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Lean VC: Super-Angels and Accelerators

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An overview explanation of the changing nature of venture funds by Super Angel funds with the use of small bets. And the use of Startup Accelerator Programs in developing startup businesses. Finding …

An overview explanation of the changing nature of venture funds by Super Angel funds with the use of small bets. And the use of Startup Accelerator Programs in developing startup businesses. Finding the perfect People, Products and Market matching them with Mentoring and Money to develop a killer lean startup culture.

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  • 1. Super Angel Funds:Lots of Little Bets & Accelerators aka “MoneyBall for Startups” + • VC Evolution: Physician, Scale Thyself (Aug 2012) • MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010) Slidedeck adapted from Dave McClure - StartUp Grind (Jan 2013)
  • 2. Early-Stage Startups:“Due Diligence” Is An Illusion(Better approach = write a quick, small check then wait ~6 mo’s) • Problems in Early-Stage Due Diligence: • You Might Be Able to Detect Idiots & Liars, but… • Not much history, product, customers, or revenue (yet), so… • You probably can’t figure out Winners (yet). • The New Due Diligence = Incremental Achievements • “Due Diligence” = Trusted Referrals + History (Ideation) • “Great Team” = Functional Prototype + Usage (Acceleration) • “Size of Market” Evidence = Customers, Revenue (Incubation) • The Odds Are: We’re Wrong, They Sink, • We’ll Be Wrong 4x out of 5x. (If We Don’t Suck). • In 6 Months, You’ll Know If They Don’t Stink. • In 1-2 Years, You’ll Know If They’re Awesome.
  • 3. Think Different.
  • 4. Changes in Tech Startups• LESS Capital required to build product, get to market • Dramatically reduced $$$ on servers, software, bandwidth • Crowdfunding, KickStarter, Angel List, Funders Club, etc • Cheap access to online platforms for 100M+ consumers, smallbiz, etc • A few big IPOs @ $1B+, but LOTS of small acquisitions (<$100M)• MORE Customers via ONLINE platforms (100M+ users) • Search (Google) • Social (Facebook, Twitter, LinkedIn) • Mobile (Apple, Android) • Local (Yelp, Groupon, Living Social) • Media (YouTube, Pinterest, Instagram, Tumblr) • Comm (Email, IM/Chat, Voice, SMS, etc)• LOTS of little bets: Accelerators, Super Angels, Small Exits • Y Combinator, TechStars, 500 Startups, GAN • Funding + Co-working + Mentoring -> Design, Data, Distribution • “Fast, Cheap Fail”, network effects, quantitative + iterative investments
  • 5. Web 2.0 + Lean Startup 1. Startup Costs = Lower. 2. # Users, Bandwidth = Bigger. 3. Transaction $$$ = Better. Building Product => Cheaper, Faster, Better Getting Customers => Easier, More MeasurableIterative Product & Marketing Decisionsbased on Measured User Behavior
  • 6. Early-Stage Risk Reduction • 1st Mtg: Crazy, Idiots, Liars or Crooks? • Product: does it work? (crappy, not perfect) • Market: are people using it? (not their mom) • Revenue: will people pay for it? (just a few) • Growth: how will it/they scale? (online? offline?) • Finance: what will it cost? • Q1: cost to get a customer? • Q2: how & when do you make money?
  • 7. Accelerator Criteria:
  • 8. Strategy: “Lots of Little Bets”*1) Make lots of little Quantitative Investing before Traction 30% bets pre-traction, Capital 100+ companies @ $15K avg. (1st check) early-stage startups - Assume high failure rate (up to 80%) Double-Down after 70% Traction Capital2) after 6-12 months, identify 20+ ‘winners’ @ $100K-$1M top 20% performers and (2nd + 3rd check) double-down higher $$$ - - Target 2+ exits @ $100M+3) conservative model assumes- 5-10% large exits @20X ($50-100M+)- 10-20% small exits @5X ($5-50M) *See Peter Sims book: “Little Bets”
  • 9. Startup Accelerators & MetricsLots of Little Bets. Most FAIL.(but a few succeed :)
  • 10. Startup Investor Ecosystem Bootstrap, KickStarter, Crowdfunding Local Accelerator Accelerator TechStars Opportunity (GAN) Angels & Y-Combinator Incubators ($0-10M) 500 Startups Seed SV Angel (Conway) SoftTech (Clavier) “Micro-VC” Funds Floodgate (Maples) ($10-100M) Series A Felicis (Senkut) First Round True Smaller VC Funds Union Square ($100-500M) Series B Foundry Group Atomico Andreessen Larger VC Funds Series C+ (>$500M)Greylock Sequoia
  • 11. Accelerator:Fast, Cheap, FAIL• Accelerator = supportive startup ecosystem (+ angels, VCs)• Efficient use of investment capital ($0-100K)• High fail rate (60-80%) => large initial sample size
  • 12. Accelerator:Education, Collaboration, Iteration• Success based on: • MANY, small experiments • common platforms, customers, problems & solutions • physical proximity, open/collaborative environment • Domain-specific mentors & expertise • fast fail, iteration, metrics & feedback loop• Incremental investment; high-risk, but high-reward
  • 13. Provide:Education & Community• Mentors, Investors• Design, Data, Distribution• Platform Partners• Sponsors & Strategics• Marketing & Visibility
  • 14. Look For:Hacker, Hustler, Hipster • Hacker: engineers & developers • Hipster: design & UX • Hustler: marketing & businessTo do 3 Things:1. Build functional prototypes = (Ideation)2. Improve UX so people convert = (Acceleration)3. Scale customer acq & distribution = (Incubation)
  • 15. Process:Product, Market, Revenue• Product: assess functional use, improve design/UX = (Ideation)• Market: test usage, distribution channels = (Acceleration)• Revenue: test cust acq cost, revenue, *timing* = (Incubation)• Work on Pitch, Help Find Co-Investors, etc
  • 16. The Super Angel Fund: Lots of Little Bets, Incremental InvestmentMethod: Invest in lots of startups using incremental investment, iterative development. Start with many small experiments, filter out failures, and expand investment in successes… (Rinse & Repeat).• Accelerator: $0-100K (“Build & Validate Product”)• Seed: $100K-$1M (“Test & Grow Marketing Channels””)• Venture: $1M-$10M (“Maximize Growth & Revenue”)
  • 17. Investment Stage #1: Product Validation + Customer Usage• Structure • 1-3 founders • $10-$25K investment • Accelerator 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
  • 18. 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
  • 19. 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
  • 20. Thanks • Want more info? • Kelly Schwedland • 219-405-5723 • kellys@abdus.com• slidedeck adapted from Dave Mcclure’s StartUp Grind Mountain View, January 2013• http://slideshare.net/dmc500hats 500.co (@DaveMcClure)