GROW2010 Conference - Dave mcclure

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

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

[Pardon The Blatant Commercial]

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

Professional Investments (Founders Fund: 43 deals, Q4/08-Q1/10, ~$3M) fbFund REV 22 incubator deals ($850K) FF Angel 21 seed deals ($2M)

Personal Investments (500 Hats: 26 deals, 2004-2010, ~$400K) LinkDex oneforty Networked Blogs MyGengo Votizen Postling EcoMom SiteJabber Graphicly WePay Plancast Recurly

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
…

Venture Capital 1.0 = Too Big To FAIL WIN ? (at least for *Internet* Startups) Venture Capitalist? Super Angel.

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)

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

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

Platforms 2.0 Search, Social, Mobile

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

Platform Viability Successful Platforms have 3 Things: 1) Features 2) Users 3) Money Users . . Money Features Growth Profit Profitable Growth Nirvana

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

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

Startup Incubators Lots of Hot, Cool, Web 2.0! (+ lots of FAIL .)

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

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

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

Startup Metrics: Lean Startup & Lean VC Measure Stuff, Iterate. (Rinse & Repeat.)

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 ”)

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

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

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

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.

GROW2010 Conference - Dave mcclure

by Dealmaker Media on Aug 23, 2010

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