+

Beating The
Series A Crunch
Why Growth Hacking / Online Marketing Matters (a lot)

Dave McClure
http://500.co
(@DaveMcC...
This Talk
•
•
•
•
•

You’re a Geek (or traditional marketing flack)
You SUCK at online marketing / growth hacking
You spen...
Dave McClure
Founding Partner & Chief Troublemaker, 500 Startups

00’s & 10’s:
• VC: Founders Fund, Facebook fbFund, 500 S...
500 Startups
•

Global Seed Fund & Startup Accelerator

What is 500?
–
–
–
–
–

•

~$70M under management
26 people / 12 i...
500 Startups: Global Seed Fund
Over 100+ startups outside US, in 35+ countries

• Q4/12 added: Germany, Korea, Peru; + Rus...
Changes in Tech Startups
•

LESS Capital required to build product, get to market
– Dramatically reduced $$$ on servers, s...
Daft Punk Lean Startup:
Simpler, Faster, Cheaper, Smarter
1. Startup Costs = Lower.
2. # Users, Bandwidth = Bigger.
3. Tra...
Startup Investor Ecosystem
Bootstrap, KickStarter,
Crowdfunding

Y-Combinator
TechStars

Angels &
Incubators
($0-10M)

SV ...
Lean Startup, Lean VC
Customers, Metrics, Iteration.
Invest BEFORE Traction;
Double Down AFTER.
The Lean VC:
Lots of Little Bets, Incremental Investment

Method: Invest in lots of startups using incremental
investment,...
Build Product -> Get Customers
• Product = Activation / Retention
• Market(ing) = Acquisition / Referral
• Revenue = Monet...
500 Strategy: “Lots of Little Bets”*
1) Make lots of little
bets pre-traction,
early-stage startups

2) after 6-12 months,...
Investment Stage #1:
Product Validation + Customer Usage
• Structure
– 1-3 founders
– $25-$100K investment
– Incubator env...
Investment Stage #2:
Market Validation + Revenue Testing
• Structure
– 2-10 person team
– $100K-$1M investment
– Syndicate...
Investment Stage #3:
Revenue Validation + Growth
• Structure
– 5-25 person team
– $1M-$10M investment
– Seed & Venture Inv...
Beating The Series A “Crunch”
Customers
Distribution
Revenue
Got Crunched Yet?

Source: Bullpen Capital
Before & After 2 Dot-Com Crashes
Daft Punk Startup: Simpler, Faster, Cheaper, Smarter
Before 2000
•Sun Servers
•Oracle DB
...
Crunch Good? Crunch Bad?
• Series A bar higher: $1M revenue, 1M active users,
10M downloads, 100% YoY growth
• Lots of Inc...
Online Customer Acquisition
(aka “Marketing & Sales”)
Search (Google)
Social (Facebook, Twitter)
Mobile (Apple, Android)
V...
Platforms 2.0
Search, Social, Mobile,
Video, Messaging
Distribution Platforms
Customer Reach: 100M-1B+
• Search: Google, Baidu, Yahoo/Bing, Yandex
• Social: Facebook, Twitter, L...
Minimum Viable Team:
Hacker, Hipster, Hustler
• Hacker: engineers & developers
• Hipster: design & user experience (UX)
• ...
Marketing Strategy
(aka Growth Hacking Strategy)
… how do you get customers & distribution?
lots of old, new channels & de...
Unit Economics
for Customer Acquisition
•
•

What does product cost to build/deliver?
What do customers cost to acquire?
–...
Marketing Strategy
& Financial Modeling
•
•
•
•
•
•
•

Volume, Cost, Conversion
Est. volume of available leads / customers...
Silicon Valley 2.0:
Lots of Little Bets
aka “MoneyBall for Startups”

•
•

VC Evolution: Physician, Scale Thyself (Aug 201...
Angel* List: It Rocks.

