In previous times, exploring the world meant you were the first to find a new foreign land. Now however, those lands are all discovered. One could visit a foreign land blindly without doing any research and wander. A far more effective path seems to just be to look at the predecessors, find the best paths, and go with those. Angel investing into startups has been around for a long time, there is no need to reinvent the wheel, unless you can get better results that way of course. Why not just look at the best advice from the best investors? That could already solve 90% of the battle. Here’s a list of the top investors and my top takeaways for success in investing in startups; warning, this is a deep dive long read.

Contradictory advice given

-entrepreneurs we celebrate most did not study the past to create the future

-we learn that experts lead industries, but we see industries transformed by neophytes

-we are encouraged to be original but discounted from reinventing the wheel

-we celebrate leaders who ruthless change industries while admiring leaders who build excellent teams with humility and compassion

-We’re advised to heed customers’ opinions, yet we’re also cautioned that customers often have limited insight into their actual needs

-we are taught to plan but advised that nothing ever goes according to plan

-entrepreneurship is a business of exceptions, known information may not help

-diversity increases the chances of happy accidents

-Exceptional gains frequently arise from challenging conventional beliefs, even though conventional wisdom tends to be accurate

Sam Altman, former Y Combinator President, now current CEO of OpenAI

-the best companies are almost always mission oriented. The founder is a missionary for building something useful, not a mercenary for the highest bidder. Particularly, the reason for founding came from a personal problem, not to make money

-the best ideas seem simultaneously to be both good and bad ideas

-only a good product can have marketing help. Marketing will not help a mediocre product

-competing on price will not lead to a promising company

-if you aren’t an optimist, you will make a bad venture capitalist

-every company has a rocky and murky beginning

-great execution is one hundred times harder than coming up with a great idea

Steve Anderson, founder of baseline ventures

-the earlier in a company’s lifespan, the less data to go on, and the more the decision is based on gut, intuition, experience, rather than analysis or hard evidence

-it is possible VCs reject the most valuable businesses if it doesn’t fit a specific criterion

-you will know if you like investing in startups well before you know if you are any good at it, as true results will take ~5–10 years to appear

Marc Andreessen, cofounder of Andreessen Horowitz

-Venture capital returns are based on a power-law distribution; they look at thousands of startups in the technology industry, and they invest in under 2% in total

-Look for founders with strong strengths

-Success entails patience and aggression

-be a learn-it-all, not a know-it-all

-you want to tilt into radical ideas, but by their nature, you can’t predict what they will be. Big ideas are not that predictable; they seem crazy at first

-VCs invest significant time discussing markets and technology, yet the ultimate decision should revolve around people. 90 percent of the decision is people

-we are looking for the magical combination of genius and courage

-VC and entrepreneurship is more a life of struggle and misery rather than glamor and excitement

-software is eating the world

-all entrepreneurs are optimistic; some delusional

-when will technology help you, and when will it kill you?

Roelof Botha, Sequoia Capital

-it’s hard to to be a good VC if you haven’t walked in the shoes of a founder or entrepreneur, or been involved in building a company

-to achieve a big success, many things come together, and it looks more like a near death experience than smooth sailing

-skill games allow you to be able to lose on purpose; luck games you can’t lose on purpose, like dice

-when entering into a relationship with people who will be in your life for the long-term, why would you include anyone who is hard to get along with? Poor relationships with key people in your life lower your chances of success, and make you miserable. Being happy is highly underrated

-you cannot offer a commodity product and keep writing checks to lose money to get revenue

-Successful VCs need to think about what will go right for the company in 10 years, well into the long-term

-Extrapolating out the past 15 years, which an accountant might do, does not succeed in VC

Jim Breyer, Breyer Capital

-I’ve learned that when the pessimism is high, increase the investment pace. When the optimism is high, take a breather

-people have a natural desire to run with the crowd

-investing is very psychological, emotion-based

-there’s a pattern recognition and real-time knowledge that comes with investing and building companies over a period of time. Over longer periods, you have intuitive pattern recognition

-if making the same mistake repeatedly, something in the process is broken. Rub your nose in mistakes shortly after making them to get to the bottom of it

-the investment and VC cycle is continuously changing, and a great discussion is where are we in the cycle. A tell is when people think there is no cycle anymore, that could be in prosperous times soon to be downward

-exceptional entrepreneurs have optimism, candidness, intellectual honesty, integrity; this leads to a virtuous set of characteristics

-the history of business says the 2nd or 3rd mover end up winning long-term, due to better iterations of the first mover

Chris Dixon; Andreessen Horowitz

-If your idea garners unanimous approval, it could raise concerns that it lacks the innovative edge

-a good idea that looks like a bad idea? Founder-market fit, a founder needs to have a deep understanding of the market long before entering. This usually requires deep domain expertise. They need a secret that they can enact, specific knowledge

