the company is need capital they tend to go looking for it if you do end up sourcing a deal and you make that first contact and you go and have a
conversation with someone there are some pretty easy etiquette rules when you meet with the founder the first is you need to respect their time do not ask for a three-hour meeting for for a new company if the founder says yes I can meet keep it to half an hour if the
relationship is good if things are going well then you can make it more than that if you go out for coffee or a meal you pay my friend Bubba maracas who was one of my angel investors and has also been a professional investor for quite a
while gave me a great rule of thumb if an investor meets with the founder the founder pit the investor pays if two investors go out whoever has the higher AUM pace I think it's a really great rule of thumb and I use it all the time and you should do this
because it doesn't matter whether or not the founder is wealthy or poor it doesn't matter whether or not the founder owns the coffee-shop you're in it doesn't matter if the founder bought really nice avocado toast and all you
got was a cup of tea you are trying to be good to this founder and show that you want to help them and if you're discussing the idea of giving that founder five ten fifteen hundred thousand dollars what the hell is a price of coffee a cup of coffee right go
the extra distance to show that you want to help that founder they will remember it and they'll tell stories about you if you don't now meeting and negotiating again respect the founders time right so in that meeting when you're talking to
them as that conversation develops you're gonna ask questions and they're gonna have the answers to some of the questions and they're not going to have the answers to other questions that's okay in all likelihood it's a brand new
company that doesn't know all the answers and if you expect them to know everything you will be sorely disappointed and the founder says no to a question or says I don't know it's okay to ask once or twice in slightly different ways to see if you can get the
information but don't ask 15 times this is a way to certainly annoy the founder and probably push on something that they might wish they knew but might be completely irrelevant when you're speaking to that founder focus on the founder this is really hard to do in
something like a cocktail hour after demo day where there's all these other founders going around any of them might be starting a multi-billion dollar company and so what you do is you're talking to someone you're talking you're talking
who who's that over there can I and you sort of start walking away as the persons talking to you this is just basic human conversation stuff which people often get wrong don't do that focus on the person you're talking to give them your time because they might
be an incredible founder and you might want to get into the deal and they will remember if you were a jerk to them now when you're discussing what it is you want to invest you need to understand the terms understand what you're asking
for what it means and what's okay one of the challenges here is that a lot of this stuff is pretty opaque which is why we're doing investor school we're talking about what each of the terms in a safe means what a cap is what a liquidation preference is by the way
don't ask for those in angel investments I saw an investor just last week agree to terms with a founder a standard safe they were going through the motions okay sending back and forth oh we send you safe okay great great great and then the
investor sent back an email hey just one last thing and listed ten demands including a board seat 2x participating preferred dragged along rights right to block a sale I can't remember the other ones and the founder came to me and said
what do we do we had an agreement you know for all this money which we do I said walk away there are other investors out there and this is a bad investor and enter it your friends right it's pretty open secret that YC has an investor
database this information goes into the investor database and those investors don't get a lot of deal flow afterwards when you're in this negotiation it is natural for one side to have more leverage than the other that's fine
that's how negotiations work understand where the balance of leverage is use it wisely and don't push it too far this is something that will come up again and again in your relationships with with founders there are always unexplored pockets of
probably that you could get if you pushed beyond what seems appropriate it seems like the right decision in the micro it's the wrong long-term decision because you're trying to do more than one deal over time and it is unlikely that any small thing you do that a tiny
tiny bit more ownership that you get in one deal is going to be the difference between greatness and badness over the arc of your career as an angel investor always negotiate in good faith if you say you're gonna do something do it and
if you are negotiating with someone do it with the intention that you're actually negotiating for a reason one of the worst things that fat that investors do and we tell all of our founders about this is to avoid investors who are negotiating to the point where they can
find out if other people are investing and this is this weird thing they'll say oh yeah you know I want to invest it and that this term in this term oh who else is investing nah it's cool no just tell me like what else can you tell me and
they will only make a decision if they see a lot of other investors have come in this is terrible idea for two reasons one groupthink usually leads to bad decisions and two as I've seen again and again over the last few years some of
the best companies that have come out of Y C's demo day have been the ones that didn't attract all of the investor interest and it's the investors who think differently and go against the curve and find the things that they genuinely find interesting regardless of
what other people do they find not only companies that are going to do incredibly well they get in at better prices and they get more ownership and we remember that remember the smart founders I look back and I say oh wow those guys are a lot smarter than I
thought and I start to send them things I say hey you should look at this one it's a lot like this other deal that you did other people are not smart enough to look at this but you are that's great that's the position you want to be and
finally when you do finish a negotiation and you do agree to something I don't care if it's a handshake I don't care if it's verbal I don't care if it's in an email or a contract your word is your bond this is something we drill into our
founders if you agree to something that agreement is final I understand that there can be circumstances in which something wasn't revealed which there's material new information that changes the agreement that's okay but do not break a handshake
everyone will know it will not stay secret and people will understand that you are not someone to be trusted and you're trying to start a trusted relationship let's see you finish negotiation you're all done everyone's agreed everyone's happy
