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.

1. @DaveMcClure
@500Startups http://500.co
#Gitex Dubai - Oct 2016
Farming Unicorns in Emerging Markets
Building Startup & Investor Ecosystems in MENA

2. Dave McClure
Founding Partner, 500 Startups
00’s & 10’s:
• VC: Founders Fund, Facebook fbFund, 500 Startups
• Angel: Mashery, Mint.com, SlideShare, Twilio, Wildfire, SendGrid
• Marketing: PayPal, Simply Hired, Mint.com, O’Reilly
80’s & 90’s:
• Entrepreneur: Aslan Computing (acq’d by Servinet/Panurgy)
• Developer: Windows / SQL DB consultant (Intel, MSFT)
• Engineer: Johns Hopkins‘88, BS Eng / Applied Math

3. • What is 500?
– $275M global seed fund + startup accelerator
– 140 people / 25 languages / 20 countries
– 1700+ Companies / 3500+ Founders / 200+ Mentors
– Investment, Accelerator, Growth Marketing, Events, Education
– Community + Content + Conferences
• 1700+ Co’s / 60+ Countries
– Twilio (NYSE: TWLO)
– Credit Karma
– Grab (aka GrabTaxi)
– Wildfire (acq GOOG, $350M)
– MakerBot (acq SSYS, $400M)
– Viki (acq Rakuten, $200M)
– Behance (acq Adobe, $150M)
– Simple (acq BBVA, $117M)
– Sunrise (acq MSFT, $100M)
– Udemy
– Ipsy
– TalkDesk
– Intercom
500 Startups
Global Seed Fund & Startup Accelerator

4. 500 Falcons Team
Rakan Al Eidi (‫ﺍاﻟﻌﻳﯾﺩدﻱي‬ ‫ﺭرﺍاﻛﺎﻥن‬)
VENTURE PARTNER, 500 Falcons
Hasan Haider (‫ﺣﻳﯾﺩدﺭر‬ ‫ﺣﺳﻥن‬)
GENERAL PARTNER, 500 Falcons
Sharif El Badawi (‫ﺍاﻟﺑﺩدﻭوﻱي‬ ‫ﺷﺭرﻳﯾﻑف‬)
VENTURE PARTNER, 500 Falcons

5. 500 Startups: MENA Portfolio

6. Dinosaurs vs. Cockroaches
LEAN Startup: Simpler, Faster, Cheaper, Smarter
1996
”Big, Fat, Dinosaur Startup”
• Sun Servers
• Oracle DB
• Exodus Hosting
• 12-24mo dev cycle
• 6-18mo sales cycle
• <100M people online
• $1-2M seed round
• $3-5M Series A
• Sand Hill Road crawl
2016
”Lean, Little, Cockroach Startup”
• AWS, Google, PayPal, FB, TW
• Cloud + Open Source SW
• Lean Startup / Startup Wknd
• 3-90d dev cycle
• SaaS / online sales
• >3B people online
• <$100K incub + <$1M seed
• $1-3M Series A
• Angel List global visibility

7. Platforms:
Search, Social, Mobile,
Video, Messaging

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

9. 99 VC Problems
But a Batch Ain’t 1
9
http://bit.ly/99VCProblems

10. Q: Chances of spotting
unicorn?/
a) 1%
b) 2%
c) 5%
d) 10%
e) ZERO

11. Chances of spotting
unicorn = ~1%/

12. If portfolio size = 15/

13. / If portfolio size = 30

14. / If portfolio size = 100

15. Perils of Becoming a Unicorn
(Before/After IPO)
2009 2016
Jeff Lawson, Founder/CEO Twilio (NYSE:TWLO)

16. How Many Startups
to Get to 1 Unicorn?

17. Investor Ecosystem
Funding, Liquidity, Exits
• Bootstrap, FFF, Crowdfunding (0-$100K)
• Angel Investors (0-$100K)
• Accelerators (0-$100K)
• Seed funds ($100K-$1M)
• Series A/B ($2-10M)
• Later Stage Funds ($20M+)
• M&A / Secondary Markets
• IPOs

18. Q: How many VC funds do we
need to build an ecosystem?
• USA: ~800 VC funds; 2.5 per 1M ppl
• China: ~700 VC funds; 0.5 per 1M ppl
• MENA: ~30 funds; 0.1 per 1M ppl
NOT EVEN CLOSE!

