Silicon Valley swag: Sam Altman's most successful angel investments

Published

October 10, 2024

This week in our Angel Chronicles series we take a look into the angel investments of Sam Altman.

You’ve probably heard of Sam Altman by now, and if you haven’t, you’ve definitely heard of ChatGPT. Well, he’s the founder of OpenAI, the company that owns ChatGPT.

Not only is he a brilliant tech entrepreneur, he’s also an incredible startup investor. Along with his brother, he has a fund called “Apollo” which invests in moonshot companies. He was a partner at Y Combinator (most popular startup accelerator in the USA) before becoming President in 2016, and he’s also an active angel investor.

His net worth hasn't been disclosed but it's estimated to be approximately $250 million.

In this article, we take a look at his angel investing portfolio, his most prominent exits, and his angel investing advice and framework which he has written and talked about in his blog and at Y Combinator presentations. But first, a quick background on his entrepreneurial life.

Who is Sam Altman?

‍Sam Altman was born and raised in Colorado. From a young age, he displayed an early aptitude for computer programming, and his passion for technology would go on to shape his entire career.

Sam's early success came with the launch of Loopt, a pioneering location-based social networking app that quickly gained widespread popularity. It also got seed funding from the first batch of Y Combinator. The company was acquired by Green Dot Corporation for $43.4 million in 2012.

This venture earned him recognition as one of the most promising young entrepreneurs in the tech industry.

After selling Loopt, together with his brother Jack Altman, he established Hydrazine Capital in 2012. The San Francisco-based venture capital firm focuses on investing in early-stage companies in a diverse range of sectors, including life sciences, specialty foods, marketplaces, big data, healthcare, consumer networks, enterprise software, internet-connected hardware, and education.

In 2015, he co-founded OpenAI along with Greg Brockman, Trevor Blackwell, Vicki Cheung, Andrej Karpathy, Durk Kingma, John Schulman, Pamela Vagata, Wojciech Zaremba, Elon Musk, Reid Hoffman, Jessica Livingston, Peter Thiel, and others, who put down $1 billion.

His angel investing portfolio

Although Sam has invested in 25 verticals, he has invested most in Enterprise Applications, Technology, Consumer, and Fintech. He has made more than 90 angel investments in companies such as:

Airbnb
Stripe
Reddit
Pinterest
Asana
FarmLogs
Teespring
Alt
Helion Energy
Robolow

Most notable exits

Sam has had more than 18 angel exits, the most notable being:

Virool
Nervana
Exec
Kimono Labs
Asana
Quill
Oyster
URX
Optimizely
and more.

His advice to angel investors

1. Do not care about what other investors think

You should have an independent way of thinking. The most common mistake that investors make is caring too much about what other investors have to say.

You can easily get swayed by the opinions of successful investors. Most investors outsource 80% of their decision-making process to what others think about investment opportunities. However, the problem is that everyone does that.

It's best to free yourself from this and think independently.

2. The power law is crucial

The power law states that the single best investment you make will be worth more in return than all the other investments combined. Your second-best investment will be better than the third and subsequent investments put together. This is a truth that most investors find deeply counter-intuitive. As a result, almost everyone invests the wrong way.

Instead of focusing on the failure rate, you should concentrate on the magnitude of your biggest success. You could have a 95% failure rate, but if one investment returns a billion dollars, you would still be happy.

Concentrate on finding companies that could potentially be the handful of businesses responsible for most returns.

3. Help founders for free

The most successful angel investors typically begin by helping founders for free. A lot of it is about people connecting you to other individuals you don't know.

It's best to be open to random emails and introductions from people that, on paper, may not seem like someone you want to meet. While you may waste your time nine times out of ten, there will be that one time that will be worth it.

What to look for in founders when making angel investments

1. Creativity & independent thinking

When evaluating founders, investors should look for a combination of intelligence, creativity, and independent thinking. Founders who are able to generate new ideas regularly and think of problems in unique ways are more likely to succeed. Additionally, strong communication skills are important, as founders must be able to sell their product and set a direction for their company.

‍2. Execution speed

Execution speed and iteration speed are also critical factors. Founders who can quickly implement and test new ideas are more likely to achieve success. Investors should also pay attention to a founder's rate of improvement over time, rather than comparing them to more established leaders.

‍3. Motivation

Beware of founders who may be motivated by the wrong reasons, such as the desire to get rich quickly. Starting a startup requires a long-term commitment and a mission-driven focus.

Investors should seek out truly exceptional founders who inspire confidence and have the potential to lead their company to success.

‍4. Communication skills

Founders must be able to communicate effectively. Everything that founders do, from raising money, to hiring, to selling their product, requires excellent communication.

‍Sam Altman's due diligence process as an angel investor

‍Market size: it's not the only metric to consider

Investors have long been fixated on the size of the market as the most important factor when considering a potential investment. However, this narrow focus can lead to missed opportunities.

Instead, investors should be looking at the potential size of the market in 10 years. But even then, it's important to remember that a small market that is growing rapidly can be more attractive than a large market that is stagnant.

The key is to identify the next rapidly growing market and invest there. This requires independent thought and the ability to form your own opinions about what the next big thing will be. Avoid the mistake of chasing the thing that worked two years ago or investing in a company where there are already hundreds of competitors.

Real trends vs. fake trends: usage matters most

Investing in a real trend requires a deeper understanding of the product and how it is being used. A real trend is one where people are using the platform every day and spontaneously telling their friends how great it is. For example, when the iPhone first came out, it was initially mocked by many in the mobile industry, but users raved about it and used it for hours every day.

On the other hand, virtual reality is often touted as the next big trend, but many people who own VR headsets don't use them regularly. When considering a potential investment, it's important to focus on real trends and look for products that are so good that people spontaneously recommend them to their friends.

The importance of exponential growth

The most successful startups are those that experience exponential growth. This means that the company gets more powerful and valuable as it gets bigger. Investors should focus on companies that have the potential for significant growth in the future, even if they may not be profitable today.

When considering a potential investment, it's important to model out the potential for exponential growth. Look for companies that are experiencing significant monthly growth and have the potential for increasing pricing power as they get bigger. By focusing on these factors, investors can identify the startups with the most potential for success.