I am not going to do any investing unless I am ready to do 12 deals, one per quarter for three years. At that point I will decide I’m good at this, or that it’s just a hobby and I’ll do something else.
One lesson I learned is the difference between being a builder and being a buyer. When I was an entrepreneur, it was all about creating something out of nothing. When the chips were down and you almost had to trick a customer into buying at the end of the quarter, you found a way. If you’re an investor, you have to be a great buyer, which has a very orthogonal set of differences from being a builder. If you allow yourself to think, “Well, I could make that startup work,” you are falling into the trap, and you need to listen to your buyer instinct.
Paul Buchheit (Google, Friendfeed, Facebook) on what and whom to invest in:
Why are you doing this? Why are you considering throwing away your money? It’s different for everyone. For me, it’s very exciting to see products. It’s a way to be involved in 40 or 50 new products. But when you make an investment, the first step is to kiss the money goodbye. Odds are you will never see it again. It helps your mindset, so you don’t go crazy about bad news.
One of the risks for people like myself, from a successful company like Google, is that you start to think that you did it the right way. But you start to learn that there is no right way. What’s right for one company is often wrong for somebody else. Facebook is a very different company from Google, but both are hugely successful.
What are you going to invest in? It’s what you are passionate about and excited about. That needs to come from an internal conviction about where the future is going. That way, if it doesn’t work out, at least you’ll learn from the experience.
Who should you invest in? There are a lot of great people out there, but founders need to be a little more savvy. There is this force of conviction. It’s something I noticed at both Google and Facebook. The founders just don’t care what everyone else thinks. Or they care, but only in an academic way. I think that’s critical if you want to be a $100 billion company, because by definition you’re doing something the rest of the world doesn’t understand. Otherwise, you’ll get to the $100 million stage and sell. That said, it has to be the right person for the startup. I don’t think Google’s founders could have started Facebook, and Facebook’s couldn’t have started Google. It has to be the right person for the right time in the right business.
Sam Altman (Loopt) on what founders are looking for in an angel investor:
You have to pick winners, but it’s also necessary for the winners to pick you. I was curious about what the best Y Combinator founders would say—those who have been in the fortunate position of being able to choose between angel investors. So I surveyed them, and I was surprised by some the answers. It came down to the quality and reputation of the angel, clean terms, and the speed of the deal.
Quality and reputation: Every single time this came back as the number one factor. Founders asked their friends whether angels gave good advice, provided good connections, and stood by you in hard times. Don’t talk about all the value you will add if you don’t have a reputation. If you want a great reputation, just invest alongside other angels, and then work really hard for your companies. The phrase “good guys” came up a statistically improbable amount of the time. It also helps to have a brand name and a track record. A lot of founders said they felt bad because they took one more well-known angel over another, but they all said they were glad they did, because the PR was worth it, and being seen with a high-powered investor was good for them.
Clean terms: Founders said they threw out all the term sheets that were longer than two pages.
Moving fast: Be decisive. Raising money stops forward progress for a startup, so founders hate angels who take a long time.
