Startup Investor School: The Basics of Seed Investing

http://blog.ycombinator.com/startup-investor-school/

by sandslash • 8 years ago

230 99 8 years ago

blog.ycombinator.com

jzamora• 8 years ago

Do I have to sign up for the online version?

jacquesm5• 8 years ago

Yes:

https://apply.ycombinator.com/events/149

sandslash4• 8 years ago

Sorry about that, that was an old link to apply that somehow made it through our draft! The link to apply is here: https://investor.startupschool.org/register

conanbatt• 8 years ago

Thank you SEC, you made my day.

billmalarky2• 8 years ago

Basics of seed investing rule number 1:

Have $1 million in assets outside of your primary home or make $200k+ per year for the last 2 years with the reasonable assumption you will continue to.

jacquesm5• 8 years ago

And plan on doing >> 10 investments if you expect to ever see a return.

lisper• 8 years ago

I've done >20 seed investments, and here is my Rule #1: you can do seed investing as a hobby, or you can do it as a business.

If you do it as a hobby, count on losing every penny you put in, and treating that as the cost of pursuing your hobby.

If you do it as a business, count on working on it full time, i.e. AT LEAST 40 hours a week, and probably more like 60-80. The competition is fierce. And I would not do it with less than $1M in LIQUID assets which I could afford to lose. The reason you need this much is that in order to have a good shot at a return you need to be able to do two things: 1) invest in a pretty broad portfolio (i.e. at least 10 companies) and 2) have enough money to participate in follow-on rounds so you don't get diluted into oblivion.

tlb3• 8 years ago

Mileages vary, but I haven't found dilution to be a big problem. Dilution only gets large when companies go through near-death experiences, and those are often followed by real death.

Follow-on investments are economically just like making later-stage investments. The average return can be good, but you can also lose all your money and you need much more capital to participate.

mbesto• 8 years ago

If you do it as a business
And I would not do it with less than $1M in LIQUID assets which I could afford to lose.

IMHO -> Rule #2: If you do it as a business, don't use your money and use a standard 2/20 model. Why someone would do seed investing working 60-80 hours a week and use your own capital is beyond me.

orarbel1• 8 years ago

Isn't that just the definition of Accredited Investor?

billmalarky2• 8 years ago

My tongue was planted firmly in my cheek.

will_brown2• 8 years ago

Maybe for post seed rounds or seed funding greater than $5M, otherwise I don’t understand the need (or rule) for limiting seed funding to accredited investors.

I’m surprised YC has that as a requirement to participate in demo day, seems kind of archaic for a disrupter.

fudged717• 8 years ago

This is an SEC rule for public solicitation... demo days can only be for accredited investors, plus it's easier that founders know everyone has been vetted. I know of accelerators that don't screen the demo day participants, and it's risky.

Alex3917• 8 years ago

Nah being a seed investor is easy, you just go into Telegram and wire money to anything people say China likes.

simonebrunozzi• 8 years ago

For the ones that might not get it: these are the requirements to be a "qualified investor" in the US. They don't apply elsewhere.

louprado• 8 years ago

Does anyone know if you can count a business you personally own and operate as part of your assets assuming you use reasonable valuation methods ?

beambot• 8 years ago

Feature request: public transcripts.

jacquesm5• 8 years ago

That's a boatload of work. I had them done for the first start-up school, if you want to do that properly it takes quite a bit of time.

seizethecheese• 8 years ago

Startup opportunity. A way for people to indicate they're interested in transcripts and pledge a specific amount they'd be willing to pay. Once $PLEDGED > $COST_OF_TRANSCRIPTS, pledgers get charged, transcripts get made and emailed.

lsen001• 8 years ago

Have you looked at Rev.com? Video transcription is $1/min. Accuracy is pretty good too. If you need to tweak it, it's just a text file with time codes.

sandslash4• 8 years ago

We'll definitely have those :) All the content will be made available once the course ends, and that's on the list!

jacquesm5• 8 years ago

I really hope that they will manage to reach a large audience with this, early stage investors are more often than not even more clueless than first time founders.