what happens next as soon as you agree to terms say to the founder great can you send me Docs if the founder is slow in sending you Docs follow up and say hey can you send me those Docs this is when it's okay to be pushy you are a shareholder now where
you should be get the docs signed and as soon as you sign them send the wire don't even get up from your computer use hello sign or Clerke or whatever you're using sign and immediately open your goldman sachs wealth management account
i'll call your guy that smith barney that stole thing no okay and get them to wire the money to the account as soon as possible and as soon as you do call all your friends who also are trying to figure out where to put money and get them in on the deal bring a coalition
bring a syndicate with you bring really helpful investors as the founder needs to say hey Aaron thanks for letting me put twenty five thousand dollars in I know you guys are trying to raise a half million more I have five people who I
worked with or who I know who are awesome for your business for this reason this reason in this reason they typically invest $25,000 of fifty thousand dollars a piece can I get them in as the founder says yes immediately send the emails make the phone calls and
bring those people in everyone remembers that and this is the reverse of saying hey let me invest and I'll figure out money late like I promise I'll find you some other people but I'm not gonna invest until they come in you invest first you lead and then
bring the other people in that's a great way to set off your relationship on a good foot on a good foot and then get the hell out of the way there's this thing that investors want to do during a fundraising process where they've
invested they now feel as if they are the CEO this is particularly difficult for people who have been CEOs or run groups and they say oh great I've invested hey I did a a teardown of your product it's broken here and here and here also the way that you wrote this
thing on your website is bad I think the periods in the wrong place and they just start sending emails and these emails are incredibly frustrating because the founder is trying to close it around and get back to work and now you're
distracting them with all these things My partner Dalton refers to this kind of investor as a human DNS attack well they just like overload you with all these requests and they just you just you can't do anything anymore because your
email is just filled with all these requests and all these things and all these orders and so don't do that right sit back and wait for the founder to reach out to you and get to the point where you can start helping because then oh actually sorry two quick stories
because I think this is pretty awesome I'm the best transition from kind of wants to invest to shareholder that I have seen there's an investor that comes to demo day who meets with founders does a handshake on the floor leaves like
within five minutes of demo day ending and then literally sends wires from his jet as he flies home that night and for a while we thought we thought this like wasn't really happening we didn't understand that this founder was legit
this investor was legit and then a couple of our companies so this is gonna sound weird but we sent this guy as safe and he said he was flying out but then we got the wire and we tried to respond and his assistant said sorry he's
already he's in flight he can't respond whoa this is pretty cool this guy's really moving fast he's following all the advice about closing quickly that's great the opposite is an investor I know of who committed to investing in a company worked really really hard oh I'm
gonna be so great and it was a big check I think was a million dollar check or something like that I'm gonna be so good for you and for everything okay cool awesome and then you know he signed the docs and then the founder said hey where's the
wire nothing founder said hey where's the wire nothing hey where's the wire a week later the investor got back said oh I'm so sorry about that wire my fund hasn't closed yet yeah so can you hold that open for me and the founder said no that's ridiculous
I need the wire you agreed I'm gonna kick you out so the investor tried this said okay hey I'm sending you a check in the mail can you do me a favor can you put it in your drawer just hold it there for I just in a couple weeks and then
you can cash it Wow this is terrible for so many reasons one never commit to invest money you don't have to this person convinced the founder that they had the money to invest the founders stopped talking to some of the other investors that were interested
so didn't get the money from the investors that were interested is now waiting on money that doesn't exist and care really necessarily go back to those original angels that were interested because they're in this weird legal limbo where they signed the thing and
now they don't have the money that's a blacklist of all offense right if you start making promises that you literally can't cash that's a really good way to destroy your reputation there's the final part being good to companies on an ongoing basis now a
bunch of the other speakers over the course of the week touched on this about the kinds of advice that you can offer how you offer that advice the cadence with which you do it and I kind of want to keep this high level in terms of
thinking about your relationship with a company as a relationship and as an ongoing relationship that builds and deepens over time and this isn't actually going to be true of every single one of your investments that's a fact if you are lucky enough to make
more than one investment chances are one of those or many of those you'll never hear from very much again hopefully they'll send you investor updates and there'll be things with which you can help but some of these founders just won't need you or maybe
won't believe that they need you and it's not your place to force your way in founders will ask for help good founders will ask for help when they need it the founders who disappear on you it's not worth your time to chase them because
honestly they're probably not gonna do very much we've noticed that founders who send monthly updates every single month tend to outperform founders who disappear for six and twelve months at a time and it's this thing about understanding transparency and
understanding how to keep a relationship going right because this is a two-way street and the founders who will understand that tend to create better outcomes those are the people I like to work with there are things you will learn as an
investor that will be secret investor updates qualify as this and you need to help a founder realize the difference between private information and proprietary information or confidential information and proprietary information confidential information is revenue
numbers headcount burn balance those things are not to be published freely but honestly don't make the difference between the life or death of the company you have no right to share them without explicit permission but it's okay for a