19. A Brief History of
US Venture Capital
• first VC funds: ARDC, JH Whitney (1946)
• SBICs / Small Business Investment Act (US, 1958)
• Shockley -> “Traitorous Eight” -> Fairchild (1958) -> Intel (1968)
• Sutter Hill (1964), Venrock (1969), Kleiner, Sequoia (1972)
• ERISA laws + “prudent man rule” (1974, 1978)
• Pension Funds in VCs: $39M (1977) -> $570M (1978) -> $4B (1989)
• Tech Explosion: 80’s, 90’s, 00’s
• 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?
… or…
D) Invest in VCs!*
Q: How to Bring 500 VC Funds
to Emerging Markets?
Umm, NO.

25. Startup Risk Reduction
Concept
Early
Customer
Usage
Scalable
Customer
Acquisition
[about to be]
Profitable
Unit
Economics
Scalable
Profitable
Business
Functional
Prototype
PRODUCT
MARKET
REVENUE
Exit?
When 500
Likes to
Invest

26. The Lean Investor
Make lots of little bets:
• Start with many small “experiments”
• Filter out failures + small wins
• Double-down on stuff that looks like it’s working
• Incubation: $0-100K (“Build & Validate Product”)
• Seed: $100K-$1M (“Test & Grow Marketing Channels””)
• Venture: $1M-$10M (“Maximize Growth & Revenue”)

27. Investment Stage #1:
Product Validation + Customer Usage
• Structure
– 1-3 founders
– $0-$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

28. 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

29. 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

30. The Unicorn “Hedge”
https://500hats.com/welcome-to-the-unicorn-hedge-2fd3c6b50f89
Q: Which is more overvalued? — 100 Unicorn startups or Fortune 500?
TREND: Non-tech public companies buying innovation (aka Unicorns) as a
hedge against the value of their own stock.
Examples: Dollar Shave Club -> Unilever, Cruise -> GM, Jet.com -> Walmart.

31. Startups + Corporation = TEAM
31
Startups:
• Speed
• Talent (People)
• Product / IP
Corporations:
• Customers
• Budget / Money

32. Corporate/Startup
Innovation Framework
Partnerships
Investments
M&A
Outcomes
Strategies
People
Product
Customers
Dealflow
Accelerators
PR & Sponsorships
Competitions & Events
Silicon Valley Outposts
Investing in VC funds

33. Corporate/Startup
Innovation Framework
Outcomes
People
Product
Customers

34. Corporate/Startup
Innovation Framework
Partnerships
Investments
M&A
Outcomes
Strategies
People
Product
Customers

35. Corporate/Startup
Innovation Framework
Partnerships
Investments
M&A
Outcomes
Strategies
People
Product
Customers
Dealflow
Accelerators
PR & Sponsorships
Competitions & Events
Silicon Valley Outposts
Investing in VC funds

36. Different Strategies, Rqmts
Different Outcomes, Impact
Partner Invest Acquire
Effort Low Medium High
Cost Low Medium High
Impact Low Medium High

37. Building Startup Ecosystems

38. Critical Ecosystem Factors
• Optimism & Belief (“Silicon Valley”)
• Mentorship + Education (Knowledge)
• Universities + Companies (People)
• Capital, Legal, Finance (Infrastructure)
• Engineering + Design / UX (Product)
• Platforms + Distribution (Customers)
• Online Payments (Monetization)
• IPO / M&A Market (Exits)

39. What’s Most Critical?
• You DON’T need to be in Silicon Valley, but…
• Silicon Valley Needs to be in YOU.