Educating both groups goes a long way towards getting everybody on the same page.

jameslk2• 8 years ago

Is there a way to watch the stream without having to be an accredited investor or will the video be posted publicly?

sandslash4• 8 years ago

All the videos and transcripts will be posted publicly after the course ends.

jameslk2• 8 years ago

Thank you! I see a new link was posted. For others, this seems to be where you can follow public updates:

https://investor.startupschool.org/spectators/new

fudged717• 8 years ago

[Deleted]

sandslash4• 8 years ago

That was an error on our part; somehow our old event link was used. The correct link to apply is actually at https://investor.startupschool.org/register.

Apologies for that!

fudged717• 8 years ago

Alright, thank you!

aaavl282113• 8 years ago

I think the biggest opportunity for seed investors today is actually in bio, but most people won't touch it as there's a perception you have to be a dr or phd to know the space. Which is an unfortunate misconception, bc the opportunity is huge. A program educating seed investors on bio would be super valuable

Biotech venture returns have outperformed techs in recent years, with more IPOs, higher m&a returns and shorter time to exit. Counterintuitively for those who think bio is too capital intensive and it takes too long to get drugs approved, the best exits have been early stage deals where under $20-30M is invested

I know a few seed investors who've had several high multiple exits less than 18 months from seed, including one that sold for over $1B in less than 18 months

Despite this exit environment, the number of seed / early stage investors in biotech has not grown in over a decade. VCs have responded by just seeding / starting companies in house, but there are tons of great seed stage companies that just go unfunded bc people are intimidated by biotech

psadri• 8 years ago

How/where do you get access to bio seed investment opportunities?

aaavl282113• 8 years ago

The lowest-hanging fruit is through accelerators / incubators, although no one has quite cracked the accelerator model for biopharma yet: diagnostics / tools / software can be great investments, but biopharma / therapeutics is where the real opportunity is though it is the most idiosyncratic business. While these are more accessible sources, they are also more picked over and investors need to rely on their own diligence to filter for quality:

Indie bio, qb3, Jlabs, illumina accelerator, start x, y combinator are prominent Bay Area ones

The best opportunities come from relationships with influential, well networked academic researchers; venture investors; r&d execs at big pharma; and successful serial entrepreneurs. If you have any of those in your network, that's the best place for high-quality deals. However big VCs often have established relationships with these folks and they will seed the most promising ideas

Universities also have a lot of events supporting startups and these can be a good way to get involved in the ecosystem and build a network. If you talk to enough phd students and postdocs you'll get a sense of what opportunities are out there. phd students and postdocs are an incredibly under appreciated group, and they have a ton of potential to start great companies if they get the right support. If you get smart on the space and make an effort to meet these folks you'll find many seed opportunities

Obviously these are not ideal paths. One of my passion projects is running a program that connects promising young scientists to life sci VCs to explore startup ideas. The main goal is mentoring young scientists as PhD students / postdocs are a woefully under appreciated sector of our workforce, but a few interesting startups have emerged from this as well.

rfc9• 8 years ago

Just adding my own slight perspective here. We launched a bootstrapped genome sequencing facility August last year. With barely any advertising and word of mouth, we're clearing around 8% MoM revenue growth and are forecasting ~$350k-400k in revenue this year.

Biggest problem? We don't have enough float to keep up with demand. There's significant demand in the life sciences & biotech space right now - especially with the confluence of software and bio. It's been very hard to talk to investors because (no offense) they hear life sciences, bio, genetics, etc. and they turn away because it's out of their comfort zone of investing.