founder to share it for you and it's okay for you to ask for that information it's not okay for you to ask to look at source code on your own computer at home potentially with a competitor over your shoulder that's not okay and so you
shouldn't ask for it and if a founder tells you they don't want to give you that kind of information respect it part of that is knowing where you are actually helpful I have felt this a lot where I want to help companies in areas I don't understand
and it's this overriding urge when someone asks you a question to answer it to the best of your ability and it's very easy as the person with money and experience maybe to treat that as license to advise on any question that gets asked of you
resist that urge when you do not know the answer to a question do not answer it say hey I would love to help you on this but I can't I really can I know some people who might be able to help would it be okay if I ask them the question that's a way to help your
founders and when you do know the answers help offer that help offer the advice offer to show up at the office and walk them through how to do something offer to get on the phone if you're not willing to get on the phone with a company that you've invested in
you probably made a bad investment we've done a bad job choosing so think about that and look at the ratio of companies you've invested in that you'd be willing to take a phone call from versus the ones that you're not it's a good
indication of whether or not you're tracking above all things and this is a an important thing for me and I think it's important in the ecosystem overall is you need to be honest a lot of founders will ask hard questions and your instinct will be to shade the truth
or to say hey it's not going that bad or you know don't worry you shouldn't have hit metrics this month anyway because you had a cold or no there's a totally fine way to fire someone founders sometimes need to hear hard truths and
sometimes you need to hear hard truths and if you're not honest with them they won't be honest with you they won't tell you when they don't think you're doing a good job if they don't think you're doing the same for them and as you are
honest with people honest and fair people will respond to that and you'll get better information this is something I always really appreciated from PG where any conversation I have with him he is completely honest with me about where I stand what I'm doing right and
what i'm doing wrong and because I know that he is doing it in our shared interest it never feels like an attack and there's again this thing you want to do where you're so smart you have money I'm gonna like attack you for this thing
you're doing wrong and I'm gonna drive at home just cuz just prove how wrong you are and how right I am that doesn't help people react super badly to that just be honest and direct and kind and finally respect the limits of your influence and your
rights in any given situation don't go to the place where you start trying to make the decisions for the CEO when you're a small shareholder don't try to influence the board don't go calling the board behind the invest the founders back because you think they did
something wrong it's probably not your place except in really extreme circumstances or the founder is committing fraud and won't admit it right but proceed cautiously in any of those situations there is one right I do want to mention that is often a point of
contention between early stage investors and later stage investors and founders I see this a lot because I run our series a program where I take all of our companies that have received capital and when we're ready for their series days
we train them up and would try to help them raise the best possible series I and the point of contention ends up being around pro-rata rights if you're not familiar with what they are welcome up there one of the most valuable rights that an early stage investor can
negotiate for and then an early stage investor can get and what they basically allow you to do is continue to invest in a company in future rounds such that you're not diluted should you have the capital to do that now this thing
happens where in later rounds founders will go out and raise money and their later stage investor will say well you want to raise ten million dollars we want all ten million of that round so screw your early investors it's not great and the founder gets put in a
really rough position especially if they didn't account for this ahead of time where they don't know what to do and it's very easy in this situation if a founder emails you and says hey I need you to cut back your pro rata rights
because we have Sequoia on the other side or Excel or whoever right that's a lot of pressure and usually it's actually coming from somewhere in the middle a partner at Sequoia didn't say cut everyone back it usually got lost in translation through a lawyer or
something and the founder interpreted as a directive and they come to you understand that they're not trying to kill you they're probably not consciously trying to hurt you and be reasonable with them but I think it's okay here to be firm and say look we
negotiated for this you agreed to this I need my Ferrara here's what it is and if it's a situation where it's really too much where they can't give you your pro rata be understanding right and figure out a way forward that's good for
both sides and remember that every once in a while you have to subordinate your financial best interest and again a specific deal for the greater good of your long-term career as an investor couple of things that good is not good does not mean smart in any way it's not
the smartest investors that make the most returns and it's not the smartest investors that are helpful you know dumb money in smart money are kind of both money to founders they make the Machine go and what I found is that investors
who know which camp they fall into can both be good so-called dumb money you don't know much about startups you don't know much about investing but you try to be helpful you give capital when it's needed you're honest you move quickly that's a good
investor in my book and I would be happy to recommend that investor to any startup that asked smart money investors who have built that kind of business know how it works also really good or can be really good and both of those investors can be bad by violating some
of the rules we've talked about good doesn't equal big checks some of my best investors as a founder were some of my smallest checks they were the people willing to get on the phone and some of my biggest investors like Sequoia
we're also some of my best investors it all depends on the relationship that you build and how you go about it and good doesn't even mean famous you have probably never heard of some of the best angels in YC companies you've heard of some of them
hi Ron he's great but there are also a lot of really really great investors you've never heard of who founders know about who we know about so don't read the paper and say oh this angel was just involved in that deal that must be a great deal he must be awesome she must
