Ron Conway (SV Angel Founder) – Startup Investor School (Mar 2018)


Chapters

00:02:20 Early Internet Investments: Identifying Disruptive Industries and Founders
00:06:38 Early Stage Founder Characteristics for Venture Capital Investment
00:08:43 Evaluating the Success of Angel Investments
00:11:26 Advice from a Successful Angel Investor
00:22:33 Exploring the Principles and Practices of Angel Investing
00:26:04 Investing in Startups: Transparency, Honesty, and Integrity

Abstract



“Mastering Angel Investing: Ron Conway’s Journey and John Doe’s Insights on Navigating the Evolving Landscape of Tech and Crypto”

In a dynamic exploration of angel investing, Ron Conway, renowned for pioneering investments in disruptive industries, and John Doe, an expert in investment mechanics, provide an invaluable guide. Conway’s strategic focus on internet software and his criteria for evaluating founders, alongside John Doe’s rigorous approach to investment decisions and insights into the mechanics of angel investing, illuminate the path to success in this high-stakes domain. This article delves deep into their expertise, outlining key strategies, common pitfalls, and the future of tech and crypto investments, encapsulating vital lessons for both new and seasoned investors.



Ron Conway’s Early Involvement in Disruptive Industries

Ron Conway’s tech journey began with Altos Computer, a company that disrupted the minicomputer industry in the late 1970s. After successfully selling Altos to Acer, Conway received encouragement from Don Valentine, founder of Sequoia Capital, to observe board meetings, mentor founders, and consider angel investing. Recognizing his preference for mentoring over management, Conway decided to dedicate himself to full-time angel investing in 1994.

Conway’s Focus on Internet Software

In 1994, two years before Netscape’s founding, Conway shifted his investment focus to internet software, partnering with Ben Rosen, then chairman of Compaq, to identify the most disruptive industry with exponential growth potential.

Collaboration and Growth-Driven Approach

Conway’s collaboration with Ben Rosen led to identifying internet software as the most disruptive industry with exponential growth potential. Their growth-centric investment approach emphasized the importance of focusing on high-growth companies.

Early Deal Flow and Investment Criteria

In the early days of internet startups, the deal flow was limited, with only about one internet company founded per month. Conway and his partners made a concerted effort to meet with every internet company they could find, resulting in early investments in Ask Jeeves, PayPal, and Brightmail, setting the tone for SV Angel’s founder-centric investment strategy.

The Importance of Founders’ Determination

Starting a company is incredibly challenging, and unwavering determination is essential for founders to succeed. Passion, leadership qualities, determination, and goal-orientation are crucial traits in successful founders.

Zuckerberg as a Case Study

Ron Conway met Mark Zuckerberg when he was 19 years old, before he dropped out of Harvard. Zuckerberg’s relentless drive and focus on metrics and user experience stood out. He wasn’t motivated by personal recognition but solely by building a successful company.

Missteps in Founder Evaluation

Despite extensive investment experience, Ron Conway acknowledges making mistakes in founder assessment, having encountered founders who initially fit the Silicon Valley angel mold but ultimately failed to deliver.

Understanding the High Failure Rate

Angel investing carries a high failure rate, with 40-60% of investments failing. Early-stage investors can expect a failure rate of over 50%. Accepting failure as an inherent part of angel investing is crucial to success. Successful investments must generate significant returns to compensate for failed ones.

Common Investment Errors

Investors may make mistakes in their criteria or misread them, leading to unsuccessful investments. Reflecting on past mistakes can help investors refine their criteria and decision-making process. Crooked founders, though rare, can be detrimental to investments. Co-founder conflicts are a common cause of startup failures, and angel investors should assess co-founder compatibility carefully.

Assessing Founder Compatibility

Observing founders’ interactions during their first presentation can provide insights into their compatibility. Investors should pay attention to individual preferences, turf wars, and potential role conflicts. Team dynamics are crucial to a startup’s success.

Conclusion on Angel Investing

Angel investing is a high-risk, high-reward endeavor. Investors should learn from failures and refine their evaluation strategies accordingly.

Key Points from Ron Conway’s Presentation

1. Understanding the Team: The necessity of meeting the entire startup team, including the operations staff, to gain a sense of company culture and insight into team dynamics.

2. Post-Investment Value Addition: Assisting founders in building their management teams by introducing them to qualified engineers, marketers, and salespeople. Additionally, facilitating partnerships, distribution channels, and contacts at major tech companies like Apple, Twitter, Facebook, and Google. Providing mentorship and guidance to help founders make quick decisions, execute their plans, and avoid procrastination.

3. The Role of Y Combinator (YC): YC’s success attributed to its selection process and support.

4. Advice for New Investors: Adopting a portfolio approach by investing small amounts ($25K) in multiple companies (10-25) is recommended to spread the risk. Focusing on a specific sector where you have domain expertise allows you to add value to the companies you invest in. Aim to reach a point where you’re “playing with the house money,” meaning your investment returns can sustain your investing activities.

5. Measuring Success in Angel Investing: Success defined by significant investment returns and identifying early wins can provide confidence and allow investors to focus on adding value to founders and being advocates for their success.

6. Civic Engagement and Social Responsibility: Encouraging activism and advocacy among investors. Recent events, such as the student-led gun safety movement in Parkland, Florida, can inspire angel investors to take action and support meaningful causes.

7. Demo Day Strategies: Focusing on sectors of expertise and taking comprehensive notes. Avoid investing haphazardly across various industries without a clear strategy or expertise.

Blockchain and Crypto: The Future of the Internet

Conway views blockchain and crypto as the next wave of the Internet, with the potential to disrupt industries.

Investing Mechanics: Beyond the Safe

Understanding the complexities of the Safe, such as its anti-dilution provisions and liquidation preferences, is crucial for angel investors. One speakerrecommends utilizing tools like spreadsheets and AngelCalc for better comprehension.

Key Investment Decisions: A Rigorous Approach the speakeremphasizes the need for systematic and serious investment strategies, reflecting on past mistakes to guide future decisions.

Deal Flow and Current Market Landscape

Experienced investors share strategies for generating deal flow and provide insights into the current investment environment.

Insights into Angel Investing

Angel investing is expected to continue despite market changes. Thoughtful investing and advocating for honesty and integrity are essential.

In conclusion, Ron Conway and One speakeroffer a comprehensive perspective on angel investing, blending insights from their respective journeys. Conway’s focus on disruptive technologies and founder evaluation, combined with John Doe’s emphasis on investment mechanics and decision-making rigor, provide a roadmap for navigating the complex and ever-evolving landscape of tech and crypto investments. This guide underscores the importance of understanding team dynamics, learning from failures, and maintaining integrity and transparency, serving as an essential resource for anyone venturing into the world of angel investing.


Notes by: BraveBaryon