2. This Talkā¦
ā¢ Changes in Startups + Birth of āMicro-VCā
ā¢ āLean VCā = Quantitative Venture Capital
ā¢ Building Startup Ecosystems
ā¢ āGlobalā Entrepreneurship
3. Dave McClure
Founding Partner & Chief Troublemaker, 500 Startups
00ās & 10ās:
ā¢ VC: Founders Fund, Facebook fbFund, 500 Startups
ā¢ Angel: Mashery, Mint.com, SlideShare, Twilio, Wildfire, SendGrid
ā¢ Marketing: PayPal, Simply Hired, Mint.com, OāReilly
!
!
80ās & 90ās:
ā¢ Entrepreneur: Aslan Computing (acqād by Servinet/Panurgy)
ā¢ Developer: Windows / SQL DB consultant (Intel, MSFT)
ā¢ Engineer: Johns Hopkinsā88, BS Eng / Applied Math
4. 500 Startups
Global Seed Fund & Startup Accelerator
ā¢ What is 500?
ā $120M silicon valley VC fund + startup accelerator
ā 40 people / 13 investing partners
ā Locations: SV/SF, MEX, BRZ, IND, CHN/TWN, KOR, SE Asia, MENA
ā 2000+ Founders / 200+ Mentors
ā Community + Content + Conferences
!
ā¢ 900+ Portfolio Coās / 45+ Countries
ā Wildfire (acq GOOG, $350M)
ā MakerBot (acq SSYS, $400M)
ā Viki (acq Rakuten, $200M)
ā Simple (acq BBVA, $117M)
ā Twilio
ā SendGrid
ā Credit Karma
ā Udemy
ā TheRealReal
ā Barkbox
ā HomeJoy
ā ZipDial
5. This Talkā¦
ā¢ Changes in Startups + Birth of āMicro-VCā
ā¢ āLean VCā = Quantitative Venture Capital
ā¢ Building Startup Ecosystems
ā¢ āGlobalā Entrepreneurship
6. Industry Changes
ā¢ Financial Market Crises (2000, 2008)
ā¢ Startup Efficiency, Lean Startup Movement, Reduced Capital Costs
ā¢ Growing Market, Global Distribution Platforms, āGrowth Hackingā
ā¢ Improved Monetization, Payments Infrastructure
ā¢ Developing Startup Ecosystems, Global M&A
!
ā¢ Micro VC: Seed Funds (ex: First Round Capital)
ā¢ Incubators & Accelerators (ex: Y Combinator, 500 Startups)
ā¢ Funding Platforms (ex: Angel List, Kickstarter)
ā¢ Global Market of Angel Investors, Accelerators, Seed Funds
!
more info: http://PreMoney.co
7. Changes in Tech Startups
ā¢ LESS Capital required to build product, get to market
ā Dramatically reduced cost for servers, software, bandwidth
ā Funding Platforms: KickStarter, Angel List, Funders Club, etc
ā Access to online platforms for 100M-1B+ consumers, smallbiz, etc
!
ā¢ MORE Customers via ONLINE platforms (100M+ users)
ā Search (Google, Baidu)
ā Social (Facebook, Twitter, LinkedIn)
ā Mobile (Apple, Android)
ā E-Commerce (Amazon, Ebay/PayPal, Alibaba)
ā Media (YouTube, Pinterest, Instagram)
ā Comm/Msgs (WeChat/WhatsApp, Email, Voice, SMS, etc)
!
ā¢ LOTS of little bets: Accelerators, Angels, Angel List, Small Exits
ā Capital + Co-working + Mentoring -> Design, Data, Distribution
ā āFast, Cheap Failā, network effects, quantitative + iterative investments
8. Before & After 2 Dot-Com Crashes
Daft Punk Startup: Simpler, Faster, Cheaper, Smarter
Before 2000
āBig, Fat, Dinosaur Startupā
ā¢ Sun Servers
ā¢ Oracle DB
ā¢ Exodus Hosting
ā¢ 12-24mo dev cycle
ā¢ 6-18mo sales cycle
ā¢ <100M people online
ā¢ $1-2M seed round
ā¢ $3-5M Series A
ā¢ Sand Hill Road crawl
After 2008
āLean, Little, Cockroach Startupā
ā¢ AWS, Google, PayPal, FB, TW
ā¢ Cloud + Open Source SW
ā¢ Lean Startup / Startup Wknd
ā¢ 3-90d dev cycle
ā¢ SaaS / online sales
ā¢ >3B people online
ā¢ <$100K incub + <$1M seed
ā¢ $1-3M Series A
ā¢ Angel List global visibility
12. This Talkā¦
ā¢ Changes in Startups + Birth of āMicro-VCā
ā¢ āLean VCā = Quantitative Venture Capital
ā¢ Building Startup Ecosystems
ā¢ āGlobalā Entrepreneurship
13. Silicon Valley 2.0:
Lots of Little Bets
aka āMoneyBall for Startupsā
ā¢ VC Evolution: Physician, Scale Thyself (Aug 2012)
ā¢ MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
14. Investor Education
ā¢ Startups are NOT Real Estate
ā¢ Most Startups Fail / Power Law Returns
ā¢ Portfolio Approach (20+ investments)
ā¢ Legal Structure, Financial Structure
ā¢ Syndication + Co-Investment
ā¢ Access to Downstream Capital
ā¢ Exits & Liquidity
14
15. 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: āLittle Betsā
16. 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.