be awesome she must be the best remember that it's not about fame it's about helping companies and getting into good deals and if you do that if you are in fact good hopefully good actually yields returns that's our hope that's what we
like you all to be able to do and we'd like to be able to help you do that Thanks okay q-and-a any questions so what can you expect as well as an investor what can you expect in terms of governance from a seed stage company and
what should you expect in terms of investor updates so on the governance side most seed companies do not have external board members it's usually one or two of the founding team are kind of a board and they approve things like options grants but there's no one
outside and that's just sort of the nature of how the system works I think that's generally good because I think that boards at that early stage are more hindrance than help and I think that starts to change when a company has
raised summer between four somewhere above four million dollars of raise that's when I actually advise companies to form a board whether or not an investor has a specific right to do so and will do in some of these cases as we'll kind of form an informal board
with them and I'll sort of sit down with them once a quarter to make sure things are on track if there are things that you think are being done that are explicitly bad from a governance perspective bring it up and discuss it
when it comes to investor updates I actually wrote an essay about this called investor updates that outlines how to write a good one it should take about 15 minutes if the company knows what it's doing it's a little different if it's a pre product versus post
product but this thing the the basics of it it should have revenue it should have growth then should have burned should have cash balance should have what they need what's going well and what they're struggling with 15 minutes a month maybe
20 or 30 and every month a seed stage company because if they're not sending at that often it problem means they're not making that much progress there's a tendency worth some companies will say oh well I'm too busy I'm gonna do this every six months what I tell them is the
reason that's bad is their investors will forget about them and it is not bad investor behavior to prod your founders into good founder behavior it's not a good idea to exhibit bad investor behavior because you're good fun your founder has bad founder behavior but you
are well within your rights to request your rights there was a question back here so the question is about reputation and how the reputation system such as it is sometimes breaks down the question are knows of investors who have actually
treated companies bad but seem to have a good public reputation how does that happen and what happens I think no reputational system is perfect certain very people with very bad reputations get I don't know elected to high office never happened never I think that's true
all through history honestly I think that this space is fairly small and it might take a little while but that word usually gets around but there's always gonna be a few bad apples that I think will probably continue to squeeze into
deals here and there the thing that you don't know and this is really tricky you have no idea from the outside what kind of allocation that person actually got so I've seen people put on their Twitter BIOS and in AngelList and on LinkedIn
that their investors in some wildly successful company and I know that they bought a couple thousand dollars of secondary at a massive round and they hold themselves up as being brilliant angel investors who caught it early so [Music]
you know so um I actually think I know what happens there and it sort of sucks but there is a power asymmetry and it is difficult for a founder to want to take on an investor who's more powerful than them even if they're being an and it sucks one of the advantages of
being a YC company by the way is that we stomp on people who do that that that we you know we're we're lucky enough to be in a position where if you screw with one of our companies they will tell us and I don't care even if you're on
Conway although he never does that he never does right the most powerful angel there isn't he never does so you that sort of reputation does spread throughout and I would also argue that secondarily that it'll never last
because eventually people who are treating companies bad like politicians who do bad things it leaks out that's because the information asymmetry that used to exist doesn't really exist anymore and word will get out so sorry you're you're a little quiet
there but you're asking about losing pro-rata rights okay so what happens when when your pro-rata rights are taken away from you so Jeff and I have actually both written about this because we both think it's it's a pretty bad thing when when companies go back and
reduce or remove pro-rata rights from investors who have bet on them early I don't have a good answer honestly I think it's kind of crappy I think you should fight it to the degree that you can but no your strength in any of those
situations and know how like how to fight and how far to fight on it and at the end of the day you might get screwed here and there and hopefully that is not the end of the story right so I think the message throughout this course and
especially Erin's presentation is don't be penny wise and pound foolish if you've invested in a fantastic startup that you really want parotid and don't get it you're gonna make most of your money on the original investment and so like you should not ruin your reputation
or in any way ruin the chance of that company getting a deal if that's what you're being told however it sucks if you have contractual pro-rata the YC safe gives you contractual pro rata in all rounds except the round that it
converts in and if the founder who you believed in before anyone else takes that away from you well that merits a conversation at the very least and by the way most of the time when this happens it is not the founder doesn't even know and if the founder did know
they would put their foot down because it's up to them I'll talk a little bit about this at the very end but I do think that this the process of taking away pro rata z' that are contractually agreed is is is not a good one and why it happens it's complicated it
can be a pain in the butt for to have to like go around and figure out what your pride is with everyone is but if you've contractually agreed to it well that's a promise right and sorry one last thing for what it's worth there's there is
something we do for all of our companies now as part of our series a process we proactively model out for them what Piratas look like and evolution looks like in different scenarios such that they can plan for it ahead of time because I think the thing that we saw
happen was basically people just didn't plan and they agreed to things they didn't realize the implications that's usually why I found her has gone back and tried to change it and if they have the information ahead of time there
