Summaries Startup Funding and Investing Investor School Day 2: Unconventional Ideas, Structured Process, Team Focus | Dalton Caldwell

This is a summary of a YouTube video "Dalton Caldwell - Startup Investor School Day 2" by Y Combinator!

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Investors should invest in unconventional ideas, have a structured investment process, focus on team and personal conviction, build trust with founders, and travel in person for important business deals.

• 📈
  00:00

  Invest in unconventional ideas and use safes for startup investing, while understanding dilution with the help of tools like Angel calc and spreadsheets.
• 💰
  04:35

  Having a structured investment process, including face-to-face meetings, is crucial for making smart investment decisions.
• 💰
  12:32

  Different investment criteria are important to find outlier companies and generate great returns, with team being a crucial factor.
• 💰
  17:54

  Having personal conviction in your investments is key, even if it means taking risks and potentially being made fun of for investing in unconventional companies.
• 💰
  22:22

  Investors should focus on building trust, asking basic questions, and avoiding distractions during meetings with founders.
• 🌐
  32:04

  Nikto and OSP in a box provide software for people to start their own internet service providers, combatting regional monopolies and high costs.
• 💰
  41:30

  If you lose faith in a company you invested in, you can't get your money back, but it's important to communicate lack of belief in their future and be helpful to founders.
• 💼
  48:10

  For important business deals, travel in person; investors should focus on both local and global deal flow, approach competition and information asymmetry neutrally, keep proprietary information to themselves, and wire money once committed.

Key insights

Investment Decision-Making Process

• 💡 Making smart investing decisions is not about predicting the future, but about finding companies you're interested in and meeting with them.
• 🤝 Face-to-face meetings play a crucial role in making investment decisions and are a key part of the process.
• 📰 Introductions play a crucial role in the investment process, as they provide exposure to the company and help determine if it aligns with the investor's funding criteria.
• ⏰ It's better for investors to have a defined process and make a conclusive yes or no decision after a certain number of meetings, rather than dragging out the process and wasting the founder's time.
• 💰 "If they're not saying yes and giving you money, it's a no." - Many founders mistake interest for investment, but without actual checks, it's a failed fundraise.
• 📝 When conducting meetings with founders, it is important to start with basic questions about the company, team, progress, and funding before diving into more complex topics.

Factors to Consider in Startup Investments

• 💡 The best investment decisions are the ones that other people aren't making, like investing in seemingly stupid ideas that can turn into billion-dollar businesses.
• 💡 Having investors with different investment criteria can lead to finding interesting outlier companies and generating great returns.
• 🌍 It is now possible to start your own internet provider with relatively low cost using wireless gears that can deliver gigabit service.
• 💡 The company aims to provide not just the hardware and software for starting an internet provider, but also the guidance and support to help users be successful and thrive in their venture.
• 🌐 The evidence of the startup's potential success lies in the fact that they already have two franchisees with buildings in multiple cities who will be using their software and network operating center services.
• 💰 Investing in startups is not solely about the idea or traction, but also about the team and their ability to effectively communicate and work together.

Importance of Conviction in Investing

• 🤔 Having personal conviction is crucial in making successful investments, as there is no undo button once the money is invested.
• 💡 Investors should be willing to take risks and be wrong, rather than only investing in safe and defensible opportunities.
• 🤔 Conviction is more valuable than creating a portfolio based on reputation, as it allows for confident decision-making in investments.

Detailed summary

• 📈
  00:00

  Invest in unconventional ideas and use safes for startup investing, while understanding dilution with the help of tools like Angel calc and spreadsheets.

  • The speaker welcomes everyone to the second day of start-up investor school, reminds them not to park in a certain area, and mentions the previous day's growing pains, including lukewarm coffee and backed-up toilets, but assures that they have been corrected, and encourages those watching the livestream to tweet their questions with the hashtag YC sis.
  • There's a Slack channel for questions and communication, wine and beer on Thursday, and helpful feedback from attendees.
  • The importance of community and networking was emphasized, along with the advice to not follow other investors and to consider investing in unconventional ideas, while the benefits of using safes for startup investing were discussed.
  • Understanding dilution can be tricky, but there are tools available such as Angel calc and a spreadsheet to help model cap tables and conversions.
• 💰
  04:35

  Having a structured investment process, including face-to-face meetings, is crucial for making smart investment decisions.

  • The lecture discusses how to make smart investing decisions by finding and meeting with companies of interest, with the first presenter, Dalton Caldwell, discussing founder meetings and process.
  • Having a simple investment process, including face-to-face meetings, is crucial for making investment decisions.
  • The sales funnel for investing involves leads, intros, and qualification to determine if the company fits with the investor's interests and funding goals.
  • To make optimal investment decisions, it's important to have a clear budget and a structured decision-making process, rather than a wishy-washy approach.
  • To make optimal investment decisions, it's important to qualify a suitable number of leads and meetings based on your financial commitment.
  • Have a clear decision-making process and criteria in mind when investing, avoid endless meetings and commit fully once you say yes.
• 💰
  12:32

  Different investment criteria are important to find outlier companies and generate great returns, with team being a crucial factor.