If you're an angel or seed investor, I'd highly recommend diving in and learning more around the problems of the space. They are large, lucrative, and have high probability of disruption compared to current status.

fudged717• 8 years ago

I feel exactly the same way about Manufacturing. It's a massive industry, there are a ton of viable new technologies on the market, but very very few investors are even looking at the early stage because they don't understand it. I'm blown away at the new technologies I'm seeing.

aaavl282113• 8 years ago

That's awesome to hear, congrats! Ive been starting to hear a lot of interest in genomics / bio-IT from generalist VCs. obviously groups like a16z and 8VC have recognized this opportunity already (and YC is starting to), but anecdotally a lot of other funds are diving into bio-IT. One of the challenges is that the seed environment hasn't matured yet to bridge these companies to VC funding

It's funny, I talk to people about bio and they say "I'm not a scientist, I can't invest here" however they realize they can invest profitably into things like AI without being data scientists / math PhDs. In many ways, bio is no different than any other technical field: learn enough to be dangerous, know how to lean on experts where appropriate, and you can get involved

daemonk• 8 years ago

Who are your customers? Normal consumers? Academia?

I am actually looking to get my genome sequenced. I am looking to do ~30X and I just want the fastqs. I am a bioinformatician and can do my own analysis. Is that a service you provide?

thebiglebrewski• 8 years ago

Hey, I might have some people interested in this type of investment. Sounds really interesting. You can reach me at zachfeldman at gmail.

danieltillett7• 8 years ago

You should get in touch with me. You can find my details in my profile.

stanleydrew• 8 years ago

What's the name of your company and where are you located? Seems like an interesting opportunity. Feel free to send me an email at andrewmbenton at gmail dot com.

narrator• 8 years ago

Where do you get dealflow as an independent investor in these things? Seems like incubator demo days and shark tank events are brimming with everything but biotech.

thisisit2• 8 years ago

If you're an angel or seed investor, I'd highly recommend diving in and learning more around the problems of the space. They are large, lucrative, and have high probability of disruption compared to current status.

Not an angel or seed investor but how does one start to learn about problems in this space?

danieltillett7• 8 years ago

I am a seed investor, a former academic in the area of biotech, an experienced biotech entrepreneur, and I won't touch biotech with the proverbial 10 foot pole.

The reason why is my fellow investors don't have a clue and so back all the wrong companies. If you try and pick the good ones the end result is they run out of money while the ones that hype garbage to the moon suck up all the cash. I should say this is an Australian perspective and I do realise that in other markets things might be different.

aaavl282113• 8 years ago

Australia sounds quite different than the US. In the US good seed-stage startups get a lot of funding (some of these deals are European or Chinese companies but most are US): almost $1B has been invested into large seed ($5M+) and Series A rounds for biotech startups in January 2018 alone: http://newbio.tech/funding.html

And these companies have been getting acquired / going public at very robust valuations: http://newbio.tech/blog/biopharma_opportunity.html

The good biotech seed investors I know have been doing very well and involved in several companies acquired for 10 figure sums

Disclaimer: links above are to my posts / analyses

tlb3• 8 years ago

You can help the ecosystem (and yourself) by trying to convince later-stage investors why the companies you believe in will succeed. Example: http://paulgraham.com/airbnb.html

samnwa• 8 years ago

Daniel, help me get into the good deals. I'll fight for them to stay alive!

lpolovets2• 8 years ago

I'm a software engineer turned VC. I'm very interested in bio startups but am not sure where/how to start, and don't want to be one of those investors that doesn't have a clue and backs all the wrong companies. If you're willing to share your thoughts on what kind of companies investors should be backing, I'd love to chat. My email is leo at susaventures.com.

staunch2• 8 years ago

YC is surprisingly unambitious. They have access to unlimited amounts of capital and do almost nothing with it. Maybe because they compare themselves to the truly terrible investors they're surrounded by, and so it feels ambitious by comparison?

This announcement should be about a new $1 billion fund that they're going to use to deputize and train a thousand new angel investors. Or at least something big enough to move the needle.

Observing YC's evolution is a bit like watching someone take over Philip II of Macedon's empire and using it to march around Greece in circles.