•
•
•

Startups & Investors
Activity & Metrics
Platform & APIs

•

*ps – not just for Angels, or U...
Thanks 
• Questions / More Info?
–
–
–
–

http://500.co (our company)
http://500hats.com (my blog)
https://angel.co/500st...
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Seriesacrunch 130711090732-phpapp01

  1. 1. + Beating The Series A Crunch Why Growth Hacking / Online Marketing Matters (a lot) Dave McClure http://500.co (@DaveMcClure) Intl Startup Festival 2013 Montreal, July 2013 http://slideshare.net/dmc500hats
  2. 2. This Talk • • • • • You’re a Geek (or traditional marketing flack) You SUCK at online marketing / growth hacking You spend WAY TOO MUCH TIME on product You can’t scale customer acquisition (profitably) You won’t get funding / Series A,B / break-even Therefore: YOU WILL DIE. • Want to Fix This? Listen Up.
  3. 3. Dave McClure Founding Partner & Chief Troublemaker, 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, oDesk, 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
  4. 4. 500 Startups • Global Seed Fund & Startup Accelerator What is 500? – – – – – • ~$70M under management 26 people / 12 investing partners Locations: SV, NYC, MEX, BRZ, IND, CHN, SE Asia 1000+ Founders / 200+ Mentors 22 positive exits in <3 years 500+ Portfolio Co’s / 30+ Countries – – – – – – – – – – – Wildfire (acq GOOG, $350M) MakerBot (acq SSYS, $400M) Twilio SendGrid TaskRabbit Viki Smule AppStack 9GAG MediaLets PicCollage
  5. 5. 500 Startups: Global Seed Fund Over 100+ startups outside US, in 35+ countries • Q4/12 added: Germany, Korea, Peru; + Russia, Turkey, Ghana in Q2/13 • Priorities in 2012: Brazil, Mexico, India • Priorities In 2013: China, SE Asia, MENA, Eastern Europe
  6. 6. Changes in Tech Startups • LESS Capital required to build product, get to market – Dramatically reduced $$$ on servers, software, bandwidth – Crowdfunding, KickStarter, Angel List, Funders Club, etc – Cheap access to online platforms for 100M+ consumers, smallbiz, etc • MORE Customers via ONLINE platforms (100M+ users) – – – – – – • Search (Google) Social (Facebook, Twitter) Mobile (Apple, Android) Local (Yelp, Groupon, Living Social) Media (YouTube, Pinterest, Instagram, Tumblr) Comm (Email, IM/Chat, Voice, SMS, etc) LOTS of little bets: Accelerators, Angels, Angel List, Small Exits – Y Combinator, TechStars, 500 Startups – Funding + Co-working + Mentoring -> Design, Data, Distribution – “Fast, Cheap Fail”, network effects, quantitative + iterative investments
  7. 7. Daft Punk Lean Startup: Simpler, Faster, Cheaper, Smarter 1. Startup Costs = Lower. 2. # Users, Bandwidth = Bigger. 3. Transaction $$$ = Better.  Building Product => Cheaper, Faster, Better  Getting Customers => Easier, More Measurable Iterative Product & Marketing Decisions based on Measured User Behavior
  8. 8. Startup Investor Ecosystem Bootstrap, KickStarter, Crowdfunding Y-Combinator TechStars Angels & Incubators ($0-10M) SV Angel (Conway) Floodgate (Maples) “Micro-VC” Funds ($10-100M) First Round Union Square Atomico Greylock “Big” VC Funds ($100-500M) “Mega” VC Funds (>$500M) SoftTech (Clavier) Felicis (Senkut) True Foundry Group Andreessen Sequoia
  9. 9. Lean Startup, Lean VC Customers, Metrics, Iteration. Invest BEFORE Traction; Double Down AFTER.
  10. 10. The Lean VC: Lots of Little Bets, Incremental Investment Method: 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). • Incubator: $0-100K (“Build & Validate Product”) • Seed: $100K-$1M (“Test & Grow Marketing Channels””) • Venture: $1M-$10M (“Maximize Growth & Revenue”)
  11. 11. Build Product -> Get Customers • Product = Activation / Retention • Market(ing) = Acquisition / Referral • Revenue = Monetization … <collect underpants> … • Profit!
  12. 12. 500 Strategy: “Lots of Little Bets”* 1) Make lots of little bets pre-traction, early-stage startups 2) after 6-12 months, identify top 20% performers and double-down higher $$$ 3) conservative model assumes -5-10% large exits @20X ($50-100M+) -10-20% small exits @5X ($5-50M) 12 *See Peter Sims book: “Little Bets”
