0
Changes in Venture Capital +

Building Startup Ecosystems
@DaveMcClure
Founding Partner
@500Startups http://500.co
#MENAsu...
This Talk…
• What is 500 Startups?
• Changes in Tech + VC
• “Lean VC” = Quantitative Venture Capital
• Building Startup Ec...
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?
– $100M silicon valley VC fund + startup accelerator
–...
500 Startups: Global Seed Fund

Over 200+ startups outside US, in 40+ countries
This Talk…
• What is 500 Startups?
• Changes in Tech + VC
• “Lean VC” = Quantitative Venture Capital
• Building Startup Ec...
Industry Changes
• Startup Efficiency, Reduced Capital Costs
• Growing Market, Distribution Platforms
• Financial Market C...
Changes in Tech Startups
• LESS Capital required to build product, get to market
– Dramatically reduced cost for servers, ...
Before & After 2 Dot-Com Crashes

Daft Punk Startup: Simpler, Faster, Cheaper, Smarter
Before 2000
• Sun Servers
• Oracle ...
Lean Startup:

Simpler, Faster, Cheaper, Smarter
!
1. Startup Costs = Lower.
2. # Users, Bandwidth = Bigger.
3. Transactio...
Platforms 2.0

Search, Social, Mobile,
Video, Messaging
Angel List:
Platform for Investors + Startups
• Startups + Metrics
• Founders + Bios
• Investors + Syndicates
• Accelerato...
This Talk…
• What is 500 Startups?
• Changes in Tech + VC
• “Lean VC” = Quantitative Venture Capital
• Building Startup Ec...
Silicon Valley 2.0: 

Lots of Little Bets
aka “MoneyBall for Startups”
• VC Evolution: Physician, Scale Thyself (Aug 2012)...
15
500 Strategy: “Lots of Little Bets”
The Lean VC:

Lots of Little Bets, Incremental Investment
Method: Make little bets in lots of startups using
incremental i...
Investment Stage #1: 

Product Validation + Customer Usage
• Structure
– 1-3 founders
– $25-$100K investment
– Incubator e...
Investment Stage #2: 

Market Validation + Revenue Testing
• Structure
– 2-10 person team
– $100K-$1M investment
– Syndica...
Investment Stage #3: 

Revenue Validation + Growth
• Structure
– 5-25 person team
– $1M-$10M investment
– Seed & Venture I...
This Talk…
• What is 500 Startups?
• Changes in Tech + VC
• “Lean VC” = Quantitative Venture Capital
• Building Startup Ec...
Critical Ecosystem Factors
• Optimism & Belief (“Silicon Valley”)
• Mentorship + Education (Knowledge)
• Universities + Co...
Startup Investor Ecosystem
!
!Angels &
Incubators
($0-10M)
!
“Micro-VC” Funds
($10-100M)
“Big” VC Funds
($100-500M)
“Mega”...
Example Startup Ecosystem
• 1,000 Bootstrap Startups ($0-10K)
• 300 Accelerator Startups ($10-100K)
• 100 Seed-Stage Start...
Entrepreneur Education
• Business Plans
• Functional Prototypes
• Lean Startup
• Software Engineering / Design & UX
• Onli...
Investor Education
• Startups are NOT Real Estate
• Most Startups Fail / Power Law Returns
• Portfolio Approach (10-20+ in...
This Talk…
• What is 500 Startups?
• Changes in Tech + VC
• “Lean VC” = Quantitative Venture Capital
• Building Startup Ec...
Local vs Global?
• Emerging / Developing Markets
• Global Languages: English, Chinese, Spanish, Arabic
• Critical Factors:...
Questions? Comments?
• More Info?
– http://500.co (our company)
– http://500hats.com (my blog)
– https://angel.co/500start...
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Building Startup Ecosystems (Bahrain, May 2013)

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Slides from my talk on Changes in Venture Capital + Building Startup Ecosystems, at the MENA Angel Investor Summit (Bahrain, May 2013)

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Transcript of "Building Startup Ecosystems (Bahrain, May 2013)"

