"No one, VC or angel, has invested in more of the top startups than Ron Conway," Y Combinator founder Paul Graham recently wrote. "He knows what happened in every deal in the Valley, half the time because he arranged it."
Graham's essay, The Ronco Principle, argues that the power and influence wielded by Silicon Valley's great angel investor—"Ronco," as he’s known to the startup set, or "the godfather of Silicon Valley," as Fortune put it—come from Conway’s "benevolence." In a world made increasingly transparent by Facebook and Twitter, Conway has befriended (and done good turns for) many of the Valley’s most important figures who have rewarded him by tipping him off to the most promising startups. Conway's firm SV Angel made early investments in PayPal, Google, Facebook, and Twitter, among many others.
If Conway’s track record has been impressive, it has also been increasingly tied to that of Y Combinator, the startup factory Graham cofounded in 2005. Conway has been a fixture at Demo Day, when just-born startups pitch themselves to investors. Since 2007, he and SV Angel have backed more than 100 YC startups, including Dropbox, Optimizely, Zenefits, and Product Hunt. (For a time, Conway indirectly funded every YC startup, as part of Yuri Milner and SV Angel's short-lived Start Fund, an investment vehicle that YC has since taken over.)
Conway is still very much in the game, and it would not be surprising to see SV Angel invest in a few of the sleep-deprived upstarts who have been working nonstop since January in the current Y Combinator batch. (I’ve been following this as part of a Fast Company series.) With Demo Day a little more than two weeks away and YC's AngelConf taking place this weekend, I called Conway, the original superangel, to get a sense of how he plans to sift through these 114 promising companies and how Y Combinator itself has changed the startup ecosystem.
How has the world of startups changed since you started as an angel investor?
To start a startup 20 years ago, you had to have a high-end, database-oriented computer. Today, it's a PC or a Mac with all open-source software. So the barrier to entry has never been lower. That also means that there are more startups, and more confusion as to whom to invest in. That's where the value of YC lies. They are the best screen in the industry for narrowing down to the best startups. YC is the Stanford or Harvard of accelerators. The advice they offer is irreplaceable. Whoever is in second place is 100 rungs down the ladder.
What were your initial impressions of YC? At the beginning, there were the stories that kind of said, "Oh, these are piddling software companies that don't really matter."
Then along came Airbnb and Dropbox.
But did you see that from the beginning?
There was something really special about the way Paul and Jessica [Livingston] nurtured these founders. And then the more I learned about the screening process, the more I was impressed. It’s really tedious, but that's how you find the needle in the haystack.
YC has also brought a lot of transparency to this world, giving everyone at Demo Day access to the startups in a given batch. Investors like you depend on creating a big network, and using your connections. Doesn’t YC in some sense threaten your business model?
No. If they hid all the companies, then I would feel threatened. YC gives the founders a platform where they can meet all the best angels and decide for themselves, "Who is gonna help me? Who has the most expertise in the market segment I am going after?" The way it works at Demo Day is, the investor who adds the most value is the one who will be attractive to the founder.
Have you noticed any change in the companies that are coming out of YC?
The variety has expanded a lot. They're getting Internet of Things companies. There are biotech companies, informatics companies. But they're still getting the best founders. The other thing they've done is they have non-profits that can go to Demo Day and raise money, just like the for-profit companies. How cool is that? I really, really hope that you write about that in the story. [Editor's note: Ronco gets his wish. Next week’s episode will cover this very topic.]
You've been giving me this high-minded analysis, but I'd like you to put on your selfish investor hat for a second. There are 114 companies in the current class. What's your process to figure out which companies you might want to invest in?
I have a slight leg up because I am a speaker at one of the weekly dinners. I'm going to scramble around that room before and after my talk, trying to meet everybody. That's one of the perks of speaking.
What kind of things do you look for, especially given that these are quick conversations?
Well, we invest in people. I've been doing this for 21 years, and I have talked to thousands of entrepreneurs. I'm not looking at their idea. I'm looking at: Are they a leader? Are they focused on their product? Can they attract the team? What are the cofounders like? I can tell within three minutes.
I imagine you get mobbed at these events.
You do get mobbed. The last class, I left the dinner at 11:30 p.m. I didn't leave until every founder who wanted to meet me met me. I got to hear a sound bite on every founder who was interested in saying hello. And then the SV Angel partners will go meet them.
Over the years, investors have complained about how YC has shifted the power dynamic towards entrepreneurs, pushing valuations up and advocating for terms more favorable to founders. What do you think about the griping?
I disagree with all of it, vehemently. YC has leveled the playing field by standardizing the legal documents, so that there doesn't need to be a painful negotiation. What they’ve done is a massive service to the industry. Everyone can just go do their work: Instead of fighting over terms, you're forced to evaluate the quality of each company on its own merit—rather than on terms, which is a waste of time.
What’s your impression of Sam Altman, YC’s new president? Were you surprised when he took the job?
I wasn’t. It's been the most seamless transition ever. YC has been able to scale under Sam's leadership and do more recruiting. They’ve added more partners and taken more companies into each batch.
Is YC, by presenting you with a prescreened batch of companies, ruining all the fun for investors like you?
No, no, no. Because when there's 114 companies, there's plenty to do. It's really a convenience. YC is a convenience store with all the top-quality brands. It's all been curated for you. And you get to go in and be a really smart shopper.