This document discusses building startup ecosystems and the 500 Startups investment strategy. It begins with Dave McClure's background in venture capital and entrepreneurship. It then discusses 500 Startups, which is a $250 million global seed fund and accelerator that has invested in over 1,600 companies across more than 20 countries. McClure outlines 500 Startups' strategy of making many small "moneyball" style bets on early stage startups. He believes this approach maximizes the chances of finding unicorns, or billion dollar companies, despite the high failure rate of startups. The document concludes by discussing the critical factors for building strong startup ecosystems and emphasizes the importance of fostering an entrepreneurial spirit.
19. 500 Strategy: Lots of Little Bets*
1) make lots of little
bets on early-stage
startups when theyโre
just getting started
3) wait 5-10 years for returns:
-10-20% small exits @1-5X ($5-25M+)
-5-10% larger exits @5-20X ($25-250M+)
-1-2% unicorns @20-50X+ ($250M-1B+)
*See Peter Sims book: โLittle Betsโ
2) over the next five years,
double-down on top 20-30%
~500 coโs @ $100K 1st checks
100+ coโs @ $200-500K
2nd/3rd checks
(hope for a few big exits @
$100M-$1B+)
(assume high failure rate ~50-80%)
21. The Lean Investor
Make lots of little bets:
โข Start with many small โexperimentsโ
โข Filter out failures + small wins
โข Double-down on stuff that looks like itโs working
โข Incubation: $0-100K (โBuild & Validate Productโ)
โข Seed: $100K-$1M (โTest & Grow Marketing Channelsโโ)
โข Venture: $1M-$10M (โMaximize Growth & Revenueโ)
22. Investment Stage #1: โจ
Product Validation + Customer Usage
โข Structure
โ 1-3 founders
โ $0-$100K investment
โ Incubator environment: multiple peers, mentors/advisors
โข Test Functional Prototype / โMinimum Viable Productโ (MVP):
โ Prototype->Alpha, ~3-6 months
โ Develop Minimal Critical Feature Set => Get to โIt Works! Someone Uses It.โ
โ Improve Design & Usability, Setup Conversion Metrics
โ Test Small-Scale Customer Adoption (10-1000 users)
โข Demonstrate Concept, Reduce Product Risk, Test Functional Use
โข Develop Metrics & Filter for Possible Future Investment
23. Investment Stage #2: โจ
Market Validation + Revenue Testing
โข Structure
โ 2-10 person team
โ $100K-$1M investment
โ Syndicate of Angel Investors / Small VC Funds
โข Improve Product, Expand Customers, Test Revenue:
โ Alpha->Beta, ~6-12 months
โ Scale Customer Adoption => โMany People Use It, & They Pay.โ
โ Test Marketing Campaigns, Customer Acquisition Channels + Cost
โ Test Revenue Generation, Find Profitable Customer Segments
โข Prove Solution/Benefit, Assess Market Size
โข Test Channel Cost, Revenue Opportunity
โข Determine Org Structure, Key Hires
24. Investment Stage #3: โจ
Revenue Validation + Growth
โข Structure
โ 5-25 person team
โ $1M-$10M investment
โ Seed & Venture Investors
โข Make Money (or Go Big), Get to Sustainability:
โ Beta->Production, 12-24 months
โ Revenue / Growth => โWe Can Make (a lot of) Money!โ
โ Mktg Plan => Predictable Channels / Campaigns + Budget
โ Scalability & Infrastructure, Customer Service & Operations
โ Connect with Distribution Partners, Expand Growth
โข Prove/Expand Market, Operationalize Business
โข Future Milestones: Profitable/Sustainable, Exit Options