Key Moments
Ron Conway - Startup Investor School Day 4
Y CombinatorKey Moments
Lessons on angel investing from Ron Conway: focus on founder character, determination, and mentorship. Understand risk and build a portfolio.
Key Insights
Invest in founders first, ideas second, prioritizing character and determination.
Failure is an inherent part of angel investing; winners must compensate for losers.
Building a diverse portfolio across sectors with domain expertise is crucial.
Post-investment value is added through team building, introductions, and mentorship.
Determination and goal-driven focus are key indicators of founder success.
Civic engagement and giving back to the community are important aspects of being a good investor.
THE FOUNDER-FIRST INVESTMENT PHILOSOPHY
Ron Conway emphasizes a founder-centric approach, investing in the character and integrity of the individual before the idea. He likens this to his early days, where it took hours to assess a founder's mettle. Today, he can discern founder quality more quickly, but the core principle remains: the person's drive and determination are paramount. This is particularly crucial because starting a company is exceptionally challenging, and a determined founder is more likely to persevere through difficulties.
EMBRACING FAILURE AS PART OF THE BUSINESS MODEL
Angel investing inherently involves a significant failure rate, with 40-60% of investments typically not succeeding. Conway stresses that this is not a cause for discouragement but an expected part of the business model. Early investors may experience higher failure rates, but dropping out after a single loss is ill-advised. Successful investors understand that the substantial returns from a few big wins must offset the losses from many ventures that don't pan out.
THE STRATEGY OF DISRUPTIVE INDUSTRIES AND GROWTH
Conway's early success in internet software was driven by a strategic focus on identifying the most disruptive industries with exponential growth potential. By teaming up with industry leaders like Ben Rosen, he aimed to capitalize on sectors poised for thousands of percent annual growth. This approach allowed him to target emerging markets, such as internet software even before Netscape existed, recognizing that rapid growth is the engine of innovation.
BUILDING A ROBUST PORTFOLIO AND MITIGATING RISK
For new investors, Conway advocates for a portfolio approach, suggesting investment in 5-10 companies with small checks (e.g., $25,000 each) within a sector of expertise. This strategy diversifies risk, preventing catastrophic loss from a single failed investment. The goal is to achieve a 'win' that covers other losses, allowing for more strategic, less pressured investing with 'house money' thereafter.
ADDING VALUE POST-INVESTMENT: MENTORSHIP AND NETWORKING
Beyond initial investment, Conway's primary value-add is in helping portfolio companies build their teams and secure distribution. This involves leveraging his extensive network to make introductions to key hires, partners, and potential distributors at major tech companies. He also emphasizes encouraging founders to make timely decisions and execute, combating a prevalent wave of procrastination that can hinder growth, even in large, established companies.
ASSESSING FOUNDER DYNAMICS AND TEAM COHESION
A critical area where investments can falter is founder conflict. Conway advises investors to observe founder interactions closely during presentations to gauge potential friction. He stresses the importance of understanding the entire founding team, not just the primary spokespeople, as individuals in support roles can be crucial to the company's business model and overall success. Identifying and addressing potential co-founder disputes early is vital for long-term viability.
THE IMPORTANCE OF CIVIC ENGAGEMENT AND COMMUNITY
Conway links good investing with civic responsibility. He believes in giving back to the community and being civically engaged, encouraging founders to do the same. He draws inspiration from young activists, seeing their potential to effect significant societal change. This broader perspective suggests that successful investors contribute not only to economic growth but also to positive social impact, fostering a healthier ecosystem for everyone involved.
THE ROLE OF TRANSPARENCY AND INTEGRITY IN THE ECOSYSTEM
Maintaining transparency, honesty, and integrity is crucial for the startup ecosystem's health. Conway advocates for clear communication regarding investment terms, such as pro-rata rights and conversion prices. He suggests that investors have a right to understand and verify these details. Upholding these principles prevents reputational damage and ensures a fair playing field, benefiting founders, investors, and the ecosystem as a whole, especially in the early stages of funding.
Mentioned in This Episode
●Software & Apps
●Companies
●Organizations
●People Referenced
Angel Investing Best Practices
Practical takeaways from this episode
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Common Questions
Ron Conway prioritizes the character, integrity, and especially the determination of a founder. He believes founders must be ambitious, driven, and goal-oriented, willing to overcome the immense challenges of starting a company and recruiting the best team.
Topics
Mentioned in this video
Wrote an essay about Ron Conway highlighting his approach to being a good investor. Also a co-founder of Y Combinator.
Member of the team that organized the Startup Investor School course.
Member of the team that organized the Startup Investor School course.
Chairman of Compaq who teamed up with Ron Conway to identify disruptive industries for investment.
Mentioned as an example of a determined and metrics-driven founder, like when he was 19 years old.
Introduced Ron Conway to Y Combinator, leading to Conway's involvement with the accelerator.
Co-founder of Y Combinator, recognized by Ron Conway for her role in effectively screening founders.
The subject of the course and the guest speaker, an experienced angel investor with SV Angel. He shares insights on founder selection, investment strategy, and the business of angel investing.
The operations guy at Google who figured out the AdWords model. Ron Conway met him early on and recognized his potential.
Founder of Sequoia Capital and lead board member/investor at Altos Computer. He mentored Ron Conway and suggested he consider angel investing.
Mentioned as a company where SV Angel makes introductions for their portfolio companies needing partnerships or distribution.
An influential startup accelerator that Ron Conway respects for its rigorous founder screening and impeccable advice, placing it 'head and shoulders above any accelerator'.
The company to which Ron Conway sold Altos Computer.
A company where Ron Conway made introductions and observed the operational brilliance of individuals like Salar Kamangar, who developed the AdWords model.
Mentioned as a company where SV Angel makes introductions for their portfolio companies needing partnerships or distribution.
A microcomputer company founded by Ron Conway in the late 1970s that disrupted the minicomputer industry. He later sold it to Acer.
Another early investment by SV Angel that demonstrated the potential of internet-based companies.
Ron Conway's first employer, where he gained early experience in the tech industry.
An anti-spam company that was among SV Angel's early investments.
An angel investment firm co-founded by Ron Conway, known for its focus on founder character and early-stage internet software investments.
Mentioned as a company where SV Angel makes introductions for their portfolio companies needing partnerships or distribution.
A company founded two years after Ron Conway started investing in internet software, highlighting the early timing of his investment.
A computer company whose chairman, Ben Rosen, partnered with Ron Conway to identify growing industries.
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