0
Beating The
Series A Crunch
+ Why Growth Hacking / Online Marketing Matters (a lot)
Dave McClure
http://500.co
(@DaveMcClu...
This Talk
• You’re a Geek (or traditional marketing flack)
• You SUCK at online marketing / growth hacking
• You spend WAY...
Dave McClure
Founding Partner & Chief Troublemaker, 500 Startups
00’s & 10’s:
• VC: Founders Fund, Facebook fbFund, 500 St...
500 Startups
Global Seed Fund & Startup Accelerator
• What is 500?
– ~$70M under management
– 26 people / 12 investing par...
500 Startups: Global Seed Fund
Over 100+ startups outside US, in 35+ countries
• Q4/12 added: Germany, Korea, Peru; + Russ...
Changes in Tech Startups
• LESS Capital required to build product, get to market
– Dramatically reduced $$$ on servers, so...
Daft Punk Lean Startup:
Simpler, Faster, Cheaper, Smarter
1. Startup Costs = Lower.
2. # Users, Bandwidth = Bigger.
3. Tra...
Startup Investor Ecosystem
Angels &
Incubators
($0-10M)
“Micro-VC” Funds
($10-100M)
“Big” VC Funds
($100-500M)
“Mega” VC F...
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...
12
500 Strategy: “Lots of Little Bets”*
1) Make lots of little
bets pre-traction,
early-stage startups
2) after 6-12 month...
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)
• PR
• Contests
• Biz Dev
• Direct Marketing
• Radio / TV / Print
• Telem...
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
• Est. cus...
Silicon Valley 2.0:
Lots of Little Bets
aka “MoneyBall for Startups”
• VC Evolution: Physician, Scale Thyself (Aug 2012)
•...
Angel* List: It Rocks.
• Startups & Investors
• Activity & Metrics
• Platform & APIs
• *ps – not just for Angels, or USA
Thanks 
• Questions / More Info?
– http://500.co (our company)
– http://500hats.com (my blog)
– https://angel.co/500start...
Beating The Series A Crunch (thru clean living & growth hacking :)
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Beating The Series A Crunch (thru clean living & growth hacking :)

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slides from my talk at the International Startup Festival (Montreal, July 2013)

Transcript of "Beating The Series A Crunch (thru clean living & growth hacking :)"

  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 Angels & Incubators ($0-10M) “Micro-VC” Funds ($10-100M) “Big” VC Funds ($100-500M) “Mega” VC Funds (>$500M) TrueFirst Round AndreessenAtomico Y-Combinator TechStars SoftTech (Clavier) Felicis (Senkut) SV Angel (Conway) SequoiaGreylock Union Square Floodgate (Maples) Foundry Group Bootstrap, KickStarter, Crowdfunding
  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. 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) *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) • PR • Contests • Biz Dev • Direct Marketing • Radio / TV / Print • Telemarketing • Email • SEO / SEM • Social (Paid, Organic) • Blogs / Bloggers • Mobile Apps • Affiliate / CPA … how do you get customers & distribution? lots of old, new channels & decisions: 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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