usually they will usually protect their angels not all cases but most often yeah so the question is is it reasonable to ask for things like Parata and a side letter especially if they're not using the standard safer even if they are using the standard safe which does not
give you pro rata and then converting around what's reasonable to ask for where should you draw the line so this goes back to the point that I was making around during negotiation know what the terms are no what's standard and know what your
leverage is I am of the negotiating school that it never hurts to ask for things that you think you deserve and you think you want if those things are standard right or if those things are within the realm of expectation and then
know how much leverage you have to push on it I think pro rata is a pretty standard thing I think it's normal to ask for it something that I always want if I make an angel investment because I believe they're valuable and I think it's the right thing to do that isn't
true of 2.x participating preferred now what I have seen is some angels will push their leverage as far as possible because they know a company is def or desperate and they'll get things and okay they won that skirmish but they will lose the
overall war yes so the question revolves around the sort of two sides to the reputation markets one side is with founders and one side is with your fellow investors and how to think about times when perhaps those two things might come into conflict so I I
actually don't think there are that many situations where those two things are in conflict I think one situation in which it could be in conflict as this thing you're mentioning where an investor asks you for a recommendation to an investor
and you don't feel so comfortable with it so in a situation where you're not an investor in the company you're just talking to them you say you know I really only feel comfortable recommending companies that I invested in that's the way you get through that
one and if there's a situation where a founder asks you for a recommendation to a company you don't feel comfortable with it this is the thing where I talked about being honest tell the founder hey while I would love to be able to recommend you I don't
think this is the right fit for this in this reason and if they're super super super persistent say no please just do do it do it do it do it do it you know there's introductions and there's introductions and there's recommendations and you know make sure
they know the kind of recommendation they're getting and the kind of introduction and be honest with them about it okay we're gonna take one more question because unfortunately Ron has limited time so this will be the last one
okay the last question is kind of a tough one it's about how founders communicate what their cap table looks like as they come and talk to investors and solicit investment do I have that right so I think it's normal for an investor to ask for a cap table and I
think it's fine for founders to show them the cap table that's pretty pertinent information because it yeah so asking more than just what the cap table is but what sort of agreements you have you know again this this question sort of revolves around
how much due diligence should early stage investors do and I know I do think it's fair to ask about those things I would argue however that it will almost never have an impact on whether you invest or not the cap table might if you
see wildly strange equity splits that's not a good sign for companies in fact we asked about it at YC we don't tend to ask so much about founder agreements cuz imagine like would you not invest in Dropbox or Airbnb because of some
founder agreement that you found suboptimal but you might do as an investor once you're an investor is give advice as to what sort of founder agreements might make sense in the future in general your due diligence as an early stage investor is pretty
limited and in fact it's easy to tell a bad early stage investor because they ask for too much say you know what are your pro forma income statements over the next three years really like this is this is a company that is trying to
figure out how they're gonna get revenue you're asking for the wrong information that will not help you make a decision so um Thank You Aaron [Applause] okay alright so that was a I think a fantastic survey a summary of how to think about what it means to be a good
investor Paul Graham actually wrote an entire essay about what it means to be a good investor with Ron Conway as as the subject of the essay so the guinea pig yeah he was the the guinea pig and so this is a I think for me the perfect way
to to put a wrap on this course I'm gonna have a brief conversation with Ron we'll take a few questions unfortunately he does have a hard stop so he can't hang around and that's that's actually too bad for you because I've learned most of what I've learned about angel
investing from watching Ron and from I'm from talking to Ron he's an incredible resource but the there's a lot of resources out there that that that that Ron points to for how you learn about doing these things in fact there's a reading list that will be on the website
that that SV angel and Ron recommend for how you learn about being an investor teach yourself so Ron by the way since I've had a quote from everybody I have a quote from Ron - Ron said referring to entrepreneurs you can't learn to be
ambitious and driven and I think that's like something I keep in mind every time I talk to entrepreneurs I think entrepreneurs can become more formidable but if you say maybe they'll figure it out and they'll be there'll be they'll eventually work hard and be driven
that's probably not the investment you want to make run has been angel investing certainly since before some of you were born and before I even thought about what an investment might look like can you describe a little bit how you got into
that sure I'm honored to be here I'm a born in San Francisco raised my kids in Atherton then moved back to San Francisco but my first job was at national semiconductor and a few folks from there went off and I went with them
and I was a founder at Altos computer and this was a micro computer in the late 70s that was disrupting the mini computer industry all innovation is around disruption you're disrupting somebody and at Altos our lead board member and investor was Don Valentine
who was the founder of Sequoia Capital and he and I took a liking to each other and after we sold out those two Acer Don suggested that I go observe board meetings with him and start mentoring founders and consider angel investing I
loved the leverage of giving founders advice and quite frankly not having to do the work I did the work at Altos and found out I didn't like managing people that I was a much better mentor and so in 1994 I decided to start investing full-time and the best investment
decision I ever made was to invest just an Internet software which in 1994 that was two years before Netscape was even founded and you see how huge the internet software industry is today what what insight led you to that I mean
