Silicon Valley 2.0: The Lean Investor

  • 5,937 views
Uploaded on

Slides from my presentation on venture capital innovation at Nov 2010 Nokia Growth Partners event: "Customer Driven Design & The Lean Startup"

Slides from my presentation on venture capital innovation at Nov 2010 Nokia Growth Partners event: "Customer Driven Design & The Lean Startup"

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
No Downloads

Views

Total Views
5,937
On Slideshare
0
From Embeds
0
Number of Embeds
1

Actions

Shares
Downloads
113
Comments
0
Likes
10

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide
  • I know, too many bullets…

Transcript

  • 1. The Lean VC: a Silicon Valley 2.0 Story Dave McClure Founding Partner, 500 Startups ( @DaveMcClure ) http://500startups.com Nokia Growth Partners – Nov 2010, SF Re-Inventing Venture Capital & Angel Investing through Innovation, Incubation, & Iteration
  • 2. Changes, Oh.
    • Venture Capital 2.0 = Fewer, Smaller Funds (<$100M)
      • Death of Large Funds
      • Birth of Super Angel Funds
      • M&A Market Changes
    • Platforms = Distribution + Monetization (not Tech)
      • Search (Google)
      • Social (Facebook, Twitter)
      • Mobile (Apple, Android)
    • Incubators & Metrics = Many Small Experiments (most FAIL )
      • Y-Combinator, TechStars, SeedCamp
      • Betaworks, fbFund REV, AngelPad
      • 500 Startups
  • 3. Dave McClure: Bio
      • 2000-2010:
      • Investor : 100+ Startups (Mint, SlideShare, Twilio, WildFire)
      • Blogger: Ranked #7 on Top 10 VC blogs (2009)
      • Marketing : PayPal, Simply Hired, Mint, O’Reilly, Founders Fund
      • Community : Startup2Startup , GeeksOnaPlane , StartupVisa
      • Speaker : Startup Metrics for Pirates, Stanford Facebook class
      • 80’s & 90’s:
      • Entrepreneur : Founder/CEO Aslan Computing (acq.)
      • Developer : Windows App Dev / SQL DB Admin
      • Engineer : Johns Hopkins ‘88, BS Eng / Applied Math
  • 4. 500 Startups LP Mountain View, CA – Founded 2010
    • Seed Fund & Startup Accelerator Program
    • Design , Distribution , Data ( AARRR! )
    • 50+ Portfolio Companies
      • Twilio
      • Wildfire
      • SendGrid
      • MyGengo
      • Erply
      • Payvment
      • FlowTown
      • Medialets
  • 5. 500 Hats LLC (Personal Investments: 13 deals, 2004-2008, ~$300K) Results: 1 exit @ $170M (9x), +3-6 future wins 2 addtl exits @ $50M, $70M (advisory roles) Bix (acq YHOO) Jambool (acq GOOG)
  • 6. Founders Fund (Incubator/Seed Program: 43 deals, 2008-2010, ~$3M) Results : 8 raised seed rd $500K+ 3 small exits Results : 6 raised Series A $2M+ 2 raised Series B $5-10M+ 1 early exit @ 4x FanBridge Facebook fbFund 22 incubator deals ($850K) FF Angel LLC 21 seed deals ($2M)
  • 7. 500 Startups LP Fund I (50+ investments @ ~$100K avg) Wildfire Crave Tello AwayFind Indinero MyGengo Revnetics Mogotix EcoMom Zencoder GazeHawk Crocodoc SayHired Recurly AppBistro Foodspotting Gantto Medialets Rapportive TransFS SiteJabber GinzaMetrics Estately FlowTown OneForty Twilio Postling Plancast ElaCarte WePay Zappli Format Baydin GroupSpaces Rapportive Apsalar Bunndle Udemy Brainient ReadyForZero Graphicly StoryJumper OtherInbox Viikii Zozi One True Fan Formative Labs Networked Blogs
  • 8. Venture Capital 1.0 = Too Big To FAIL WIN ? (at least for *Internet* Startups) Venture Capitalist? Super Angel.
  • 9. Silicon Valley Investor Ecosystem True Ventures First Round Capital Union Square Blue Run Angels & Incubators ($0-10M) “ Seed” Funds ($10-50M) VC Funds ($50-250M) VC Funds (>$250M) Y-Combinator TechStars SoftTech (Clavier) FloodGate (Maples) Felicis (Senkut) SV Angel (Conway)