-the best ideas come from direct experience. When you can distinguish your firsthand experience from prevailing wisdom, that’s precisely where the most promising startup concepts originate

-Mckinsey at one point claimed that no one would ever use a mobile phone if a landline phone was available

-there is a widespread myth that the most important part of building a great company is coming up with a great idea

-The activities pursued by the most intelligent individuals on weekends often become the norm for the general population during weekdays, approximately a decade later

-too many VCs are camp followers who move into a trend when the best have moved on to new opportunities

-Blindly straying from a consensus viewpoint is detrimental, yet occasionally diverging from it can be advantageous and being right is what makes a great VC. Do not deviate from the consensus just to look different, only do it when it is right. To succeed, you must be a right contrarian

-if you cannot or don’t want to sell, starting a business is a foolish decision

John Doerr, Kleiner Perkins

-The most adept entrepreneurs are unaware of their limitations, which propels them to undertake seemingly impossible tasks. Surprisingly, they frequently achieve success

-Directing your attention solely towards success might not lead you to your goals. However, if you prioritize making valuable contributions to customers, victory becomes attainable

-great leaders and entrepreneurs have a big bag of skills. One bag is not nearly enough. They have integrity; first to recognize problems. Ruthless, entirely intellectually honest. Great recruiters, always building network of talented people. Great sales ability

-In any worthwhile endeavor, achieving success necessitates the effort of a team; there is plenty of money, technology, and entrepreneurs, but few great teams

-In the past, the economy revolved around mastering one skill for a lifetime, while today’s economy emphasizes continuous learning throughout one’s life

Peter Fenton, Benchmark

-the principal question we focus on before an investment: the quality of the person we’re going to work with. 1) Deep, innate motivation. 2) Ability to learn. 3) ability to attract great people

-Sound judgment is a result of experience, and experience often stems from making mistakes

-if you think you can stop learning and that you “know it all”, you are in big trouble

-product driven companies; advertising occurs naturally through word of mouth

Jim Goetz; Sequoia Capital

-we’re looking for clarity and focus; 1 in 15 entrepreneurs can present their company in 5 minutes time. Be concise and compelling

-tell good stories before good spreadsheets; speak from the heart not the mind

-new categories are the best as they lack competitors

-what are your unfair advantages? it must do something differently otherwise there won’t be a moat. A founder that pretends competitors do not exist in presentations to investors and employees is unwise

-Business models can serve as a potent tool for challenging established competitors; the subscription and cloud-based business model was started by Marc Benioff at salesforce

Paul Graham, Y Combinator

-13,000 companies applied to Y Combinator, and 240 succeeded. This makes it 2x harder to get in than Stanford

-all the returns come from just one or two companies. Paul Graham had 2/3 of his returns come from Dropbox (2nd) and Airbnb (1st)

-find companies that could become giants, not ones that will likely top out at some point

-the best ideas seem like bad ideas at first to most people

-they thought Airbnb was a stupid idea but liked the founders so invested anyway. Turns out, it was right to invest in the entrepreneurs and not the business

-Unless a business possesses a distinct advantage like network effects, it is exposed to unrelenting competition with no safe haven. Even with a moat, the life of a business can still be nasty, brutish, and short

-it is easier to expand from genuine customer delight about a solution than a solution that generates an attitude of “it’s okay”

-it’s hard to do a really good job on anything you don’t think about in the shower. Meaning you are so passionate about it that you think about it randomly

-it’s better to make a few people really happy than to make a lot of people semi-happy

Kirsten Green, Forerunner Ventures

-Find businesses that address a real need with high margin, real revenues, easily scalable

-have low CAC; customer acquisition cost

-an outstanding service leads people to use it, talk about it, and others will come naturally

Bill Gurley; Benchmark

-the best time to fund or start a business is in a recession

-companies with strong network effects are far and few between; those are the companies that deserve 10x P/S multiples

-DCF models; garbage in, garbage out. Spreadsheet disease. Anyone who finds this useful investing is stupid.

-if a disruptor can offer a product or service similar to yours for free, and can keep the lights on, there is a problem; this is especially a problem for digital products

Reid Hoffman; Greylock Partners, Linkedin founder

-start a company 1–5 years in advance of the industry, so that when it takes off, you have the position to capitalize

-Silicon valley, aka Software valley

-an idea that is not exposed to feedback from a robust and diverse network of trustworthy, smart individuals is not going to get better or attract people needed for success

-we’re moving from an information age to a network age

Ben Horowitz, Andreessen Horowitz

-most management consultants have never managed a hot dog stand

-running a business is the opposite of a well-planned party

-need a product that’s 10x better than the existing product

-be suspect about buying users

-What’s the outcome of blending a group of sheep with a gathering of lemmings? A gathering of venture capitalists

-Each time you opt for the difficult yet right choice, your courage grows incrementally. Conversely, with each instance of selecting the easy yet incorrect path, your timidity gains a bit of ground.

