Michael Seibel - Startup Investor School Day 2

So just a couple of notes. If you've noticed, a lot—maybe all—of the presenters thus far are YC people. That's not going to end right now. However, the rest of the course is mostly, almost exclusively, perspectives on investing from outside of YC. So, don't worry, we're not completely staring at our own navel here.

However, I will also argue vociferously that the lessons that you've heard from YC partners thus far—excuse me, mm-hmm—are in fact quite general and relevant to investing in startups, inside or outside of YC. You still should invest in a lot of YC companies; there's good reasons to do that.

However, also, I know there's a lot of questions about ICOs and SAPs and crypto. If you can contain yourselves, please try to hold those questions till Day Four because we're going to have a presentation by Andy Bromberg, who's the CEO of CoinList, and the right person to whom to pose those questions.

Our next presenter is going to briefly talk about whatever he wants to. He's one of that no-talent group of four people from Justin.tv who, it turned out, did okay founding his own company, Socialcam, selling it for a couple bucks, and is now the CEO of Y Combinator, doing great, amazing things here. Michael is an extraordinary person to have in front of us. I'm really lucky. He is the person who said, “You need to find problems so dire that users are willing to try half-baked, the one imperfect solutions.” He knows a lot about those exact things. Please welcome Michael Seibel.

All right, it's been a long day, so I'm gonna be pretty fast. First, how many of you in the room are doing angel investing to make money? Raise your hand. Okay, raise it high against the sun. It's not a bad thing to make money; great!

So, I'm gonna tell you about my experience raising—I'm sorry, doing angel investing—but I'll tell you straight away that I'm not doing it to make money. In effect, I feel like where I came from on the East Coast, when people want to give back, they give money to charity and they go to galas, which I never understood. Strangely, here in the Valley, when people want to give back, they write angel investing checks. And that's really why I write checks. I kind of think of it as charity. Someone described it to me as taking money, flushing it down the toilet, and then very rarely walking up on the street to a million dollars just laying there and being like, “Holy!” So that's kind of how I see it.

So, take all of this advice with that in mind. I wanted to give you a very realistic vision of my scorecard. I've been angel investing for 4.5 years. I've made 50 total investments: invested in four angel funds, forty-seven companies; only three of them were not YC companies. 46 of them were early stage; one was late stage. It's a little company called Reddit. I hope it's going to continue to do well.

Of those 50 investments, four are dead, one is a billion dollar exit, Cruise, 12 hour post-Series A, and six have over a 50 million dollar valuation. So, I don't really actually consider myself that good of an angel investor. I'm fairly certain that there are really big companies that have gone through YC since I've been here that I have not invested in. Thankfully, because I work at YC, I own a percent of every one of them. That's how I sleep at night.

So, what are my lessons? The first lesson I actually learned about angel investing is you have to write a big enough check. And it's funny because the second I started writing angel investment checks, Sam told me this lesson, and then I ignored him for two and a half years. What you really need to think about when writing an angel investment check is, what are the realistic chances that I'm going to get a return, and how much would I make at a billion dollar exit?

I talked to a lot of people who invest in check sizes that, if the company were to become a billion dollar company, they wouldn't make enough money to really impact themselves at all. So then I kind of asked the question, “Why are you doing it then?” And so I've kind of made the mistakes of writing twenty-five thousand dollar checks, and I don't do that anymore. So really the way I think about this is...