Startup 2.0: A Silicon Valley Story (Jan 2010)
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Startup 2.0: A Silicon Valley Story (Jan 2010)

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My talk for China Mobile Internet Exec Reception on Startup / Venture Capital trends in Silicon Valley (Jan 2010).

My talk for China Mobile Internet Exec Reception on Startup / Venture Capital trends in Silicon Valley (Jan 2010).

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    Startup 2.0: A Silicon Valley Story (Jan 2010) Startup 2.0: A Silicon Valley Story (Jan 2010) Presentation Transcript

    • Startup 2.0:A Silicon Valley StorySourcing, Selecting & Engineering Better Startups via Incubators, Metrics & Iterative Development
      Dave McClure, Founders Fund
      (twitter: @DaveMcClure)
      China Mobile Internet Exec Reception
      January2010
    • Angels &
      Incubators
      ($0-10M)
      “Seed” Funds
      ($10-50M)
      “Small” VC Funds
      ($50-250M)
      “Large” VC Funds
      (>$250M)
      Silicon Valley Startup Funding Ecosystem
      fbFund
      REV
      Y-Combinator
      TechStars
      FF Angel
      SoftTech (Clavier)
      Maples Investments
      Felicis (Senkut)
      SV Angel (Conway)
      FF I
      Union Square Ventures
      First Round Capital
      FF II
      Benchmark
      Sequoia
    • Topics
      Venture Capital 1.0 = *Broken Model* (for Internet Startups)
      M&A Trends: More, but Smaller Acquisitions, Very Few IPOs
      Incubators: Many Experiments (most FAIL, a few winners)
      Metrics: Define “Success”, Measure & Iterate (Fast + Feedback)
      Platforms 2.0: Social, Mobile, Micro, Inbox, SEO
    • [Pardon The Blatant Commercial]
    • Dave McClure
      Blogger, Startup Advisor
      Internet Marketing,
      Angel/VC Investor
      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
    • Personal Investments (16 deals, 2004-2009, ~$25K avg)
    • Professional Investments (40 deals, Dec 2008 – Dec 2009, ~$75K avg)
      fbFund Incubator
      22 deals ($850K)
      ~$15-75K
      FF Angel LLC
      18 deals ($1.8M)
      ~$50-250K
    • Founders Fund (Selected Investments, 2005-2009, range $1M-20M)
    • Venture Capital 1.0 = Too Big To FAILWIN?(at least for *Internet* Startups)
    • Angels &
      Incubators
      ($0-10M)
      “Seed” Funds
      ($10-50M)
      “Small” VC Funds
      ($50-250M)
      “Large” VC Funds
      (>$250M)
      Startup Funding Ecosystem
      fbFund
      REV
      Y-Combinator
      TechStars
      FF Angel
      SoftTech (Clavier)
      Maples Investments
      Felicis (Senkut)
      SV Angel (Conway)
      FF I
      Union Square Ventures
      First Round Capital
      FF II
      Benchmark
      Sequoia
    • Venture Capital: Still Relevant?
      Good 4 big CAPex:
      Hardware
      Enterprise SW
      Clean Tech
      BioScience
      Wineries (?)
      Not So Great 4:
      • Internet Startups
      • Consulting Shops
      • Lifestyle Biz
      • Porn, Gambling
    • More & Smaller Acquisitions
      Big, Mature Internet Platform Co’s:
      Google, MSFT, Yahoo, Ebay, Amazon, AOL, IAC, Facebook, NewsCorp, Apple, etc
      Lots of Users, $$$
      Outsourcing Innovation
      Lots of M&A (but small)
      Great for Angels & Entrepreneurs
      … Not so Great for VCs
    • Startup Incubators Lots of Hot, Cool, Web 2.0!(+ lots of FAIL, too.)
    • Incubator 2.0 Model
      Method: Invest in startups using incremental investment, iterative development. Start with lots of small experiments, filter out failure, and expand investment upon success.
      Incubator: $0-100K (“Micro-Seed”)
      Angel: $100-$1M (“Seed”)
      VC: $1M-$5M (“Series A, B”)
    • 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
      Emphasis on education, access to shared resources
      Success based on common platforms, physical proximity, open & collaborative environment
      Success based on fast fail, iteration & 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.
      25 startups (2 non-profits)
      $850K total investment (~$35K each)
      12-week mentorship program in Palo Alto, CA
      ~25 Advisors / Speakers (Entrepreneurs, Geeks, Investors)
    • fbFund REV
      fbFund REV: Facebook “Social” Incubator: invest in startups, apps, websites based on Facebook platform, Facebook Connect.
      Education on Tech, Design, Marketing, Business topics
      Demo Day with >200 VC, Angel Investors
      Target: ~7 seed round investments ($250K-$1M)
      Success: ~8 startups funded >$250K, ~5 @ break-even
    • Investment #1: Micro-Seed(“Incubator”)
      Structure
      1-3 founders
      $25K-$100K investment
      Incubator environment: multiple peers, mentors/advisors
      Build Functional Prototype / “Minimum Viable Product” (MVP):
      Concept->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 Follow-on Investment
    • Investment #2: Seed(“Angel”)
      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, Customer Acquisition Channels
