WhoBuilt

Startup Investor School Day 2

Mar 7, 2018· 59 min· 15K views·Watch on YouTube

Speaker

Dalton Caldwell, YC partner and startup founder, explains how angel investors can build conviction and handle founder meetings at Y Combinator’s Startup Investor School.

Build a deliberate investment process

Caldwell recommends defining an investment budget, deciding how many companies to meet, and working backward from the number of investments you plan to make. He uses a $500,000 annual budget and five investments as an example, suggesting the investor qualify a wider pool rather than meet too few or too many companies.

Set your own criteria and make clear decisions

Investors should decide in advance what matters to them, such as the team, market size, traction, relevant expertise, or deal terms. Different criteria help investors find companies others overlook. Caldwell advises reaching a clear yes or no, communicating promptly, and honoring a commitment once made.

Meet founders and build conviction

Caldwell says meeting founders in person can help investors build conviction. He recommends starting with basic questions about the company, team, progress, fundraising, and terms, then following up on the points that could change the decision. Afterward, investors can consider whether they trust the founders, feel more excited, and would work through difficult periods with them.

Treat founders well through the process

Caldwell asks investors to think of the meeting as a founder interviewing them for the role of investor. He cautions against distractions, making the meeting about oneself, overwhelming founders with unsolicited advice, or sending unnecessary introductions. If the answer is no, say so directly; if it is yes, explain the commitment and promptly send the money.

Apply the process to a live company and questions

In a sample meeting, Caldwell asks Necto’s founder to explain its ISP software, its operating service in San Francisco, and its early evidence: 47 customers and two prospective franchisees. In Q&A, he discusses financing risk, competition, milestone-based investments, and learning from past decisions. He says investors can use private information to inform their judgment while generally keeping it to themselves.

Takeaways

  • Set an investment budget and work backward to decide how many companies to qualify and meet.
  • Choose personal investment criteria before meetings so other investors’ preferences do not dictate yours.
  • If you cannot reach conviction, give the founder a clear no instead of delaying or making a conditional commitment.
  • Start meetings with basic questions, listen to the founder’s account, and investigate the points that could change your decision.
  • When you say yes, communicate clearly and close the investment promptly.

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