there was you know everyone was in investing at the time in semiconductors and and hardware enterprise often price software what what strange epiphany did you have that made you go that sector I teamed up with Ben Rosen who is then the chairman of Compaq and
all we did is think about what what is the mostess of Industry on the horizon that will grow by thousands of percent a year whatever industry that is that's the industry what we want to be part of so it was driven by growth and growth is
the lifeblood of innovation a lot of folks here have asked questions about like so how do you start how do you get deal flow how did you guys how did you in the beginning get deal flow well it was easy because back then there was only about one Internet company being
founded per month so we would literally just look for any internet company and for two years we talked to every single Internet company how many other angels were there at the time I guess 50 but but I asked Jeeves and PayPal were two of our our first
companies that we invested in that that we got excited about and that that kind of started started the trend and an anti-spam company called bright mail remember well what what was it about Ask Jeeves and PayPal that convinced you to
write a check all the four four SV angel it's always been the character of the founder we invest in the founder first the idea second so at each of these companies we were impressed with the founder today it's intuitive within five
minutes I can decide if I if I like a founder or not back then it took you know a one or two hour meeting to figure out hey do we like the character of this founder the integrity of this founder but it's the person first the idea second so I sort of had a question you
know you put a lot of thought into into what you like in founders and I know I know you guys have a whole whole whole thing on that back then you have to meet for an hour or two when you actually sat down in weather with Ben or all by yourself and decided to
invest what broke the tie what actually mattered the most to you what probably mattered the most was the determination of the founder because these founders don't know it in the beginning but starting a company is the hardest thing
you'll ever do and that's why we have such admiration for founders and are advocates for founders and if if a founder is determined we know that he or she will see it through that that they will try every every trick in the books
to go build a big company to recruit the best team and that takes a lot of fortitude so a lot of it is is the passion the you know the leadership qualities that we think that that they're possessing at this early stage but it's really the determination and
goal driven I think a Mark Zuckerberg and then you met suck like Waverly we met suck when he was 19 years old the summer he came out here that he was supposed to go back to Harvard and never went back but he was very very driven and he was driven by metrics and user
experience that's all he cared about he didn't care about getting his name in the paper or or anything else that's the type of founder that that it immediately hey this this person's gonna build a successful company by the way since we
do have limited time if anyone has questions as we go along feel free to just raise your hand and we'll we'll try to fit it in if you look back at the dist hundreds and hundreds of investments hundreds and hundreds of
decisions some of works some haven't as you look back without naming names what have you gotten wrong like what when when have you looked at founder and said I've got this is this is a founder in the SV angel mold and and been wrong about it and why yeah
one thing that that I want to bring up is keep in mind forty to sixty percent of every company you invest in is going to completely go out of business so failure is part of the angel business model forty percent actually are pretty damn good that's our
failure rate if you get that we've been doing it for twenty five years in the beginning your failure rate will probably be probably be over fifty percent that's part of the business model don't be upset about that you know lots of Angels after their first company
goes out of business they drop out and I'm like what are you talking about failure failure as part of the experience you have to often than not just so we're clear you will write a check and never see that money again it's gone forever
yeah and that's why that's why the winners have to win big they have to pay for the losers that's that's how it works in angel investing and now I forgot what you asked so yeah so the the thing is that there's a lot of investments you make where you say that
you know I took my shot but sometimes you can look back and say I should have known what what what when you look back at at at at some of the ways maybe you you're your criteria were wrong or you misread the criteria or they something
happened well what goes wrong out of 750 investments we have three founders literally that they were crooked they belong in jail so it's bad to invest in crooks so that's it and but that's pretty low that's a low that's a low pretty low number but but pay shame on
us a lot of times it's that the co founders don't get along we didn't predict that and co founders not getting along happens a lot and it's something that you really have to grapple with because usually one of them has to go
and that is very very hard to predict but we do look for that now that oh these founders don't get along you know we don't want to be the divorce lawyer again how can you tell we're in the company we are the divorce lawyer we have to get involved that's
fun right well hey you got you got to do it it's part of it's part of the experience how do you how do you judge whether founders are gonna get along or not you just watch how they interact when they're making their first presentation you
watch very very closely does each one have their own turf and what they like or does the engineer hey that engineer he's gonna feel like he's a marketing guy someday well guess what that's gonna be a problem someday for that company it does sort of get to the point that it's
sort of booths angel investors to see the whole team for sure you should at founding it's easy there's only two or three of them you you should meet everybody on the team when I went to Google eyes I saw Larry and Sergey going in that that's how our meeting was
there's only five people there but going out the door the operations guy was cell our common gar soul our common gars the guy who who figured out the business model he figured out the entire AdWords model and at the time he was you know an
Operations guy and and I stopped at the door while I sat down with him and he was so young-looking I sat him down I said do your parents know that you're here and and he said no and I said so where are you at school I'm pre-med at Stanford and I said boy are they going
to be pissed he never finished he never got his degree he's very happily retired right now but yes definitely get to know everybody in the building get to know the assistants get to know the culture if you can get a feel for the culture of
