This document summarizes Dave McClure's talk on changes in venture capital and building startup ecosystems. Some of the key points discussed include:
1) The venture capital industry and tech startups have changed significantly since the dot-com era, requiring less capital and using online platforms to reach more customers.
2) A "Lean VC" approach of making many small bets on early-stage startups in seed rounds has replaced the traditional large funding rounds of the past.
3) Critical factors for building strong startup ecosystems include mentorship, universities, capital, infrastructure, and successful exits through IPOs or acquisitions.
12. This Talk…
• Changes in Tech + VC
• “Lean VC” = Quantitative Venture Capital
• Building Startup Ecosystems
• Global Entrepreneurship
• Q & A
13. Silicon Valley 2.0:
Lots of Little Bets
aka “MoneyBall for Startups”
• VC Evolution: Physician, Scale Thyself (Aug 2012)
• MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
14. 500 Strategy: Lots of Little Bets*
1) make lots of little
bets on pre-traction,
early-stage startups
2) in 6-24 months,
double-down on top
20-30% performers
3) wait 3-7 years for returns:
-5-10% large exits @20X+ ($50-100M+)
-10-20% small exits @5X ($5-50M)
*See Peter Sims book: “Little Bets”
15. The Lean VC:
Lots of Little Bets, Incremental Investment
Method: Make little bets in lots of startups using
incremental investment, iterative development.
Start with many small experiments, filter out failures,
and expand investment in successes.
!
• Incubator: $0-100K (“Build & Validate Product”)
• Seed: $100K-$1M (“Test & Grow Marketing Channels””)
• Venture: $1M-$10M (“Maximize Growth & Revenue”)
16. Investment Stage #1:
Product Validation + Customer Usage
• Structure
– 1-3 founders
– $25-$100K investment
– Incubator environment: multiple peers, mentors/advisors
!
• Test Functional Prototype / “Minimum Viable Product” (MVP):
– Prototype->Alpha, ~3-6 months
– Develop Minimal Critical Feature Set => Get to “It Works! Someone Uses It.”
– Improve Design & Usability, Setup Conversion Metrics
– Test Small-Scale Customer Adoption (10-1000 users)
!
• Demonstrate Concept, Reduce Product Risk, Test Functional Use
• Develop Metrics & Filter for Possible Future Investment
17. Investment Stage #2:
Market Validation + Revenue Testing
• Structure
– 2-10 person team
– $100K-$1M investment
– Syndicate of Angel Investors / Small VC Funds
!
• Improve Product, Expand Customers, Test Revenue:
– Alpha->Beta, ~6-12 months
– Scale Customer Adoption => “Many People Use It, & They Pay.”
– Test Marketing Campaigns, Customer Acquisition Channels + Cost
– Test Revenue Generation, Find Profitable Customer Segments
!
• Prove Solution/Benefit, Assess Market Size
• Test Channel Cost, Revenue Opportunity
• Determine Org Structure, Key Hires
18. Investment Stage #3:
Revenue Validation + Growth
• Structure
– 5-25 person team
– $1M-$10M investment
– Seed & Venture Investors
!
• Make Money (or Go Big), Get to Sustainability:
– Beta->Production, 12-24 months
– Revenue / Growth => “We Can Make (a lot of) Money!”
– Mktg Plan => Predictable Channels / Campaigns + Budget
– Scalability & Infrastructure, Customer Service & Operations
– Connect with Distribution Partners, Expand Growth
!
• Prove/Expand Market, Operationalize Business
• Future Milestones: Profitable/Sustainable, Exit Options
19. This Talk…
• Changes in Tech + VC
• “Lean VC” = Quantitative Venture Capital
• Building Startup Ecosystems
• Global Entrepreneurship
• Q & A