!
ā¢ Incubator: $0-100K (āBuild & Validate Productā)
ā¢ Seed: $100K-$1M (āTest & Grow Marketing Channelsāā)
ā¢ Venture: $1M-$10M (āMaximize Growth & Revenueā)
17. Investment Stage #1:
Product Validation + Customer Usage
ā¢ Structure
ā 1-3 founders
ā $25-$100K investment
ā Incubator environment: multiple peers, mentors/advisors
!
ā¢ Test Functional Prototype / āMinimum Viable Productā (MVP):
ā Prototype->Alpha, ~3-6 months
ā Develop Minimal Critical Feature Set => Get to āIt Works! Someone Uses It.ā
ā Improve Design & Usability, Setup Conversion Metrics
ā Test Small-Scale Customer Adoption (10-1000 users)
!
ā¢ Demonstrate Concept, Reduce Product Risk, Test Functional Use
ā¢ Develop Metrics & Filter for Possible Future Investment
18. Investment Stage #2:
Market Validation + Revenue Testing
ā¢ Structure
ā 2-10 person team
ā $100K-$1M investment
ā Syndicate of Angel Investors / Small VC Funds
!
ā¢ Improve Product, Expand Customers, Test Revenue:
ā Alpha->Beta, ~6-12 months
ā Scale Customer Adoption => āMany People Use It, & They Pay.ā
ā Test Marketing Campaigns, Customer Acquisition Channels + Cost
ā Test Revenue Generation, Find Profitable Customer Segments
!
ā¢ Prove Solution/Benefit, Assess Market Size
ā¢ Test Channel Cost, Revenue Opportunity
ā¢ Determine Org Structure, Key Hires
19. Investment Stage #3:
Revenue Validation + Growth
ā¢ Structure
ā 5-25 person team
ā $1M-$10M investment
ā Seed & Venture Investors
!
ā¢ Make Money (or Go Big), Get to Sustainability:
ā Beta->Production, 12-24 months
ā Revenue / Growth => āWe Can Make (a lot of) Money!ā
ā Mktg Plan => Predictable Channels / Campaigns + Budget
ā Scalability & Infrastructure, Customer Service & Operations
ā Connect with Distribution Partners, Expand Growth
!
ā¢ Prove/Expand Market, Operationalize Business
ā¢ Future Milestones: Profitable/Sustainable, Exit Options
20. This Talkā¦
ā¢ Changes in Startups + Birth of āMicro-VCā
ā¢ āLean VCā = Quantitative Venture Capital
ā¢ Building Startup Ecosystems
ā¢ āGlobalā Entrepreneurship
21. Startup Investor Ecosystem
!!
Angels &
Incubators
($0-10M)
!
āMicro-VCā Funds
($10-100M)
āBigā VC Funds
($100-500M)
āMegaā VC Funds
(>$500M)
SV Angel
First Round
Union Square
A16Z
Y-Combinator
SoftTech (Clavier)
Felicis (Senkut)
Sequoia
Incubation
Seed
Series A
Series B
Series C+
Bootstrap, KickStarter,
AngelList, Crowdfunding
24. This Talkā¦
ā¢ Changes in Startups + Birth of āMicro-VCā
ā¢ āLean VCā = Quantitative Venture Capital
ā¢ Building Startup Ecosystems
ā¢ āGlobalā Entrepreneurship
25. Local vs Global?
ā¢ Emerging / Developing Markets
ā¢ Global Languages: English, Chinese, Spanish, Arabic
ā¢ Critical Factors: Education, Mentorship, Capital
ā¢ Capital Availability: Incubation, Seed, Series A
ā¢ Positive Macro: SmartPhones, Tablets, Payments,
Logistics, Growing Middle Class, Distribution Platforms
ā¢ Wealthy Global Users, Shoppers, Travelers
26. How Big is Seed Stage Startup Market?
500 VCs invest in 10,000 startups/yr @ $500K/startup = $5B/yr
How many people are entrepreneurs? How many startups get started every year?
ā¢ ~1% of Humanity is āEntrepreneurialā (defān: ācan create a $10M rev/yr businessā)
ā¢ 1% x 7B ppl = 70M entrepreneurs, each of which starts 1-5 businesses lifetime (70 yrs)
ā¢ hypothesis: talented entrepreneurs can create 1-5M new āstartupā businesses every year
!
NOW: letās say we *ONLY* do the top 1% => the best 10,000 startups in the top 200 metros
!
How many metros? How many investors / metro? How many startups / metro?
ā¢ 1 [micro] VC can fund 10-20 startups/yr * $50K-$500K = ~$1-10M/yr annual budget
ā¢ global metros of 1-10M+ ppl can generate 100-1,000 startups / year
ā¢ 1-5 VCs in top 200 metros = 500 VCs x 20 startups/yr = 10,000 startups/yr
ā¢ hypothesis: 500 VCs invest $500K each -> 20 startups/yr = $5B/yr -> 10,000 startups
!
ā¦ so forget about 500 Startups, and start thinking about 500 VCs.
15