Changes: Startups, Tech, VC• Venture
Capital = Fewer, Smaller Funds – Decline of Larger Funds (> $250m), except for a few HUGE ONES (>$1B) – Rise of “Super Angel” / “Micro-VC” seed funds (<$100M) – Fewer Large IPOs (>$1B), Lots of Small Acquisitions (<$250M) – Small funds typically run by Operators, not MBAs• BIG Customer Platforms = Distribution + Monetization (not Tech) – Search (Google) – Social (Facebook, Twitter) – Mobile (Apple, Android) – Local (Groupon, Living Social)• Incubators, Metrics = Many Small Experiments – Y Combinator, TechStars, 500 Startups – The “Lean Startup”, Design/UX, Distribution – Lots of Little Bets; Incremental Investment
500 Strategy: Lots of Little
Bets1. Start with large, well-screened 30% funnel of early- Fund stage companies. Capital2. After first check / 3-6 70 % months, identify top Fund performers and double- Capital down on best of them1. Build conservative model assuming 5-10% larger exits @ > $100M, 10-20% smaller exits @ <$100M 3
500 Startups: “Super-Angel / Micro-VC”
Fund• Seed Fund & Startup Accelerator – $29M Fund I; $50M Fund II – 9-person team, 4 partners – 10,000 sq ft, HQ in Silicon Valley – 175+ Mentors in 10+ Countries• Fund I Portfolio: 250 co’s – Twilio (Union Square, Bessemer) – Wildfire (Summit) – SendGrid (Foundry, Bessemer) – TaskRabbit (First Round) – MakerBot (Foundry) – Viki (Greylock, Andreessen) – Smule (Bessemer, Granite)
Dave McClure00’s & 10’s:• Investor:
Founders Fund, Facebook fbFund, 500 Startups• Companies: Mint.com, SlideShare, Twilio, WildFire, SendGrid• Marketing: PayPal, Simply Hired, Mint.com, O’Reilly Media• Speaker: Lean Startup, Web 2.0, Stanford/Facebook80’s & 90’s:• Entrepreneur: Founder/CEO Aslan Computing (acq’d)• Developer: Windows / SQL DB consultant (Intel, MSFT)• Engineer: Johns Hopkins‘88, BS Eng / Applied Math
Distribution PlatformsCustomer Reach: 100M+ •
Search: Google (SEO/SEM) • Social: Facebook, Twitter, Zynga, LinkedIn • Mobile: Apple (iPhone, iPad), Android • Local: Groupon, LivingSocial, Yelp, Google, Facebook • Media: Video (YouTube), Blogs, Photos, Music. • Comm: Email, IM, Chat, Phone/Voice.
Lots of Small Bets =
Quantitative Approach • No heroic exit assumptions • Double-down on top 20% • Protected by Law of Large #s.$ Millions $150M+ out 50 companies 150 $250M average exit High Performers $5-10M payback/co. 5% of Portfolio 10+ companies (5%) 100 1-5% Ownership $50M into $100M of 200+ companies return $25M average exit $1-2M payback/co. 50 Great Performers Solid Performers 30+ companies (15%) $ Invested 15% of Portfolio 5-8% Ownership Good Performers $50M of return Ok Performers Ok Performers $1-5M avg exit $ Invested $ Distributed Details 9
The Lean VC: Lots of
Little Bets, Incremental InvestmentMethod: 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”)
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
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
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
Global Trends• Growth of Global
Languages (see MyGengo.com) – 1B+ speakers: Mandarin, English – 300-500M+ spkrs: Spanish, Arabic• Smart Device Proliferation – mobile, tablet, TV, console, etc• More Young, More Old ($$$) Users Online• More Bandwidth, More Video, More Social, More Mobile• Wealthy Chinese + Indian, Web + IRL Globetrotters ($$$B)• Acceleration of Global Payment, E-Commerce• Dramatically Reduced Cost: Product Dev, Customer Acqstn• Global Distribution Platforms – US/EU: Apple, Facebook, AMZN, GOOG (Search, YouTube, Gmail, Android), Twitter – Asia: Tencent/QQ, Taobao/Alibaba/AliPay, Yahoo-J, Softbank, Rakuten, DeNA, Gree
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