GraffitiTim• 8 years ago

I would argue YC is extremely ambitious, especially under Sam Altman. However, ambition doesn't have to mean immediately investing billions of dollars in new areas. Huge ambitions can start as small experiments to see what's promising. That's how YC itself started too. Like a startup.

staunch2• 8 years ago

YC's mission is ostensibly to create more startups than would otherwise exist. So how many startups would not exist in 2018 if YC didn't exist? A hundred maybe? The number can't be large because they don't do anything at scale yet.

And yet there's potential for thousands of new startups to exist each year. Most people don't believe this, maybe not even YC, but that's what I'd call lack of ambition.

When ICOs (equity crowdfunding) comes into its own we will have a measure of how unambitious Silicon Valley has been. I predict it will be a shocking revelation.

birken• 8 years ago

This strikes me as a very odd class for them to be doing.

1. YC has no problem filling up Demo Day, and I know of even high qualify, professional angel investors who don't get the in person invite. So it isn't like they have a shortage of angel investors. If they wanted to have more and more diverse angels at their event, they could just find a bigger venue, which YC seems averse to.

2. Isn't this a big conflict of interest? This is a company teaching me the basics of angel investing who conveniently happens to directly financially benefit if there are more angel investors pumping money into their companies. Now I'm sure the class will be done well because YC generally does that, but I'm surprised YC is even wading into this. Angel investing is either a bad or at best extremely risky way for the average (even rich) person to invest their money in. Hopefully YC has a lot of disclaimers at the beginning of this class about this fact. I'm all for more information being out there, but angel investing is the type of thing where depending on which facts you omit you can make it seem very different from what it is.

ErikVandeWater• 8 years ago

My first thought is that YC considers 2 to not not be a conflict of interest because of 1. They don't need more funds for their startups; this is just a donation of knowledge to the world to help Angel Investors get more money to the right startups, (presumably) making the world better for everyone.

hkmurakami• 8 years ago

2 is not a conflict of interest because increased capital supply means better terms for their companies. YC's interests lie first and foremost with its own funds (its LPs) and its batch companies. Increasing the competition for dealflow amongst angels does not conflict with _their_ interests.

It will however likely suppress returns of existing angel/seed investors, as deal values are inflated.

Fwiw the timing of this makes sense. We are seeing reports of the angel/seed market drying up as the wave of post 2010 first time angels have lost their enthusiasm (or capital), and seed fundraising in 2018 is much much harder than in 2015.

kul• 8 years ago

Commoditize your complement!

kalal• 8 years ago

business(business(business))

whataretensors• 8 years ago

You just need 2 steps.

Step 1: Be born into money.

Step 2: Put that money into opportunities prescreened by YC.

A lot will fail but there's a few exponents in there too so you can just shotgun anything interesting. Also don't worry if you miss the first round. There's several more rounds before the public gets any chance to invest - if they ever do at all.

indescions_2018• 8 years ago

Timing could not be more perfect for this. There's a new generation of investors out there. Some flush with cash from crypto trades. Others simply benefiting from the record bull run in tech stocks. That are now seeking to re-invest. Get in on the ground floor. And discover the next great opportunity.

There is a decided lack of investor education. As well as rigor. And opening up YC's methodology will have as large an impact as the introduction of convertible notes. Further, introducing new investors to how their money can be used for maximum impact and progress. Which naturally leads to outsized IRR. Will steer them away from the pitfalls of say, going all in on their best friend from junior high school's BBQ-flavored tequila distillery.

And regarding the sourcing of dealflow. There are definitely myriad untapped ways for the greater YC community to introduce talented startup founders and seed stage investors. AngelList is fantastic. The ability to post MVPs to ShowHN is tremendous. But something like a curated Youtube channel or Twitch livestream where people can pitch or watch demos 24/7 around the world at their convenience would be amazing.

Dowwie• 8 years ago

Please record these sessions and share them on Youtube. YC has done a great job with sharing its content!

Startup Investor School: The Basics of Seed Investing

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