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

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.

http://founders.tw	40
http://paperli.dev	6
http://www.twylah.com	3
http://furious-winter-18.heroku.com	2
http://blog.dev	2
http://garethcxo.blogspot.com	2
http://twitter.com	2
http://paper.li	1
http://www.linkedin.com	1
https://twitter.com	1

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

by Dave McClure

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