      Prove Solution/Benefit, Assess Market Size
      Test Channel Cost, Revenue Opportunity
      Determine Org Structure, Key Hires
    • Investment #3: Series A(“Venture”)
      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
    • Startup Metrics & The Lean StartupMeasure Stuff. Iterate. Rinse & Repeat.
    • The Startup Metrics Religion
      Progress ≠ Features (Less= More)
      Focus on User Experience (& Distribution)
      Measure Conversion; Compare 2+ Options
      Fast, Frequent Iteration (+ Feedback Loop)
      Keep it Simple & Actionable
    • Minimize TOTAL time through the loop
      IDEAS
      LEARN
      BUILD
      DATA
      CODE
      MEASURE
      Source: Eric Ries, The Lean Startup
    • The Startup Pyramid(Sean Ellis, Startup-Marketing.com)
      sean@12in6.com
      Blog: startup-marketing.com
    • AARRR!
      Startup Metrics for Pirates
      Acquisition:users come to site from various channels
      Activation: users enjoy 1st visit: "happy” experience
      Retention: users come back, visit site multiple times
      Referral:users like product enough to refer others
      Revenue: users conduct some monetization behavior
      (note: If you’re in a hurry, Google “Startup Metrics” & watch 5m video)
    • SEO
      Campaigns, Contests
      SEM
      PR
      Biz Dev
      Social Networks
      Affiliates
      Blogs
      Acquisition
      Apps & Widgets
      Direct, Tel, TV
      Referral
      Email
      Viral Loops
      Domains
      Activation
      Homepage / Landing Page
      Retention
      Emails & widgets
      Emails & Alerts
      Product Features
      Affiliates, Contests
      Blogs, RSS, News Feeds
      Biz Dev
      Revenue $$$
      Ads, Lead Gen, Subscriptions, ECommerce
      System Events & Time-based Features
      AARRR!: 5-Step Startup Metrics Model
      Website.com
    • Startup Challenges
      Startups have problems in 3 key areas:
      • Management: Setting Priorities, Defining Key Metrics, Creating Dashboard, Reporting Progress
      • Product: Building the “Right” Features, Getting Product Out Quickly, Testing for User Conversion / Adoption
      • Marketing: Accessing “Web 2.0” Channels (Search, Social, Viral, New Media), Cost-Efficient Distribution
    • Role: Founder/CEO
      Q: Which Metrics? Why?
      A: Focus on Critical Few Actionable Metrics
      (if you don’t use the metric to make a decision, it’s not actionable)
      Hypothesize Customer Lifecycle
      Target ~3-5 Conversion Events (tip: Less = More)
      Test, Measure, Iterate to Improve
    • Role: Product / Engineering
      Q: What Features to Build? Why? When are you “Done”?
      A: Easy-to-Find, Fun/Useful, Unique Features that
      Increase Conversion(stop iterating when increase decelerates)
      Wireframes = Conversion Steps
      Measure, A/B Test, Iterate FAST (daily/weekly)
      Optimize for Conversion Improvement
      80% on existing feature optimization
      20% on new feature development
    • Role: Marketing / Sales
      Q: What channels? Which users? Why?
      A: High Volume (#), Low Cost ($), High Conv (%)
      Design & Test Multiple Marketing Channels + Campaigns
      Select & Focus on Best-Performing Channels & Themes
      Optimize for conversion to target CTAs, not just site/landing page
      Match/Drive channel cost to/below revenue potential
      Low-Hanging Fruit:
      Blogs
      SEO/SEM
      Landing Pages
      Automated Emails
    • Platforms 2.0Social, Mobile,Comm, Inbox, Search
    • Web 2.0 = Good Business
      1) Take Existing Good Business Ideas
      2) Add [a little] Technology
      Blogs, Twitter, Facebook Connect
      Email & SEO
      Social Networks & Friend/Follower lists
      Online Payments
      3) Increase Distribution, Lower Customer Acquisition Cost with Internet
      PROFIT!
    • Platform Viability
      Features
      Successful Platforms have 3 Things:
      1) Features
      2) Users
      3) Money
      Users.
      . Money
      Profit
      Growth
      Nirvana
      Profitable
      Growth
    • Platforms: HOT or NOT?
      Social: Facebook, Twitter, LinkedIn, MySpace?
      Mobile: iPhone, Android?, Palm?
      Comm: Twitter, IM/Chat, Skype, Meebo
      Inbox: Gmail, YahooMail, Hotmail?, AOL?
      Search: Google, Bing/Yahoo
      Payments: Amazon (1-Click), eBay (PayPal), Apple (iTunes), Facebook?, Google?
      Dev: Amazon (AWS), Google AppEngine, Ruby/Rails, Python/Django, etc
      Gaming: Zynga, Playdom, Playfish, RockYou, Slide,
      Other: SalesForce, Craigslist, Wikipedia, YouTube
    • Summary
      VC 2.0 = Fewer, Smaller Funds (<$100M)
      Liquidity = More, Smaller Acquisitions (<$100M)
      Model = Singles (Ichiro), not Home Runs (Barry Bonds)
      Diligence = Lots of Little Checks (+ Metrics + Time)
      Incubators = Many Small Experiments (most FAIL), Education + Shared Resources, Incremental Investment
      Startup Metrics = Define, Measure, Iterate
      Platforms = Distribution + Monetization, not Technology