Vinod Khosla; Khosla Ventures

-One of the intriguing paradoxes of venture capital is that the path to financial success involves placing less emphasis on finance itself and focusing more on the intricacies of the business

-look for unfair advantages; technology, business model innovations, unique partnerships, top teams

-we invest more in people than a plan, because plans often change

-disagrees with high margin opportunities as more chance of competition

-entrepreneurs fail on things they don’t know they don’t know

Josh Kopelman, First Round Capital

-the best ideas are half crazy; fully crazy ideas are not wise to back, as they are actually crazy

-it is easier to work with someone who doesn’t already make problematic business decisions

Doug Leone; Sequoia Capital

-we want to be partners with entrepreneurs from day one; we know that after many years, that DNA is set in the first 60–90 days

-there are VC firms that have never generated a positive return in ten years and still raising money

Dan Levitan; Maveron

-successful VCs and founders are obsessively focused in finding great people to work with. They spend far more time recruiting than most would imagine since they realize how critical a strong team is to success

-it’s a rare person who has the attributes needed to create a startup into a large company that can change lives

-a great founder: works ridiculously fast, superior communication skills, self-aware and can evolve, balances being aware and detail oriented, all-star recruiter, prioritizes value creation, can sell the product and vision and understands customers, category advantage from past experiences or relationships, data-driven decision maker, contagious passion, relentless perseverance

-the founder must be a great person. Great people include: trustworthy, loyal, helpful, friendly, courteous, kind, cheerful, thrifty, enthusiastic, brave

Michael Moritz; Sequoia Capital

-Numerous individuals tend to prefer conforming in failure over standing out in unconventional success

-Having experienced the beginnings of success previously, it becomes significantly easier to identify it once more

-VCs find vicarious joy in the success of others

Chamath Palihapitiya; Social Capital

-a simple understanding of consumer behavior and product market fit is all that is needed

-the business model of the future is to serve individuals, because individuals are now relatively smarter. That’s not correlated with education; people are smarter because of more access to information. Now people are more connected, more engaged and as a result, more cynical.

Keith Rabois; Khosla Ventures

-the only way to learn how to invest is to invest. You can’t simulate it. Most investment mistakes are psychological

-During the early stages, a vast majority of successful entrepreneurs prioritize the people they collaborate with over the economic terms

-the same VCs generate the grand slam returns year after year

-people who get lucky early in life end up with more skill through cumulative advantage

-you are looking for outliers as founders

Andy Rachleff; Wealthfront

-you have to give to get, especially in a networked economy

-human beings want return but they don’t want risk

-it doesn’t matter how many losers you have, it matters how big your winners are

Naval Ravikant; Angellist

-the internet has made no idea innovative

-large markets are more likely to be convexity in nature; they offer a greater chance of exponential returns

-it’s just as hard to build a large company as a small company

-integrity is harder to measure but is the most important factor

-too many people make a living slicing the pie rather than baking it; life is too short to work with poseurs. If you hang out with people who do not do anything, there is a danger you will eventually start to adopt doing nothing as standard practise. Those that can do, do. Find and work with them.

Mark Suster, Upfront Ventures

-raise 12–24 months cash

-entrepreneurs differ from consultants, executives, investors in that they do things, not noodle around

-gross margins under 35% will likely fail; over 80% is ideal

Peter Thiel; Founders Fund

-great companies create value in a long term meaningful way, and capture at least some of it

-0 to 1 is harder than 1 to n, but generates better outcomes

-successful businesses have an exponential arc; 50% growth for a number of years

-create or invest in companies that will go big

-avoid down rounds where possible

-the people who have good judgment have superior pattern recognition skills. When they see someone, they have seen the pattern before. The people and chemistry may not be exactly the same as before, but the pattern rhymes.

-finding others with high trust, strong work ethic, and sound judgment (aka discernment) is essential

-hubris (pride and overconfidence) is at every one of these Silicon Valley companies that are successful

-bad VCs think all companies are equal and just blindly buy everything

Fred Wilson; Union Square Ventures

-need at least 2.5x in 10 years for a decent return

-ideas that people have derided as ridiculous have often produced the best outcomes. Don’t do the obvious thing

Ann Winblad; Winblad venture partners

-opportunities always get smaller as soon as you fund the company

-uncertainty is the friend of the rational investor

Conclusion

Given the above, there is no one way to succeed in investing in startups. But if you do succeed, drop a comment what your strategy is or how you succeeded!

Disclaimer

This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.