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