These are my notes and thoughts on Sam Altman's startup investor school presentation. This post may be valuable to anyone serious about building startups.
I recently gave up a high-paying corporate job to pursue what I'm passionate about and fully focus on building startups. Sam Altman perfectly summarizes my feelings towards the entire situation:
There's beauty in inexperience. People who are doing things for the first time will be doing things that anyone with a few more battle scars won’t try.
Sam Altman
I feel happier when I'm around people with startup-oriented mindset. These people carry an endless sense of optimism about the future, a quality you likely won't find in any other industry.
Sam mentions that investing in startups is a very humbling experience. You make mistakes and you get used to being wrong.
I believe this concept applies to both angel investing and also building a startup. As a founder, you'll often find yourself making mistakes and it's inevitable. You must be willing to admit that you’ve made and error and try to avoid the same mistake next time.
On the other hand, this should not impact your confidence. You should continue to make decisions, even though you're fully aware that you're prone to mistakes. This is a great quality to have as an individual.
Sam mentions two major mistakes that angel investors often make. I've personally witnessed these two common mistakes throughout my career and it just clicked when Sam mentioned it. As a founder, it's important to understand how most investors think:
People often outsource 80% of their decision-making based on other’s opinions. The issue is that this approach will cause trends where every investor wants to invest in a particular company without any solid reasoning, merely based on other investor’s behaviour
Power law: Your most successful investment will yield a greater return than all your other investments combined. Likewise, your second-best investment will outperform the sum of your third and all subsequent investments. Most people new to angel investing wonder if they can succeed through a series of smaller, consistent investments. While this strategy may work with stocks, angel investing is about hitting home runs. Investors should always be on the lookout for potential home runs, and they often aren’t.
It’s all about magnitude of your biggest success and it’s not about your failure rate.
Sam Altman
You can have 95% failure rate and one investment can return a billion dollar and you’ll be happy.
YC has funded approximately 1700 companies. Their top 5 companies represent about 2/3 of the value they have created, while one top company accounts for 1/3 of this value.
Other than that, many of these generation-defining companies are started by individuals who are not well-known and out of network. These are not the type of people who can launch a company and get bunch of press right away.
First think how big could it be if it works? And only then think about the potential things that can go wrong.
Sam Altman
Maintaining a good reputation during challenging times is more valuable than extracting a small sum from a dying company.
Reputation of being good to work with goes a long way and people remember that for a long time.
Sam Altman
Starting a startup is a long-term commitment. If it's going to work, it will likely take more than a decade, and there may be times when you want to give up. Many people start startups thinking it's a quick path to become rich, but this is rarely the case.
You want focused and mission-driven founders, your personal growth is just as important as your business growth. This helps you stay on track even during tough times.
you have to have a deep sense of mission as a startup founder
Sam Altman
You should favor a small, growing market over a large, existing one. If you pursue what has worked in the past, it will be harder to do for the second time. It's far more better to identify the next rapidly expanding market.
To do that, you need to be an independent thinker, and you are not going to succeed by simply following others.
If you are able to think independently, you will approach trends with skepticism.
To identify genuine trends, look for instances where not many people may be talking about it, but those actually using the product are consistently talking about it.
That's all I got. I hope you found this post valuable.
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