a company you'll feel much better about the investment question over here okay this this is a good I'll repeat the question post investment what's the biggest value you add for your portfolio companies in addition to general mentoring initially
it's introducing them to other members of the team once the company starts to take off they've got to hire engineers marketeers salespeople and helping them build out that management team is the biggest thing you can do if they need
partnerships to build traffic if they need distribution then you know we introduce them to our contacts at Apple Twitter Facebook Google the beauty of it is a lot of these companies we helped get off the ground so when we introduce
somebody to Google a lot of times we're introducing to somebody we placed at Google but but these founders need help building the team and getting distribution for whatever the product is in addition to all the day to day mentoring that we give them and most of
the time lately it's getting them to get off their asses and make decisions and execute there's a wave of procrastination going on in start-up land right now that's making me crazy it's it's my pet peeve so if you see a founder
procrastinating you can help them by saying hey you can't build a big company by procrastinating you got to make decisions even if it means making a mistake and move the ship forward I'm spending a lot of time giving that lecture today and some of them are
companies with a billion dollars in sales thank you but they could be 10 billion if they made decisions quicker getting this right is really important I remember I was actually doing this kind of talk with Ron once and someone asked
a question and you know Rhonda mirrored a little bit so I it was sort of saying what would we do in this situation I sort of explained well you know if you run it you know I did a little office hour thing I was if you're running the company do this and Ron sort of looked
at it and then and after I finished my little spiel he said well as an investor I try to let my founders run the company I'm just saying run run it fast or make decisions right like so it's a much you have to be careful of the kind of advice you give
because it is not your company to run and if you think you're gonna have to run the company it's probably not going to do that well because you're probably not gonna spend that much time with it how did you get involved with YC funny
enough Chris Sacca introduced me to Y Combinator and it took some convincing because I said oh another accelerator but the first time I ever came to YC which is now well over ten years ago I I looked at Paul and Jessica it's all
about the people everything in life is about the people Paul and Jessica were picking well they were screening founders well and then the advice that they were giving them was so impeccable you knew that group of founders was going to be successful and that's why
why see today is head and shoulders about ahead of any accelerator the second-best accelerator is like ten floors down thank you and it's because the because of the screening process and the advice and mentoring that they give founders did not pay him to say that but
it's it's true so there's a bunch of investors here who some of them have investors who want to invest if you're going to give advice one or two bits of advice to a new investor say for example a child of yours was gonna get into
investing just say what what's the and you had just a little bit of time here what's the one or two things you would you would say I I'm in favor of the portfolio approach so I pick a sector that you like hopefully it's the sector
where you have domain expertise and in that way you can add value to the companies you invest in because you know the space well and I would invest a little money like 25k each in five or 10 companies so that you have a portfolio many many investors angel
investors that I know they invest in three companies a year one of them goes out of business oh my god one-third of the portfolio went out of business this is this is the so I don't want to do it it's because well you know three investments isn't enough there's this is
very risky business you should spread it across ten companies 25k each hopefully one of them hits and then you're playing with the house money for the rest of your career which is basically what I've been doing with the house money that's
the goal start small yeah and and get to the point where you're playing with the house money how long did it take you Ron to to figure out you were good at it and did you use any metrics to measure yourself I did not use any metrics we
just invested away but within within two years Ask Jeeves went public and Ask Jeeves it was a big big win so I that was a metric I said yeah yeah the metric is wins there's no doubt about it and you know once you get a win and you're playing with the house money then you
can focus more on adding value to founders being an advocate for the founder and not worrying about hits anymore the the lucky thing about SV angel every fund we've ever started early on we've been able to identify a hit and in our own mind the investors
don't realize it but in our own mind we know hey this funds gonna be okay it's gonna be a moneymaker and let's just go about our business and add value and help founders if you keep helping founders and building your relationship
network so you can solve more problems for them you'll you'll be successful you you may have just answered this but I want to return just briefly to what we started with so Paul wrote it's a theme we've come back to several times here but Paul Paul
wrote the Ronco principle using you as an example but to point out that that actually being good wasn't a personality aberration it was a strategy what does being good mean to you well I think giving back to the community and being
civically engaged is part of being a member of a community and today more than ever we should all be civically engaged while we're angel investing you can do two things at once and you can courage founders to be civically engaged locally and now
especially nationally and right now I'm drawing a ton of energy from these students in parkland Florida where we have a bunch of 17 year olds who might change the country thank you don't clap from thank you for clapping but I know you're clapping for
these students these students could change the country they're gonna have a ripple effect I hope they solve the gun mu the gun safety movement and then they go solve a whole bunch of other issues because they're all going to go register
to vote and it's it's amazing and energizing and we should follow their example I hope I hope everyone here is going to march on March 24th I'm flying to DC and I'm gonna march in the main march but there's 500 other marches and I love it that all every student in
America is talking to their parents and their grandparents about it and this is a real movement that could make change and slap some sense into Trump and his pals that is a tall order so every I'm sorry I don't have time for any more
