
Startup Investor School: The Basics of Seed Investing - sandslash
http://blog.ycombinator.com/startup-investor-school/
======
aaavl2821
I think the biggest opportunity for seed investors today is actually in bio,
but most people won't touch it as there's a perception you have to be a dr or
phd to know the space. Which is an unfortunate misconception, bc the
opportunity is huge. A program educating seed investors on bio would be super
valuable

Biotech venture returns have outperformed techs in recent years, with more
IPOs, higher m&a returns and shorter time to exit. Counterintuitively for
those who think bio is too capital intensive and it takes too long to get
drugs approved, the best exits have been early stage deals where under $20-30M
is invested

I know a few seed investors who've had several high multiple exits less than
18 months from seed, including one that sold for over $1B in less than 18
months

Despite this exit environment, the number of seed / early stage investors in
biotech has not grown in over a decade. VCs have responded by just seeding /
starting companies in house, but there are tons of great seed stage companies
that just go unfunded bc people are intimidated by biotech

~~~
rfc
Just adding my own slight perspective here. We launched a bootstrapped genome
sequencing facility August last year. With barely any advertising and word of
mouth, we're clearing around 8% MoM revenue growth and are forecasting
~$350k-400k in revenue this year.

Biggest problem? We don't have enough float to keep up with demand. There's
significant demand in the life sciences & biotech space right now - especially
with the confluence of software and bio. It's been very hard to talk to
investors because (no offense) they hear life sciences, bio, genetics, etc.
and they turn away because it's out of their comfort zone of investing.

If you're an angel or seed investor, I'd highly recommend diving in and
learning more around the problems of the space. They are large, lucrative, and
have high probability of disruption compared to current status.

~~~
aaavl2821
That's awesome to hear, congrats! Ive been starting to hear a lot of interest
in genomics / bio-IT from generalist VCs. obviously groups like a16z and 8VC
have recognized this opportunity already (and YC is starting to), but
anecdotally a lot of other funds are diving into bio-IT. One of the challenges
is that the seed environment hasn't matured yet to bridge these companies to
VC funding

It's funny, I talk to people about bio and they say "I'm not a scientist, I
can't invest here" however they realize they can invest profitably into things
like AI without being data scientists / math PhDs. In many ways, bio is no
different than any other technical field: learn enough to be dangerous, know
how to lean on experts where appropriate, and you can get involved

~~~
rfc
Completely agree. A lot of the big VCs are investing in the fundamental
biology side of it. However, there is so much room for advancements in the
equipment, gene panels, automation, lab analytics, etc.

As an example, we just bought a device called an Eppendorf EpMotion 5075. It
costs around $20k and looks like it was something I would have built in high
school. Exposed wires, slow, insanely expensive parts. Worst of all: there's
no API for us to programmatically connect it with other devices in the lab,
such as a DNA extractor.

You also hit the nail on the head with the investment mentality. Know enough
to be dangerous. Ask "why" to learn more about the problems. And (IMO) most
importantly, realize that you don't have to put down $1M as a seed. You'd be
shocked at the ROI on just even $50k...

~~~
aaavl2821
Out of curiosity, what's your business model and customer base? Do you offer
sequencing as a service, have proprietary analytics / software, other lab
services, experimental design, etc?

~~~
rfc
We're an all-inclusive service provider (currently), meaning that researchers
simply send their samples in and get insights back. We take care of the DNA
extraction, sample QC, library prep, sequencing, bioinformatics, and data
storage.

There are a couple clients of ours that we're testing our sequencing as a
service where we generate monthly contracts and they get the exact same
service, protocols, etc. in record turnaround time.

Client base includes companies like Children's National Hospital, UCSD,
Pfizer, USDA. Nothing proprietary just yet (except it being really hard) but
we're using profits from services revenue to develop IP-driven gene pipelines
and informations. Basically specific gene panels and software paired together.
We're one of 2 commercial companies in the country offering HLA-Typing which
is the same integrated pipeline as described above.

Additionally, we're passively starting to develop high resolution data sets to
ingest into a database at some point around specific novel variants, such as
HLA Typing, to accelerate research

The end goal is to virtualize the entire lab so that anyone can start
research, whether academic of pharmaceutical, from a home office. This means
building a software layer that allows them to directly create, design, and
implement protocols that interface with the equipment in the lab. So instead
of building a $1M lab, you just log in online and run your experiments.

You can think of it as what AWS did to the data center.