  • 10. Venture Capital: Still Relevant?
    • Good 4 big CAPex:
    • Hardware
    • Enterprise SW
    • Clean Tech
    • BioScience
    • Facebook, Zynga,
    • Groupon
    • Not So Great 4:
    • Consumer / SMB Internet Startups ?
    • Consulting Shops
    • Lifestyle Biz
    • Porn, Gambling
  • 11. More & Smaller Acquisitions
    • Mature Internet Platform Co’s:
      • GOOG, MSFT, YHOO, EBAY, AOL, AMZN, AAPL, INTU, ADBE, Fbook
    • Lots of Users, $$$
    • Outsourcing Innovation
    • Lots of M&A (but small)
    • Great for Angels & Entrepreneurs
    • Not so Great for (big) VCs
  • 12. Platforms 2.0 Search, Social, Mobile
  • 13. Web 2.0 : Good Times .
    • # Users, Bandwidth = Bigger .
    • Startup Costs = Lower .
    • Transaction $$$ = Better .
    • Building Product => Cheaper, Faster, Better
    • Getting Customers => Easier, More Measurable
    • Product & Marketing Decisions based on
    • Measured User Behavior
    R.I.P. *BAD* TIMES
  • 14. Platform Viability Successful Platforms have 3 Things: 1) Features 2) Users 3) Money Users . . Money Features Growth Profit Profitable Growth Nirvana
  • 15. Distribution Platforms
      • Customer Reach: 100M+
        • Search : Google (SEO/SEM)
        • Social : Facebook , Twitter , Zynga, LinkedIn
        • Mobile : Apple (iPhone, iPad), Android , Blackberry
        • Media : YouTube /Video, Blogs, Photos
        • Inbox : Gmail , Yahoo, Microsoft
  • 16. Web 2.0 Business Model: KISS 
    • 1) Re-invent Web 1.0 Businesses
      • Make a Website, a Widget, an App
      • Sell Stuff to People (Transactions, Subscriptions)
    • 2) add Web 2.0 Tech nology
      • Search , Social , Mobile
      • Google , Facebook/Twitter , Apple/Android
      • Email, ECommerce
    • 3) Get Customers , Make Money
      • Distribution, Distribution, Distribution
  • 17. Startup Incubators Lots of Hot, Cool, Web 2.0! (+ lots of FAIL .)
  • 18. Incubator 2.0: Fast, Cheap, FAIL
    • Incubators growing in popularity, acceptance
    • Supportive ecosystem for startups (angels, VCs)
    • Efficient use of investment capital ($0-100K)
    • High fail rate (60-80%) => large initial sample size
  • 19. Incubator 2.0: Education, Collaboration, Iteration
    • Focus on education & shared resources
    • Success based:
      • many small startup experiments
      • common platforms, problems & solutions
      • physical proximity, open/collaborative environment
      • fast fail, iteration, metrics & feedback
    • Incremental investment; high-risk, but high-reward
  • 20. fbFund REV
    • fbFund REV : Facebook “Social” Incubator: invest in startups, apps, websites based on Facebook platform & Facebook Connect.
    • 22 startups @ ~$35K each ($850K total)
    • 3 month program: Technology, Design, Marketing, Business topics
    • Success: ~ 8 startups funded >$500K – Wildfire Interactive raised $4M
  • 21. Startup Metrics: Lean Startup -> Lean VC Measure Stuff, Iterate. (Rinse & Repeat.)
  • 22. “ Just Gimme the GOOD Leads” Users, Pages, Clicks, Emails, $$$...?
    • Q: Which of these is best? How do you know?
      • 1,000,000 one-time, unregistered unique visitors
      • 500,000 visitors who view 2+ pages / stay 10+ sec
      • 200,000 visitors who clicked on a link or button
      • 20,000 registered users w/ email address
      • 2,000 passionate fans who refer 5+ users / mo.
      • 1,000 monthly subscribers @ $5/mo
    the good stuff.
  • 23. Lean Startup Challenges
    • Startups have problems in 3 main areas:
      • Management : Set Priorities, Define Key Metrics, Make Decisions .
      • Product : Build the “Right” Features. Measure, Iterate .
      • Marketing : Distribution, Distribution, Distribution .