questions because Ron has to run but one one last point everyone here is getting a virtual invite to winter 2018 demo days it's still hard to say double days instead of demo day and ten of them will actually get an in-person invite you
have any parting advice for people who are going to demo day take lots of notes because it moves really really fast but that's what I do I I sit up in front I pay attention I try not and get it described it's weren't going to be there
just who have like all these companies to listen to and every way and you couldn't listen to it remotely take lots of notes and and and be decisive but but I would try and pick a sector that you're gonna be an expert at hopefully it's related to something you already
know about and go invest in that sector rather than investing hodge-podge which is going to force you to try and become an expert if you're going to help these founders in in too many industries and one fascinating one right now is the
old blockchain crypto space if you're really ambitious focus on that as a sector because I think that is web 300 I think it's the next wave of the Internet and it's pretty fascinating but but it's a hard one to get your arms around because it's working process you really
have to study study the space thank you so much for coming in with us Ron it's a pleasure so ron has to run if you guys will just bear with me for I have a couple of closing words and then then we can start on the wine and beer so just give me one
sec I'll walk around on I'll be right back [Applause] you so the only thing between you and wine and beer is me so I will be very very quick awesome okay that is nearly it I just wanted to do a brief recap of what we covered here the we started with I
don't know if I can't remember it's been so long yeah we started off with sort of why do this I think Sam give an awesome talking about about why and and and what your motivations might be for investing and how you ought to think about what
you investing what you invest in and then we then we went and talked to quite a bit about the mechanics of investing you heard a lot about the safe you guys raise your hand if you guys think you know how is safe works raise your hand
if you've actually modeled it so all of you who didn't model it but think you know how it works you're wrong you don't and and you know that's actually not wasn't our intention the reason we we invented the safe was because we wanted
it to be quick and easy and cheap and simple and it turns out every time you do anything there are unintended consequences so we've tried to remedy that by creating tools for people to actually understand them so as you go on invest in safes please we haven't yet
but we're going to put up a spreadsheet you can use to model it you can use angel calc which is actually quite easy to model it understand what you're doing and how it works and how that conversion works you can actually see the formula
do the math figure it out we're we're we will probably tweak the safe perhaps too to remedy some of the confusion were almost a hundred percent sure when we do that the unintended consequences will make things even worse so we're hesitating but we'll probably
do do something so we talked about how we talked about how to get deal flow we talked about how to go about starting we heard a bunch from a variety of angels who became super angels who became pros some of them are still angels some of
them are are still on their own investing their own money we talked about how to make how to meet with companies how to make your key investment decisions and we talked about how to do this in a serious way this actually means a lot to me because I did
this for years without being very serious or rigorous at it and I don't really want to talk a lot about how much money that cost me it cost me a lot talked about deal flow and we talked a little bit about what today looks like and a tiny bit about what the future is
going to look like I personally believe that angel investing the way we've talked about it here will persist for a long time equity may evaporate and go away in the future but it will not be the near near future I don't believe I think I SEALs
will be part of our world and we'll have to factor that into our decision-making processes processes but so will so will angel investing I just want to repeat one of the key things that that to keep in mind here when we talk about being
good don't I'll say it again be Pennywise and pound-foolish be a good investor and that sort of leads to sort of a final a final plea before we before we do our networking and drinking and eating thing which is let's all work together to make the ecosystem better to
to add and keep consistency honesty integrity and transparency in the system we can all do our part for these things and we all win when it's this way you know one of the there's a lot of reputational downsides to being a venture capitalist of any kind and and I
believe that came because in the past it actually might have helped Vesey's to act badly it doesn't work that way anymore you've heard a lot about that and especially early stage there's no win for you and there's no win for the
companies and there's no win for the entire ecosystem Aaron mentioned that that we've both written about this I wrote a post called transparency and startup investing and I actually think part of this was due to convertible sort
of becoming the modus operandi of how people mostly raise early stage capital but we don't have to give up on transparency if you're pro rata is getting taken away you should be told and you so you can have that conversation if you're getting converted
you should be told what your conversion price is and indeed how it was calculated and you should check it and you should be given the information you need to check it i've actually suggested a form the numbers aren't don't matter a form this is on the post that you can
send when you get a conversion notice saying please sign these documents in two hours and you get four hundred pages of documents send them this form back and say sure just fill all this out for me and i'll sign and that's a legitimate
quality request high integrity request i mentioned we're going to be asking for feedback on this course i'm sure there's many things that we could have done much better and hopefully you guys will tell us what those are or just suggest to us
when we do this again how we can make it better and more useful to you or to others lastly I want to first thank all of the speakers who came and spoke to you even though it was some work putting this stuff together they did all the hard work the speakers
from within YC and without I thought they were great and I also want to thank the team that put this together Steve Pham here Ramon acquittal on camera and our video guy Craig who can wave obviously it's it's actually more work than I thought it was going to be
to put the course together and they were all fantastic so with that we are done good luck and good investing and thank you so much for joining us oh and demo day invites all that stuff will be taken care of next week thank you you