  1. 1. Changes in Venture Capital +
 Building Startup Ecosystems @DaveMcClure Founding Partner @500Startups http://500.co #MENAsummit Bahrain - May 2014
  2. 2. This Talk… • What is 500 Startups? • Changes in Tech + VC • “Lean VC” = Quantitative Venture Capital • Building Startup Ecosystems • Global Entrepreneurship • Q & A
  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, 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? – $100M silicon valley VC fund + startup accelerator – 30+ people / 10 investing partners – Locations: SV, NYC, MEX, BRZ, IND, CHN, SE Asia – 1500+ Founders / 200+ Mentors – Community + Content + Conferences ! • 750+ Portfolio Co’s / 40+ Countries – Wildfire (acq GOOG, $350M) – MakerBot (acq SSYS, $400M) – Viki (acq Rakuten, $200M) – Simple (acq BBVA, $117M) – Twilio – SendGrid – Credit Karma – Udemy
  5. 5. 500 Startups: Global Seed Fund
 Over 200+ startups outside US, in 40+ countries
  6. 6. This Talk… • What is 500 Startups? • Changes in Tech + VC • “Lean VC” = Quantitative Venture Capital • Building Startup Ecosystems • Global Entrepreneurship • Q & A
  7. 7. Industry Changes • Startup Efficiency, Reduced Capital Costs • Growing Market, Distribution Platforms • Financial Market Crises (2000, 2008) • Lean Startups ! • Micro VC: Seed Funds (ex: First Round Capital) • Incubators & Accelerators (ex: Y Combinator, 500) • Funding Platforms (ex: Angel List, Kickstarter) • Growing Global Market of Angel Investors ! more info: http://PreMoney.co (June 27th, San Francisco)
  8. 8. Changes in Tech Startups • LESS Capital required to build product, get to market – Dramatically reduced cost for servers, software, bandwidth – Funding Platforms: KickStarter, Angel List, Funders Club, etc – Access to online platforms for 100M-1B+ consumers, smallbiz, etc ! • MORE Customers via ONLINE platforms (100M+ users) – Search (Google) – Social (Facebook, Twitter) – Mobile (Apple, Android) – Media (YouTube, Pinterest, Instagram, Tumblr) – Comm (Email, WeChat/WhatsApp/Line/Kakao, Voice, SMS, etc) ! • LOTS of little bets: Accelerators, Angels, Angel List, Small Exits – Y Combinator, TechStars, 500 Startups – Capital + Co-working + Mentoring -> Design, Data, Distribution – “Fast, Cheap Fail”, network effects, quantitative + iterative investments
  9. 9. 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
  10. 10. 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
  11. 11. Platforms 2.0
 Search, Social, Mobile, Video, Messaging
  12. 12. Angel List: Platform for Investors + Startups • Startups + Metrics • Founders + Bios • Investors + Syndicates • Accelerators + Online Applications • Jobs + Talent 12
  13. 13. This Talk… • What is 500 Startups? • Changes in Tech + VC • “Lean VC” = Quantitative Venture Capital • Building Startup Ecosystems • Global Entrepreneurship • Q & A
  14. 14. 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)
  15. 15. 15 500 Strategy: “Lots of Little Bets”
  16. 16. The Lean VC:
 Lots of Little Bets, Incremental Investment Method: Make little bets in lots of startups using incremental investment, iterative development. Start with many small experiments, filter out failures, and expand investment in successes. ! • Incubator: $0-100K (“Build & Validate Product”) • Seed: $100K-$1M (“Test & Grow Marketing Channels””) • Venture: $1M-$10M (“Maximize Growth & Revenue”)
  17. 17. 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
  18. 18. 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
  19. 19. 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
  20. 20. This Talk… • What is 500 Startups? • Changes in Tech + VC • “Lean VC” = Quantitative Venture Capital • Building Startup Ecosystems • Global Entrepreneurship • Q & A
  21. 21. Critical Ecosystem Factors • Optimism & Belief (“Silicon Valley”) • Mentorship + Education (Knowledge) • Universities + Companies (People) • Capital, Legal, Finance (Infrastructure) • Engineering + Design / UX (Product) • Platforms + Distribution (Customers) • Online Payments (Monetization) • IPO / M&A Market (Exits) 21
  22. 22. Startup Investor Ecosystem ! !Angels & Incubators ($0-10M) ! “Micro-VC” Funds ($10-100M) “Big” VC Funds ($100-500M) “Mega” VC Funds (>$500M) TrueFirst Round A16ZAtomico Y-Combinator TechStars SoftTech (Clavier) Felicis (Senkut) SV Angel (Conway) SequoiaGreylock Union Square Floodgate (Maples) Foundry Incubation Seed Series A Series B Series C+ Bootstrap, KickStarter, Crowdfunding
  23. 23. Example Startup Ecosystem • 1,000 Bootstrap Startups ($0-10K) • 300 Accelerator Startups ($10-100K) • 100 Seed-Stage Startups ($100K-$1M) • 30 Series A/B Startups ($1-10M) • 10 Later-Stage Companies ($10-100M) • 1-3 Mature Company IPOs ($100M+) 23
  24. 24. Entrepreneur Education • Business Plans • Functional Prototypes • Lean Startup • Software Engineering / Design & UX • Online Marketing / Unit Economics • Monetization & Payments • Customer Service + Support • Fundraising & Pitch 24
  25. 25. Investor Education • Startups are NOT Real Estate • Most Startups Fail / Power Law Returns • Portfolio Approach (10-20+ investments) • Legal Structure, Financial Structure • Syndication + Co-Investment • Access to Downstream Capital • Exits & Liquidity 25
  26. 26. This Talk… • What is 500 Startups? • Changes in Tech + VC • “Lean VC” = Quantitative Venture Capital • Building Startup Ecosystems • Global Entrepreneurship • Q & A
  27. 27. Local vs Global? • Emerging / Developing Markets • Global Languages: English, Chinese, Spanish, Arabic • Critical Factors: Education, Mentorship, Capital • Capital Availability: Incubation, Seed, Series A • Positive Macro: SmartPhones, Tablets, Payments, Logistics, Growing Middle Class, Distribution Platforms • Wealthy Global Users, Shoppers, Travelers
  28. 28. Questions? Comments? • 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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