slides from my Investor Education talk at 500 Startups (May 2015)

1. Angels & Incubators:
Lessons Learned
@DaveMcClure
@500Startups
May 12, 2015

3. Investing 101:
9 steps to not fuck it up
1) enough money (to write checks)
2) good branding / good dealflow (to see good deals)
3) selection intelligence (to choose good deals)
4) valuation sensitivity / negotiation expertise (for reasonable prices)
5) document execution & financial/legal support (to get deals done)
6) some domain of expertise / access to mentors (to help co's win)
7) connections to downstream capital (to help co's get next round)
8) connections to buyers (to help co's find an exit)
9) patience (to wait until they exit)
* on Quora: What does it take to run a successful angel syndicate or fund?

4. Angel Investing
How I Got Started
• Started investing in 2004, as i was leaving PayPal — got to co-invest with folks like Ron Conway, Josh
Kopelman / First Round, Reid Hoffman, Jeff Clavier (SoftTech), Aydin Senkut (Felicis), Mark Goines,
Esther Dyson, other PayPal/Google employees
• Made 13 investments between 2004-2008, total ~$300K, avg $25K each (altho spent $150K on first 2
investments in first year). Most things failed, a few small exits, some advisory wins, and ultimately 3
big (>10X) wins; overall up ~3-5X in 10 years
• Mint ($140M, Intuit, 2009)
• SlideShare ($119M, LinkedIn, 2012)
• Mashery (~$180M+?, 2013)
• Mostly had no idea what i was doing (valuation, legal, etc); some ideas about whether the company doing well (product,
marketing, etc). Was successful mostly because i co-invested with other smart people, and because i got in early on a
few good deals.
• Didn’t allocate any money for follow-on; not sure it mattered all that much.
• Didn’t distribute investments equally or over time; definitely mattered a lot.
• Fortunate to be investing in a market where i had access to good dealflow, reasonable valuations

5. Angel Investing
tips for n00bs & rookies
• Be prepared to lose all the money you invest. (“One can only go to Zero!”)
• Co-Invest w/ Other Smart / Famous Angels & VCs
• Invest small $ in many deals (min 20, ideally 50+) — or focus exclusively on
your expertise, but if so why not just be a founder?
• Develop an area of focus or expertise; build your brand around this
• Bias towards lower-valuation deals, OR higher-valuation deals with proven
metrics / investors
• By default, don’t double-down — but if/when you do, focus on increasing
relative ownership % + clear path to exit.
• Continue to re-evaluate your strategies based on current market conditions +
structural changes to environment
* on Quora: How do angel investors gain traction?

6. Accelerators / Incubators
What does it take?
• Funding / Capital / Budget
• Story / Branding / Focus / Expertise
• Region / Stage / Industry
• Programs & Services
• Product, Design, Market[ing], Metrics, Funding, Recruiting, Pitch Prep, etc
• Dealflow: Access, Selection, Ability to Close
• Mentors / Community
• Downstream Capital
• Wins / Proof Points

7. • pre-2000: worshipping Idealab, Garage.com, etc
• 2001-2004: work at PayPal; meeting angels & VCs
• 2005/6: watching Paul Graham / YC, TechStars
• 2007: teaching Stanford Facebook class
• 2008-10: Founders Fund (Twilio, Credit Karma, SendGrid), ran
Facebook fbFund incubator (Zimride/Lyft, Wildfire, TaskRabbit,
Life360)
• 2010-2015: 500 Startups, 18 acc cohorts (13 US + 5 MX) = 400+
companies, 2-3 $100M+ co’s; 100+ Series A co’s
Accelerators / Incubators
How did Dave/500 get started?

8. Accelerator Economics
tough to be sustainable
• historical: invest $50-100K @ $250K-$2.5M valtn; for
3-10%; keep $10-25K program tuition for overhead
• B14: invest $125K for 5%, keep $25K program tuition
• ~2/3 raise $500K-$2M; ~1/3 Series A; ~15% Series B
• estimate ~10-20% get to an exit in 3-7 yrs; ~5-10% get
to meaningful outcome (>10X) — these #’s will be
worse if you’re new and/or not in Silicon Valley
• current winners: $200M+, $100M+, several @ $50M+

9. Questions?
• Answers: $1
• Correct Answers: $10
• Stupid Looks: Free! :)