~~~
aaavl2821
Very cool, i work with a lot of CROs but haven't had a need for genomics
sequencing yet. In small biotech companies we rely exclusively on these firms
as we don't have our own labs, or if so, dont have a genomics core. There has
been an explosion in biotech startups using genomics so would imagine there's
a lot of demand for this, and you can make good margins if you are a quality
and differentiated service provider. I realize you probably already know this
but in the spirit of informing people about bio investing figured I'd share :)

Are you in San Diego by chance (just guessing bc UCSD)? I work with a virtual
biotech there and we contract out all of our r&d. We don't do genomics but
some of our investors have other portfolio companies that might be interested
in your services

~~~
rfc
We're located in Colorado actually. Low rent makes for cheaper rates for our
customers.

What's ironic is that even though UCSD has one of the premier genomics cores
in the world, their lead time and prices are astronomical. We converted an
entire UCSD department from their facility to ours by simply improving speed,
price, and turnaround. We're finding that the big facilities have so much
overhead that they can ONLY focus on big projects, leaving a huge gap in the
market for the smaller guys.

If they're interested, we're happy to have conversations. Our website is:
[https://www.thesequencingcenter.com](https://www.thesequencingcenter.com)
We're always looking to connect with other folks who are just annoyed with the
general way things are operating.

~~~
aaavl2821
Awesome, thanks for passing along. We face a lot of issues with lead time for
non-genomics applications and if our CRO doesn't have a piece of equipment and
we dont have an "in" at ucsd / stanford / berkeley etc, we wait in line.
sometimes for months...

will pass your info along, thanks!

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billmalarky
Basics of seed investing rule number 1:

Have $1 million in assets outside of your primary home or make $200k+ per year
for the last 2 years with the reasonable assumption you will continue to.

~~~
lisper
I've done >20 seed investments, and here is my Rule #1: you can do seed
investing as a hobby, or you can do it as a business.

If you do it as a hobby, count on losing every penny you put in, and treating
that as the cost of pursuing your hobby.

If you do it as a business, count on working on it full time, i.e. AT LEAST 40
hours a week, and probably more like 60-80. The competition is fierce. And I
would not do it with less than $1M in LIQUID assets which I could afford to
lose. The reason you need this much is that in order to have a good shot at a
return you need to be able to do two things: 1) invest in a pretty broad
portfolio (i.e. at least 10 companies) and 2) have enough money to participate
in follow-on rounds so you don't get diluted into oblivion.

~~~
tlb
Mileages vary, but I haven't found dilution to be a big problem. Dilution only
gets large when companies go through near-death experiences, and those are
often followed by real death.

Follow-on investments are economically just like making later-stage
investments. The average return can be good, but you can also lose all your
money and you need much more capital to participate.

~~~
k__
Sure, but if the company does good and you believe in it, why not throw some
extra money at it and get a bigger part of the pie :)

~~~
tlb
Sure. But you should think of it like a new late-stage investment, on par with
investing in any other late-stage company whether you were in on the seed
round or not. Concern about not getting diluted sounds like a sunk cost
fallacy, which can lead to suboptimal decisions.

~~~
rahimnathwani
That was my first thought as well.

Is there any good reason why these opportunities for follow-on investment
might have higher expected returns than, e.g. putting the same amount of money
into other seed investments? e.g. is it possible that if you participate in
the follow-on, that you get some extra leverage to convert your previous
shares into a more favourable class?

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birken
This strikes me as a very odd class for them to be doing.

1\. YC has no problem filling up Demo Day, and I know of even high qualify,
professional angel investors who don't get the in person invite. So it isn't
like they have a shortage of angel investors. If they wanted to have more and
more diverse angels at their event, they could just find a bigger venue, which
YC seems averse to.

2\. Isn't this a big conflict of interest? This is a company teaching me the
basics of angel investing who conveniently happens to directly financially
benefit if there are more angel investors pumping money into their companies.
Now I'm sure the class will be done well because YC generally does that, but
I'm surprised YC is even wading into this. Angel investing is either a bad or
at best extremely risky way for the average (even rich) person to invest their
money in. Hopefully YC has a lot of disclaimers at the beginning of this class
about this fact. I'm all for more information being out there, but angel
investing is the type of thing where depending on which facts you omit you can
make it seem very different from what it is.

