13 ms·

Startup Investor School: The Basics of Seed Investing

230 points by sandslash 9y ago

jzamora 9y ago
Do I have to sign up for the online version?
- jacquesm 9y ago
  Yes: https://apply.ycombinator.com/events/149 https://apply.ycombinator.com/events/149
  - sandslash 9y 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 https://investor.startupschool.org/register
  - deleted 9y ago
    [deleted]
conanbatt 9y ago
Thank you SEC, you made my day.
billmalarky 9y 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.
- jacquesm 9y ago
  And plan on doing >> 10 investments if you expect to ever see a return.
- lisper 9y 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.
  - tlb 9y 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.
    - k__ 9y ago
      Sure, but if the company does good and you believe in it, why not throw some extra money at it and get a bigger part of the pie :)
      - tlb 9y ago
        Sure. But you should think of it like a new late-stage investment, on par with investing in any other late-stage company whether you were in on the seed round or not. Concern about not getting diluted sounds like a sunk cost fallacy, which can lead to suboptimal decisions.
        rahimnathwani 9y ago
        That was my first thought as well. Is there any good reason why these opportunities for follow-on investment might have higher expected returns than, e.g. putting the same amount of money into other seed investments? e.g. is it possible that if you participate in the follow-on, that you get some extra leverage to convert your previous shares into a more favourable class?
- orarbel1 9y ago
  Isn't that just the definition of Accredited Investor?
  - billmalarky 9y ago
    My tongue was planted firmly in my cheek.
- will_brown 9y 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.
  - fudged71 9y 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.
    - will_brown 9y ago
      But there are exceptions to the general solicitation prohibitions. Maybe they find those exceptions to onerous and burdensome, but in my mind that just means there is a giant opportunity - 90% of the US market is being excluded.
    - wslh 9y ago
      If you don't live in US and you are not an US citizen, do you need to be an accredited investors?
    - icedchai 9y ago
      Don't a lot of people "self certify" for accreditation? In my experience, most of this "screening" isn't very deep.
      - fudged71 9y ago
        Yes I think a signature of self certification is all that's generally required to keep the accelerator out of trouble, but again there are accelerators that don't even know this limitation exists with the SEC. Blame Shark Tank and general lack of knowledge of investment regulations.
        9y ago
- Alex3917 9y ago
  Nah being a seed investor is easy, you just go into Telegram and wire money to anything people say China likes.
- simonebrunozzi 9y 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 9y 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 9y ago
Feature request: public transcripts.
- jacquesm 9y 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 9y 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.
    - jacquesm 9y ago
      Username checks out ;) Good one. I'd use it.
  - lsen001 9y 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.
- sandslash 9y ago
  We'll definitely have those :) All the content will be made available once the course ends, and that's on the list!
jacquesm 9y 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.
jameslk 9y ago
Is there a way to watch the stream without having to be an accredited investor or will the video be posted publicly?
- sandslash 9y ago
  All the videos and transcripts will be posted publicly after the course ends.
  - jameslk 9y 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 https://investor.startupschool.org/spectators/new
fudged71 9y ago
[Deleted]
- sandslash 9y 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 https://investor.startupschool.org/register. Apologies for that!
  - fudged71 9y ago
    Alright, thank you!
aaavl2821 9y 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 9y ago
  How/where do you get access to bio seed investment opportunities?
  - aaavl2821 9y 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.
staunch 9y 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 9y 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.
  - staunch 9y 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.
    - bflesch 9y ago
      That's an interesting viewpoint, I appreciate you sharing your opinion on this.
birken 9y 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 9y 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 9y 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 9y ago
kalal 9y ago
business(business(business))
whataretensors 9y 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 9y 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 9y ago
Please record these sessions and share them on Youtube. YC has done a great job with sharing its content!

230 points by sandslash 9y ago

jzamora 9y ago

Do I have to sign up for the online version?

jacquesm 9y ago
Yes: https://apply.ycombinator.com/events/149 https://apply.ycombinator.com/events/149
- sandslash 9y 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 https://investor.startupschool.org/register
- deleted 9y ago
  [deleted]

conanbatt 9y ago

Thank you SEC, you made my day.

billmalarky 9y 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.

jacquesm 9y ago
And plan on doing >> 10 investments if you expect to ever see a return.
lisper 9y 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.
- tlb 9y 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.
  - k__ 9y ago
    Sure, but if the company does good and you believe in it, why not throw some extra money at it and get a bigger part of the pie :)
    - tlb 9y ago
      Sure. But you should think of it like a new late-stage investment, on par with investing in any other late-stage company whether you were in on the seed round or not. Concern about not getting diluted sounds like a sunk cost fallacy, which can lead to suboptimal decisions.
      - rahimnathwani 9y ago
        That was my first thought as well. Is there any good reason why these opportunities for follow-on investment might have higher expected returns than, e.g. putting the same amount of money into other seed investments? e.g. is it possible that if you participate in the follow-on, that you get some extra leverage to convert your previous shares into a more favourable class?
orarbel1 9y ago
Isn't that just the definition of Accredited Investor?
- billmalarky 9y ago
  My tongue was planted firmly in my cheek.
will_brown 9y 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.
- fudged71 9y 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.
  - will_brown 9y ago
    But there are exceptions to the general solicitation prohibitions. Maybe they find those exceptions to onerous and burdensome, but in my mind that just means there is a giant opportunity - 90% of the US market is being excluded.
  - wslh 9y ago
    If you don't live in US and you are not an US citizen, do you need to be an accredited investors?
  - icedchai 9y ago
    Don't a lot of people "self certify" for accreditation? In my experience, most of this "screening" isn't very deep.
    - fudged71 9y ago
      Yes I think a signature of self certification is all that's generally required to keep the accelerator out of trouble, but again there are accelerators that don't even know this limitation exists with the SEC. Blame Shark Tank and general lack of knowledge of investment regulations.
      - 9y ago
Alex3917 9y ago
Nah being a seed investor is easy, you just go into Telegram and wire money to anything people say China likes.
simonebrunozzi 9y 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 9y 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 9y ago

Feature request: public transcripts.

jacquesm 9y 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 9y 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.
  - jacquesm 9y ago
    Username checks out ;) Good one. I'd use it.
- lsen001 9y 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.
sandslash 9y ago
We'll definitely have those :) All the content will be made available once the course ends, and that's on the list!

jacquesm 9y 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.

jameslk 9y ago

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

sandslash 9y ago
All the videos and transcripts will be posted publicly after the course ends.
- jameslk 9y 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 https://investor.startupschool.org/spectators/new

fudged71 9y ago

[Deleted]

sandslash 9y 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 https://investor.startupschool.org/register. Apologies for that!
- fudged71 9y ago
  Alright, thank you!

aaavl2821 9y 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 9y ago
How/where do you get access to bio seed investment opportunities?
- aaavl2821 9y 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.

staunch 9y 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 9y 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.
- staunch 9y 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.
  - bflesch 9y ago
    That's an interesting viewpoint, I appreciate you sharing your opinion on this.

birken 9y 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 9y 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 9y 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 9y ago

kalal 9y ago

business(business(business))

whataretensors 9y 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 9y 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 9y ago

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