Startup Investor School Day 1

Altman says investors should form their own judgments instead of following other investors, whose choices can create herding around fashionable companies. Startup returns follow a power law: YC’s top five companies accounted for about two-thirds of the value it created, and its top company about one-third. He recommends asking how large a company could become before focusing on what could go wrong, and looking for ideas that seem questionable but could be very good.

Altman says strong companies can come from founders outside an investor’s network, and referrals from founders are an important way to find them. He recommends helping founders before investing and staying open to unexpected introductions. Since founders now have many investor options, an investor’s reputation matters: founders remember whether they were treated fairly, especially when a company struggles.

Altman considers companies that could reach $10 billion, across stages, sectors, and business models. He emphasizes founder traits such as obsession, focus, frugality, love, intelligence, communication, execution speed, and rapid improvement, while warning against founders motivated mainly by status or quick wealth. Investors should assess a market’s potential in ten years, including whether a small, fast-growing market could expand with a technology shift.

Altman distinguishes real technology trends by how intensely early users engage and whether they tell friends; he contrasts frequent iPhone use with VR headsets that often sat unused. He advises looking for products so good that people recommend them without incentives, modeling exponential growth instead of relying on intuition, and asking how a company might become more powerful as it grows. He also asks what the investor understands that others may not.

In the Q&A, Altman says founders often value help hiring most, along with fundraising support and availability for urgent tactical advice. He distinguishes changeable founder weaknesses from traits such as integrity, which he says investors should not compromise on; rapid improvement and openness to feedback can make many gaps acceptable. On follow-on investing, he says to exercise pro rata when a company raises an up round led by a strong VC, and defines pro rata as the right to invest enough to maintain ownership.