  13. 13. Investment Stage #1: Product Validation + Customer Usage • Structure – 1-3 founders – $25-$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
  14. 14. 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
  15. 15. 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
  16. 16. Beating The Series A “Crunch” Customers Distribution Revenue
  17. 17. Got Crunched Yet? Source: Bullpen Capital
  18. 18. Before & After 2 Dot-Com Crashes Daft Punk Startup: Simpler, Faster, Cheaper, Smarter Before 2000 •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 •Big, Fat, Dinosaur Startup After 2008 •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 •Lean, Little, Cockroach Startup
  19. 19. Crunch Good? Crunch Bad? • Series A bar higher: $1M revenue, 1M active users, 10M downloads, 100% YoY growth • Lots of Incubation / Seed startups will “fail” • BUT: Fail Budget = $50-$500K, not $5M+ • Many “failed” startups = ramen-profitable, small acquisition, or MBA alternative (<$100K) • Series A/B VCs have lots to choose from • Overall, founders / market getting smarter • More focus on customers, problems, revenue • Many die, some survive (1-5x), a few thrive (20x+).
  20. 20. Online Customer Acquisition (aka “Marketing & Sales”) Search (Google) Social (Facebook, Twitter) Mobile (Apple, Android) Video (YouTube) Messaging (Email, SMS, Chat, Voice)
  21. 21. Platforms 2.0 Search, Social, Mobile, Video, Messaging
  22. 22. Distribution Platforms Customer Reach: 100M-1B+ • Search: Google, Baidu, Yahoo/Bing, Yandex • Social: Facebook, Twitter, LinkedIn, TenCent/QQ, WeChat • Mobile: Apple (iOS), Android • Media: Video (YouTube), Photos (Instagram, Pinterest), Blogs • Comm: SMS, IM (WeChat, WhatsApp), Skype, Phone/Voice, etc
  23. 23. Minimum Viable Team: Hacker, Hipster, Hustler • Hacker: engineers & developers • Hipster: design & user experience (UX) • Hustler: marketing & business, “growth hacker” 1.Build functional prototypes 2.Improve UX so people convert 3.Scale customer acquisition & distribution
  24. 24. Marketing Strategy (aka Growth Hacking Strategy) … how do you get customers & distribution? lots of old, new channels & decisions: • • • • • • PR Contests Biz Dev Direct Marketing Radio / TV / Print Telemarketing • • • • • • Email SEO / SEM Social (Paid, Organic) Blogs / Bloggers Mobile Apps Affiliate / CPA 3 Things That Matter / To Measure : 1. Volume 2. Cost 3. Conversion
  25. 25. Unit Economics for Customer Acquisition • • What does product cost to build/deliver? What do customers cost to acquire? – by channel? by campaign? • What are customers worth? – 1st visit / transaction? In a year? Lifetime? • • When do expenses get incurred? When is revenue generated? • Is customer acquisition break-even or better? – – – – For which distribution channels / methods? For what kind of campaigns? Does the channel / campaign scale? Do the #’s change? • When does a customer become profitable? • unit economics @ scale -> marketing strategy / campaigns
  26. 26. Marketing Strategy & Financial Modeling • • • • • • • Volume, Cost, Conversion Est. volume of available leads / customers Est. cust acq costs by channel / campaign Est. customer value / revenue generated Build financial model for scalable, profitable growth Hack, Tweak to scale up Hack, Tweak to break-even • If it’s not working: don’t scale up / keep testing • If it’s working: stop building / go raise $$$ 
  27. 27. Silicon Valley 2.0: Lots of Little Bets aka “MoneyBall for Startups” • • VC Evolution: Physician, Scale Thyself (Aug 2012) MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
  28. 28. Angel* List: It Rocks. • • • Startups & Investors Activity & Metrics Platform & APIs • *ps – not just for Angels, or USA
  29. 29. Thanks  • Questions / More Info? – – – – http://500.co (our company) http://500hats.com (my blog) https://angel.co/500startups (our fund) Dave McClure, @DaveMcClure
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