The Lean VC, Global Edition (March 2011, London)
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The Lean VC, Global Edition (March 2011, London)

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My slightly modified Lean VC 2.0 presentation, for talk in London @ Telegraph 100 event (March 2011).

My slightly modified Lean VC 2.0 presentation, for talk in London @ Telegraph 100 event (March 2011).

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  • = ENTREPRENEURS WANTED =

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The Lean VC, Global Edition (March 2011, London) The Lean VC, Global Edition (March 2011, London) Presentation Transcript

  • Venture Capital 2.0 : The [Global] Lean VC Dave McClure http://500startups.com ( @DaveMcClure ) Telegraph Start-Up 100 – March 2011 Re-Inventing Venture Capital Investing through Innovation, Incubation, & Iteration http://slideshare.net/dmc500hats
  • Changes, Oh.
    • Platforms = Distribution + Monetization (not Technology)
      • Search (Google)
      • Social (Facebook, Twitter, YouTube)
      • Mobile (Apple, Android)
    • Incubators & Metrics = Many Small Experiments (most FAIL )
      • Y-Combinator, TechStars, SeedCamp
      • Betaworks, fbFund REV, AngelPad
      • 500 Startups
    • Venture Capital = Fewer, Smaller Funds (<$100M)
      • Decline of Large Funds (> $250m), except for the HUGE ONES.
      • Birth of “ Super Angel” / “Micro-VC” seed funds ($10-100M)
      • Market Changes: Fewer IPOs (>$1B), More/Smaller Acq’stns (<$250M)
  • Dave McClure: Bio
      • 2000-2010:
      • Investor : 100+ Startups (Mint, SlideShare, Twilio, WildFire)
      • Marketing : PayPal, Simply Hired, Mint.com, Founders Fund
      • Community : Startup2Startup , GeeksOnaPlane , StartupVisa
      • Speaker : Startup Metrics, Stanford Facebook class
      • 80’s & 90’s:
      • Entrepreneur : Founder/CEO Aslan Computing (acq.)
      • Developer : Windows App Dev / SQL DB Admin
      • Engineer : Johns Hopkins ‘88, BS Eng / Applied Math
  • 500 Startups Seed Fund Mountain View, CA – Founded 2010
    • Seed Fund & Startup Accelerator (10,000 sq ft)
    • Design , Distribution , Data
    • 100+ Portfolio Companies
      • Twilio
      • Wildfire
      • SendGrid
      • MyGengo
      • Erply
      • Moonfruit
      • GroupSpaces
      • Medialets
      • ChinaNetCloud
  • Read Geoffrey Miller Sex + Evolution + Consumer Mktg = Awesome Sauce
  • Other Great Shit. Psychology + Comics
  • Platforms 2.0 Search, Social, Mobile
  • Web 2.0 : Good Times .
    • # Users, Bandwidth = Bigger .
    • Startup Costs = Lower .
    • Transaction $$$ = Better .
    • Building Product => Cheaper, Faster, Better
    • Getting Customers => Easier, More Measurable
    • Product & Marketing Decisions based on
    • Measured User Behavior
    R.I.P. *BAD* TIMES
  • Platform Viability Successful Platforms have 3 Things: 1) Features 2) Users 3) Money Users . . Money Features Growth Profit Profitable Growth Nirvana
  • Distribution Platforms
      • Customer Reach: 100M+
        • Search : Google (SEO/SEM)
        • Social : Facebook , Twitter , Zynga, LinkedIn
        • Mobile : Apple (iPhone, iPad), Android , Blackberry
        • Media : YouTube /Video, Blogs, Photos
        • Inbox : Gmail , Yahoo, Microsoft
  • Web 2.0 Business Model: KISS (“Keep It Simple, Stupid”)
    • 1) Re-invent Web 1.0 Businesses
      • Make a Website, a Widget, an App
      • Sell Stuff to People (Transactions, Subscriptions)
    • 2) add Web 2.0 Tech nology
      • Search , Social , Mobile
      • Google , Facebook/Twitter , Apple/Android
      • Email, SMS, Ecommerce / Payments
    • 3) Get Customers , Make Money
      • Distribution, Distribution, Distribution
  • Startup Incubators Lots of Hot, Cool, Web 2.0! (+ lots of FAIL .)
  • Incubator 2.0: Fast, Cheap, FAIL
    • Incubators = supportive startup ecosystem (+ angels, VCs)
    • Efficient use of investment capital ($0-100K)
    • High fail rate (60-80%) => large initial sample size
  • Incubator 2.0: Education, Collaboration, Iteration
    • Success based on:
      • MANY , small experiments
      • common platforms , customers , problems & solutions
      • physical proximity , open/collaborative environment
      • Domain-specific mentors & expertise
      • fast fail, iteration , metrics & feedback loop
    • 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.
    • 22 startups @ ~$35K each ($850K total)
    • 3 month program: Technology, Design, Marketing, Business topics
    • Success: ~ 8 startups funded >$500K – Wildfire Interactive raised $4M
  • Venture Capital 2.0 (smaller, faster, better) Venture Capital 1.0 “ Super” Angel (aka Micro-VC)