  • Different investment criteria among investors is important to find interesting outlier companies and generate great returns, with team being one of the most important factors.
  • Market size is important for some people, but not for others, and having personal touch points can help in creating a process.
  • Investors consider traction, relevant expertise, and investment terms when deciding whether or not to invest in a company.
  • Investing based on popular criteria and groupthink can lead to non-optimal returns and over-funding of companies, while good investments are often contrarian and unfashionable.
  • Having personal conviction is crucial in making investments, and relying on group think or asking others for opinions is not recommended.
• 💰
  17:54

  Having personal conviction in your investments is key, even if it means taking risks and potentially being made fun of for investing in unconventional companies.

  • Don't pretend to be interested in investing if you're actually worried about financing risk, just be honest and say no.
  • Having personal conviction in your investments is important, even if it means potentially being made fun of for investing in unconventional companies.
  • Avoid anti-patterns in investment decisions such as slow response, deferring decisions, and flip-flopping to stay clear and confident in your choices.
  • If investors are not saying yes and giving you money, it's a no, and doing meetings in person is the best way to get conviction.
• 💰
  22:22

  Investors should focus on building trust, asking basic questions, and avoiding distractions during meetings with founders.

  • To have a good reputation as an investor, it's important to be easy to work with, be on time, pick a convenient location, and start meetings with basic questions about the company.
  • When meeting with founders, start with basic questions and focus on the things that give you conviction to say yes or no, trust your gut reaction, and evaluate whether you feel energized and excited about the business or not.
  • Trust is crucial in business relationships, and gut reactions can be a good indicator of whether someone is telling the truth or if you would want to work with them.
  • Investors should focus on listening to the founder and not making the meeting about themselves, avoid giving excessive advice or introductions, and refrain from being distracted during the meeting.
  • Investors should directly tell founders if they will not be investing and give reasons if possible, and when they have conviction and want to invest, they should communicate it clearly and follow the handshake protocol to avoid misunderstandings.
  • When investing a small amount, don't make it hard by asking for extra stuff as it will only follow up the process and often the founders will push back on it.
• 🌐
  32:04

  Nikto and OSP in a box provide software for people to start their own internet service providers, combatting regional monopolies and high costs.

  • Nikto and OSP in a box provide software that allows people to start their own internet service providers, solving the problem of regional monopolies and high costs.
  • The company is a complicated niche ISP business with their own internet provider that came out of beta on January 22nd and currently has 47 customers located in southern parts of San Francisco.
  • The company helps people start their own successful internet provider by providing hardware and software, as well as guidance and expertise from retired dot-com experts.
  • The company helps YC Alumni community start their own ISP by providing software and becoming their network operating center, allowing them to put up their own money and scale quickly without needing to raise hundreds of millions or billions of dollars to put in fiber.
  • The company aims to combat regional monopolies in rural and suburban areas by increasing competition through providing exclusive rights to operate hardware for internet service providers.
  • Q&A session will be held for streamers to ask questions from YC sis and the slack Channel.
• 💰
  41:30

  If you lose faith in a company you invested in, you can't get your money back, but it's important to communicate lack of belief in their future and be helpful to founders.

  • If you invest in a company and lose faith in it, you cannot get your money back just because they are bad at fundraising.
  • Deal with cases of extreme deception on a case-by-case basis, but if a founder simply has a bad company, that's just the way it goes.
  • To say no to someone, convey that you were not convinced in an honest way without insulting them.
  • When deciding not to invest in a company, it's important to communicate a lack of belief in their version of the future and to always strive to be helpful to the founders.
  • It's generally not recommended for founders to send decks or other data before a quick meeting with investors, as it often results in low ROI and lack of response.
  • Milestone-based financings may not be the best option for small checks, and it's better to take upfront money than to give investors an option to invest in the future.
• 💼
  48:10

  For important business deals, travel in person; investors should focus on both local and global deal flow, approach competition and information asymmetry neutrally, keep proprietary information to themselves, and wire money once committed.

  • Video calls can be used for checking in on smaller transactions, but for important business deals, it's best to travel in person.
  • Investors should focus on both local and global deal flow, and when dealing with flatlining investments, it's best to write it out with the company and have a long-term time horizon.
  • When discussing competition with founders, approach the topic in a neutral manner and be wary of defensive responses, and when dealing with information asymmetry, ask neutral questions and consider the potential red flags.
  • As an investor, it's best to keep proprietary information to yourself and be honest with founders if you're not comfortable investing due to the amount of capital needed.
  • Investors have to decide how convinced they are in a company's success and their ability to fundraise, and it's important for founders to get the money wired from investors once they commit.
  • YC has a complex process of reviewing their investments, keeping track of progress, and learning from trial and error to build confidence as an investor.

Q&A

• What should investors focus on when investing in startups?

  Investors should focus on unconventional ideas, have a structured investment process, and prioritize team and personal conviction.

• How can investors build trust with founders?

  Investors can build trust with founders by being easy to work with, starting meetings with basic questions, and being honest about their investment decisions.

• What is the importance of face-to-face meetings in investing?

  Face-to-face meetings are crucial for making investment decisions and getting personal conviction in the business.

• What factors should investors consider when deciding to invest in a company?

  Investors should consider traction, relevant expertise, and investment terms when deciding whether or not to invest in a company.

• How can investors avoid making non-optimal investment decisions?

  Investors should avoid investing based on popular criteria and groupthink, and instead focus on contrarian and unfashionable investments for optimal returns.