GROW2010 Conference - Dave mcclure
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  • 1. The Lean VC: a Silicon Valley 2.0 Story Dave McClure, 500 Startups ( @DaveMcClure ) http://500startups.com GROW conference - August 2010 – Vancouver, CA Re-Inventing Venture Capital & Angel Investing through Innovation, Incubation, & Iteration
  • 2. Lean VC - Topics
    • 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, Nitobi
      • 500 Startups
  • 3. [Pardon The Blatant Commercial]
  • 4. Dave McClure
      • 2001-2009:
      • Startup Investor: 500 Hats LLC, Founders Fund
      • Tech Marketing : PayPal, Simply Hired, Mint
      • Advisor, Angel Investor : 40+ Startups
      • Conf. Organizer : Web 2.0, O’Reilly, Startonomics
      • Stanford Visiting Lecturer : Facebook, Startup Metrics
      • 80’s & 90’s:
      • Entrepreneur : Founder/CEO Aslan Computing (acq.)
      • Developer : Windows Apps / SQL DB Admin
      • User Groups : E-Commerce, Internet, Client-Server
      • Engineer : Johns Hopkins ‘88, BS Eng / Applied Math
    GEEK, CODER, ENTREPRENEUR Blogger, Startup Advisor Internet Marketing, SuperAngel/Micro-VC
  • 5. Professional Investments (Founders Fund: 43 deals, Q4/08-Q1/10, ~$3M) fbFund REV 22 incubator deals ($850K) FF Angel 21 seed deals ($2M)
  • 6. Personal Investments (500 Hats: 26 deals, 2004-2010, ~$400K) LinkDex oneforty Networked Blogs MyGengo Votizen Postling EcoMom SiteJabber Graphicly WePay Plancast Recurly
  • 7. 500 Startups LP Mountain View, CA – Founded 2010
    • Seed Fund & Incubator Program
    • Design , Distribution , Metrics ( AARRR! )
    • 30+ Portfolio Companies ($50K-250K)
      • Twilio
      • Wildfire
      • Sendgrid
      • MyGengo
      • Erply
      • MyGengo
      • Payvment
      • Tello
  • 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 Benchmark Sequoia Angels & Incubators ($0-10M) “ Seed” Funds ($10-50M) “ Small” VC Funds ($50-250M) “ Large” 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:
    • Most 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, $$$
    • Outsourcing Innovation
    • Lots of M&A (but small)
    • Great for Angels & Entrepreneurs
    • Not so Great for (big) VCs
  • 12. Platforms 2.0 Search, Social, Mobile
  • 13. Web 2.0 : Good Times, G .
    • # Users, Bandwidth = Bigger .
    • Startup Costs = Lower .
    • Transaction$$$ = Better .
    • Building Product => Cheaper, Faster, Measurable
    • Getting Customers => Easier, More Predictable
    • Product & Market 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
        • Email/IM : 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 , Apple
      • Email, ECommerce
    • 3) Get Customers , Make Money G
      • 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. Startup 2.0: “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 ”)
  • 23. 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
  • 24. 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
  • 25. 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
  • 26. 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.