  • Silicon Valley Investor Ecosystem True Ventures First Round Capital Benchmark Accel SoftTech (Clavier) Felicis (Senkut) SV Angel (Conway) White Bear (GRRR!!) Angels & Incubators ($0-10M) “ Seed” Funds ($10-50M) VC Funds ($50-250M) VC Funds (>$250M) Y-Combinator TechStars
  • Venture Capital: Still Relevant?
    • Good for big CAP:
    • Hardware
    • Enterprise SW
    • Clean Tech
    • BioScience
    • Facebook, Zynga,
    • Groupon
    • Not So Great for:
    • Consumer Internet
    • Small Business
    • Consulting
    • Games, Porn ;)
  • More & Smaller Acquisitions
    • Mature Internet Platform Co’s:
      • GOOG, MSFT, YHOO, EBAY, AOL, AMZN, AAPL, INTU, ADBE, Fbook
    • Lots of Users, $$$
    • Outsourcing Innovation
    • Lots of M&A (but small)
    • Founders own MORE %
    • Will Sell for LESS $
    • Great for Angels & Entrepreneurs
    • Not so Great for (big) VCs
    * Mint acquired by Intuit in Sept 2009 for $170M
  • Investor Metrics: “Super Angel” -> Lean VC Not “ Spray & Pray ”, but rather “ Quantitative, Incremental, Selective Follow-on ” Investing. (Product, Market, Revenue.)
  • “ Lean Investor” Model
    • Method : Invest in many startups using incremental investment, iterative development. Start with lots of small experiments, filter out failure, and expand investment upon success… ( Rinse & Repeat) .
    • Incubator : $0-100K (“ Build & Validate Product ”)
    • Seed : $100K-$1M (“ Test & Grow Market ing Channels” ”)
    • Venture : $1M-$10M (“ Maximize Growth & Revenue ”)
  • Investment #1: Incubate (“Product”)
    • Structure
      • 1-3 founders
      • $25K-$100K investment
      • Incubator environment: multiple peers, mentors/advisors
    • Build Functional Prototype / “ Minimum Viable Product ” ( MVP ):
      • Prototype->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 Possible Future Investment
  • Investment #2: Seed (“Market”)
    • Structure
      • 2-5 person team
      • $100K-$1M investment
      • Syndicate of Angel Investors / Small VC Funds
    • Improve Product, Expand Customers , Test Revenue:
      • Alpha->Beta, ~6-12 months
      • Customer Sat ≥ 6 => Get to “ Sucks ( a Lot ) Less Than Competition ”
      • Setup A/B Testing Framework, Optimize Conversion
      • Test Marketing Campaigns, Cust Acqstn Channels
    • Prove Solution/Benefit, Assess Market Size
    • Test Channel Cost, Revenue Opportunity
    • Determine Org Structure, Key Hires
  • Investment #3: Venture (“Revenue”)
    • Structure
      • 5-10 person team
      • $1M-$5M investment
      • VC Investors
    • Make Money (or Go Big) , 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
  • Summary
    • Platforms 2.0 = Distribution + Monetization, not Tech
    • Incubators, Metrics = Many Small Experiments (most FAIL ).
      • Measure Stuff.
      • Iterate, Iterate, Iterate.
    • Venture Capital 2.0 = Fewer, Smaller Funds (<$100M) + More, Smaller Exits (<$100M)
  • Global Trends
    • More Young , More Old ($$$) Users Online
    • More Bandwidth, More Video (= pr0n FTW !)
    • Growth of Global Languages (see MyGengo.com )
      • 1B+ speakers: Mandarin , English
      • 500M+ spkrs: Spanish , Hindi, Arabic , Portuguese
    • Wealthy Chinese + Indian, Web + IRL Globetrotters ($$$B)
    • Smart Device Proliferation
      • phone, tablet, TV, console, etc
    • Acceleration of Global Payment , E-Commerce
    • Dramatically Reduced Cost: Product Dev, Customer Acqstn
    • Global Distribution Platforms
      • US/EU: Apple, Facebook, Google (Search, YouTube, Gmail, Android), Twitter, Zynga
      • Asia: Tencent /QQ, Taobao/ Alibaba /AliPay, Youku, MediaTek, Rakuten, DeNA
  • Local Hacks
    • Dominate your local/native market first
      • Or, move so that your local market is bigger (China, US)
    • Language + Visual Design Matters
      • Read: Spent , Influence, Understanding Comics
    • Niche 2 Win: Big Enough Markets + Great Customer
      • 1M users @ $20/mo = ~$250M/yr business
    • Sell Something You Fucking Idiot.
      • Transactns, Subscriptns, Virtual Goods, LeadGen
    • You Don’t Need to Be [in] Silicon Valley
      • But, Silicon Valley Needs to BE IN YOU .
      • ( Use The Force , Luke… Close Your Eyes, Let Go  )
    • Start Local, Hustle Global.
  • [ Don’t Pitch Me, Bro. ] Seriously : Don’t . Fuckin g. . Pitch M e . (and don’t email m e either, cuz i won’t read it)
  • Don’t Pitch Me, Bro.
    • 1 st : Read my stuff (blogs, decks, tweets).
    • 2 nd : Get a referral from someone I trust.
      • 500 Mentors or 500 Founders
      • Other Subject Matter Experts
      • *Not* Your Mom.
    • 3 rd : Be Concise. Don’t Suck .
    Email
  • Questions?
    • but make sure they’re not fucking stupid .
    • or else i’ll heckle you like idiots.
    • mercilessly .
    • *ps – i can dance better than you too.