Startup Investor School Day 2

Seibel says he invests to support founders, not primarily to make money. In four and a half years, he made 50 investments: 47 in companies and four in funds, with 46 company investments at the early stage. Four investments were dead, one was Cruise, which reached a billion-dollar exit, and six had valuations above $50 million.

Seibel advises sizing checks by modeling what a billion-dollar exit might return after dilution and taxes. He increased his own checks from $25,000 to $50,000 and then $200,000, while emphasizing that larger checks should follow real conviction. He also says investors should be ready to sign documents and wire money quickly when a company is raising.

Investors who have not researched companies before Demo Day need to act quickly, but Seibel says they can start earlier by following launches on company blogs, Product Hunt, TechCrunch, and Hacker News. He recommends keeping relationships with founders after Demo Day, since some strong companies raise again six to twelve months later. He cautions that the most hyped Demo Day companies are often not the best investments.

Seibel says party rounds do not concern him as long as investors sign paperwork promptly. He pays closer attention to unequal equity splits and founders who have sold too much early; he models 20 to 35 percent dilution in each of Series A and Series B. He also warns that extensive analysis has diminishing returns, while angel investors should accept that most investments will fail.

Seibel points to YC’s open application process and its high bar for selecting talented founders as strengths in sourcing companies. He says YC also learns from alumni office hours and tracks companies’ progress, including the path from Demo Day to Series A. He describes adapting YC’s operations after the Summer 2012 batch exposed strain in supporting many companies.