  • 24. Role: Founder/CEO
    • Q: Which Metrics? Why?
    • A: Focus on Critical Few Actionable Metrics
      • (if you don’t use the metric to make a decision, it’s not actionable)
    • Hypothesize Customer Lifecycle
    • Target ~3-5 Conversion Events (tip: Less = More)
    • Test, Measure, Iterate to Improve
  • 25. Role: Product / Engineering
    • Q: What Features to Build? Why? When are you “Done”?
    • A: Easy-to-Find , Fun / Useful , Unique features that
    • Increase Conversion (stop iterating when increase decelerates)
    • Wireframes = Conversion Steps
    • Measure, A/B Test, Iterate FAST (daily/weekly)
    • Optimize for Conversion Improvement
      • 80% on existing feature optimization
      • 20% on new feature development
  • 26. Role: Marketing / Sales
    • Q: What channels? Which users? Why?
    • A: High Volume (#), Low Cost ($), High Conv (%)
    • Design & Test Multiple Marketing Channels + Campaigns
    • Select & Focus on Best-Performing Channels & Themes
    • Optimize for conversion to target CTAs, not just site/landing page
    • Match/Drive channel cost to/below revenue potential
    • Low-Hanging Fruit:
      • Blogs
      • SEO/SEM
      • Landing Pages
      • Automated Emails
  • 27. “ Lean Investor” Model
    • Method : Invest in many startups using incremental investment, iterative development. Start with lots of small experiments, filter out failure, and expand investment upon success… ( Rinse & Repeat) .
    • Incubator : $0-100K (“ Build & Validate Product ”)
    • Seed : $100K-$1M (“ Test & Grow Market ing Channels” ”)
    • Venture : $1M-$10M (“ Maximize Growth & Revenue ”)
  • 28. Investment #1: Incubate (“Product”)
    • Structure
      • 1-3 founders
      • $25K-$100K investment
      • Incubator environment: multiple peers, mentors/advisors
    • Build Functional Prototype / “ Minimum Viable Product ” ( MVP ):
      • Prototype->Alpha, ~3-6 months
      • Develop Minimal Critical Feature Set => Get to “ It Works ”
      • Instrument Basic Dashboard, Conversion Metrics
      • Test Cust. Adoption (10-1000 users) / Cust. Satisfaction (Scale: 1-10)
    • Demonstrate Concept, Reduce Product Risk, Test Functional Use
    • Develop Metrics & Filter for Possible Future Investment
  • 29. Investment #2: Seed (“Market”)
    • Structure
      • 2-5 person team
      • $100K-$1M investment
      • Syndicate of Angel Investors / Small VC Funds
    • Improve Product, Expand Market , Test Revenue:
      • Alpha->Beta, ~6-12 months
      • Customer Sat ≥ 6 => Get to “ Doesn’t Suck ”
      • Setup A/B Testing Framework, Optimize Conversion
      • Test Marketing Campaigns, Cust Acqstn Channels
    • Prove Solution/Benefit, Assess Market Size
    • Test Channel Cost, Revenue Opportunity
    • Determine Org Structure, Key Hires
  • 30. Investment #3: Venture (“Revenue”)
    • Structure
      • 5-10 person team
      • $1M-$5M investment
      • VC Investors
    • Make Money , Get to Sustainability:
      • Beta->Production, 12-18 months
      • Customer Sat ≥ 8 => “ It Rocks, I’ll Tell My Friends ”
      • MktgPlan => Predictable Channels / Campaigns + Budget
      • Scalability & Infrastructure, Customer Service & Operations
      • Connect with Distribution Partners
    • Prove/Expand Market, Operationalize Business
    • Future Milestones: Profitable/Sustainable, Exit Options
  • 31. Summary
    • Venture Capital 2.0 = Fewer, Smaller Funds (<$100M) + More, Smaller Exits (<$100M)
    • Platforms 2.0 = Distribution + Monetization, not Tech
    • Incubators, Metrics = Many small Experiments (most FAIL ).
      • Measure Stuff.
      • Iterate, Iterate, Iterate.