Dave McClure is a founding partner at 500 Startups, a global seed fund and startup accelerator. 500 Startups has invested in over 1700 companies across 60+ countries. McClure discussed building startup ecosystems in emerging markets like MENA. He said the critical factors include optimism, mentorship, universities/talent, capital/infrastructure, product skills, platforms/customers, payments, and exit opportunities like IPOs and acquisitions. The most important thing is developing a culture of innovation and entrepreneurship locally, even if not physically located in Silicon Valley.
8. Data from ~600 companies from 500 Startups Funds I + II (2010 - 2013 cohorts)
$1-10M
Q: How Many Startups to Get 1 Unicorn?
Unicorns 50:1 | Centaurs 20:1
18. Q: How many VC funds do we
need to build an ecosystem?
โข USA: ~800 VC funds; 2.5 per 1M ppl
โข China: ~700 VC funds; 0.5 per 1M ppl
โข MENA: ~30 funds; 0.1 per 1M ppl
NOT EVEN CLOSE!
19. A Brief History of
US Venture Capital
โข first VC funds: ARDC, JH Whitney (1946)
โข SBICs / Small Business Investment Act (US, 1958)
โข Shockley -> โTraitorous Eightโ -> Fairchild (1958) -> Intel (1968)
โข Sutter Hill (1964), Venrock (1969), Kleiner, Sequoia (1972)
โข ERISA laws + โprudent man ruleโ (1974, 1978)
โข Pension Funds in VCs: $39M (1977) -> $570M (1978) -> $4B (1989)
โข Tech Explosion: 80โs, 90โs, 00โs
โข Microsoft (1975), Apple (1976), Oracle (1977), Sun (1982), Cisco
(1984), Amazon (1994), eBay (1995), Yahoo (1995), Google (1998),
PayPal (1998), LinkedIn (2002), Facebook (2004), Twitter (2006)
20. Q: How to Bring 500 VC Funds
to Emerging Markets?
21. A) Invite VCs to Dinner?
Q: How to Bring 500 VC Funds
to Emerging Markets?
22. A) Invite VCs to Dinner?
B) Give VCs some Arabic Coffee?
Q: How to Bring 500 VC Funds
to Emerging Markets?
23. A) Invite VCs to Dinner?
B) Give VCs some Arabic Coffee?
C) Take VCs for a Ride on a Camel?
Q: How to Bring 500 VC Funds
to Emerging Markets?
Umm, NO.
24. A) Invite VCs to Dinner?
B) Give VCs some Arabic Coffee?
C) Take VCs for a Ride on a Camel?
โฆ orโฆ
D) Invest in VCs!*
Q: How to Bring 500 VC Funds
to Emerging Markets?
Umm, NO.
26. 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)
27. 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
28. 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
29. 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