This is how Sam Altman picks the best startups investments

As explained by Sam in a Y Combinator startup investing presentation.

We know Sam Altman as the founder of OpenAI, but he’s also an angel investor & previously the President of Y Combinator.

He’s invested in 90+ companies such as Airbnb, Reddit, Stripe & had 18+ exits.

He shared in a Y Combinator presentation called “The why & how of angel investing” exactly how he chooses the best startup investments.

The how, what and why of angel investing

→ Don’t get swayed by what other successful investors think.

People always want to jump ship & invest in what a few people decided was good to invest in.

Be an independent thinker.

→ Understand the power law.

Your single best investment will be better than all the rest.

In other types of investing people look to hit a bunch of singles, but angel investing is a business of home runs.

→ Ask first “how big could this be if it works?”

Instead of asking “what could go wrong?”

If you ask that first, you’ll filter out all the best companies.

→ The value of an open network.

One of the reasons YC was so successful was because they were one of the first accelerators to be open to anyone, it didn’t matter if they had a network or how prestigious they were.

They accepted all ideas and spoke to everyone.

As an angel investor, don’t limit yourself, speak to everyone & always be available to founders for tactical advice.

9/10 times it won’t be worth it, but that 1 time is the 1 you’re aiming for.

→ Your reputation matters a lot.

Be good to work with. Founders must respect you and recommend you if you’re playing the long game.

It’s not worth fighting over a failing company to squeeze the last few drops, rather have a good reputation.

→ Value investing is not a good angel investing strategy.

Some of his best deals were the ones that felt too expensive, because the company was working & moving fast or because he understood something others didn’t.

→ Pick founders vs ideas.

It’s hard to tell in the beginning stages if an idea has a $10b potential, but with practice you can identify founders who have a chance at coming up with one of these ideas.

Don’t fund someone you don’t enjoy spending time with.

→ Traits to look for in founders:

Obsession, focus, frugality, love, intelligence, creativity, ability to think independently, sees new ways of solving problems, excellent communication skills, execution speed, rate of improvement of founder

→ Prefer a small but rapidly growing market.

If it’s already a big market there’s tons of competition.

It’s very difficult to identify small & growing markets, so think about if something is a real trend (people use the platform & are active users) or fake trend (hype).

→ Our intuition about potential growth is terrible, you need to model this out.

Look for a company that gets more powerful as it gets bigger, gets a bigger price increase, gets easier to get more users, gets harder to compete with.

Don’t rely on your intuition for this.

Learn more about Sam Altman’s angel investing portfolio.

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