~~~
ErikVandeWater
My first thought is that YC considers 2 to not not be a conflict of interest
because of 1. They don't need more funds for their startups; this is just a
donation of knowledge to the world to help Angel Investors get more money to
the right startups, (presumably) making the world better for everyone.

~~~
hkmurakami
2 is not a conflict of interest because increased capital supply means better
terms for their companies. YC's interests lie first and foremost with its own
funds (its LPs) and its batch companies. Increasing the competition for
dealflow amongst angels does not conflict with _their_ interests.

It will however likely suppress returns of existing angel/seed investors, as
deal values are inflated.

Fwiw the timing of this makes sense. We are seeing reports of the angel/seed
market drying up as the wave of post 2010 first time angels have lost their
enthusiasm (or capital), and seed fundraising in 2018 is much much harder than
in 2015.

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indescions_2018
Timing could not be more perfect for this. There's a new generation of
investors out there. Some flush with cash from crypto trades. Others simply
benefiting from the record bull run in tech stocks. That are now seeking to
re-invest. Get in on the ground floor. And discover the next great
opportunity.

There is a decided lack of investor education. As well as rigor. And opening
up YC's methodology will have as large an impact as the introduction of
convertible notes. Further, introducing new investors to how their money can
be used for maximum impact and progress. Which naturally leads to outsized
IRR. Will steer them away from the pitfalls of say, going all in on their best
friend from junior high school's BBQ-flavored tequila distillery.

And regarding the sourcing of dealflow. There are definitely myriad untapped
ways for the greater YC community to introduce talented startup founders and
seed stage investors. AngelList is fantastic. The ability to post MVPs to
ShowHN is tremendous. But something like a curated Youtube channel or Twitch
livestream where people can pitch or watch demos 24/7 around the world at
their convenience would be amazing.

------
jacquesm
I really hope that they will manage to reach a large audience with this, early
stage investors are more often than not even more clueless than first time
founders.

Educating both groups goes a long way towards getting everybody on the same
page.

------
staunch
YC is surprisingly unambitious. They have access to unlimited amounts of
capital and do almost nothing with it. Maybe because they compare themselves
to the truly terrible investors they're surrounded by, and so it feels
ambitious by comparison?

This announcement should be about a new $1 billion fund that they're going to
use to deputize and train a thousand new angel investors. Or at least
something big enough to move the needle.

Observing YC's evolution is a bit like watching someone take over Philip II of
Macedon's empire and using it to march around Greece in circles.

~~~
GraffitiTim
I would argue YC is extremely ambitious, especially under Sam Altman. However,
ambition doesn't have to mean immediately investing billions of dollars in new
areas. Huge ambitions can start as small experiments to see what's promising.
That's how YC itself started too. Like a startup.

~~~
staunch
YC's mission is ostensibly to create more startups than would otherwise exist.
So how many startups would not exist in 2018 if YC didn't exist? A hundred
maybe? The number can't be large because they don't do anything at scale yet.

And yet there's potential for thousands of new startups to exist each year.
Most people don't believe this, maybe not even YC, but that's what I'd call
lack of ambition.

When ICOs (equity crowdfunding) comes into its own we will have a measure of
how unambitious Silicon Valley has been. I predict it will be a shocking
revelation.

~~~
bflesch
That's an interesting viewpoint, I appreciate you sharing your opinion on
this.

------
jameslk
Is there a way to watch the stream without having to be an accredited investor
or will the video be posted publicly?

~~~
sandslash
All the videos and transcripts will be posted publicly after the course ends.

~~~
jameslk
Thank you! I see a new link was posted. For others, this seems to be where you
can follow public updates:

[https://investor.startupschool.org/spectators/new](https://investor.startupschool.org/spectators/new)

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whataretensors
You just need 2 steps.

Step 1: Be born into money.

Step 2: Put that money into opportunities prescreened by YC.

A lot will fail but there's a few exponents in there too so you can just
shotgun anything interesting. Also don't worry if you miss the first round.
There's several more rounds before the public gets any chance to invest - if
they ever do at all.

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conanbatt
Thank you SEC, you made my day.

------
Dowwie
Please record these sessions and share them on Youtube. YC has done a great
job with sharing its content!

------
jzamora
Do I have to sign up for the online version?

~~~
jacquesm
Yes:

[https://apply.ycombinator.com/events/149](https://apply.ycombinator.com/events/149)

~~~
sandslash
Sorry about that, that was an old link to apply that somehow made it through
our draft! The link to apply is here:
[https://investor.startupschool.org/register](https://investor.startupschool.org/register)

------
beambot
Feature request: public transcripts.

~~~
jacquesm
That's a boatload of work. I had them done for the first start-up school, if
you want to do that properly it takes quite a bit of time.

~~~
seizethecheese
Startup opportunity. A way for people to indicate they're interested in
transcripts and pledge a specific amount they'd be willing to pay. Once
$PLEDGED > $COST_OF_TRANSCRIPTS, pledgers get charged, transcripts get made
and emailed.

~~~
jacquesm
Username checks out ;)

Good one. I'd use it.

------
kalal
business(business(business))

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fudged71
[Deleted]

~~~
sandslash
That was an error on our part; somehow our old event link was used. The
correct link to apply is actually at
[https://investor.startupschool.org/register](https://investor.startupschool.org/register).

Apologies for that!

~~~
fudged71
Alright, thank you!

