VC Evolution: Geeks Got Next

VC Evolu)on: Geeks Got Next. (aka “So(ware Eats Venture Capital”) @DaveMcClure @500Startups @DigitalOctober Landing Page Event (Moscow, Sept 2012)

Shit I’m Gonna Talk About Pro Tip: Leave Now B4 This Gets Ugly •  500 Startups: Dude. Srsly. Like, WTF? •  Angel List: Use It, You Fucking Idiot. •  Making Venture Work BeJer (This is Easy) –  MoneyBall 4 Startups –  Startups #FAIL & VCs #SUCK. –  Early Stage InvesRng = Risk ReducRon –  Your Diligence Is an Illusion –  Guild of Geeks / Mentor Network •  Making Incubators Work BeJer (This is Hard) –  It Takes A Village: Mentors, Advisors, Investors –  EducaRon & Community –  Outlier CompeRRon & Success Behavior Modeling –  Product, Market, Revenue, Pitch –  Customer AcquisiRon, Growth Hacking, & Pla]orm DistribuRon –  Winners Win, Losers Lose, Tweeners Tween •  Scaling VC •  Going Intl

Dave McClure Founding Partner & Sith Lord, 500 Startups00’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

500 Startups: SRSLY, WTF? Mountain View, CA – Founded 2010•  Seed Fund & Startup Accelerator –  10,000 sq ft / Silicon Valley HQ –  15 people / 8 investing partners –  Design, Distribution, Data –  US, Brazil, Mexico, India (+ more) –  600 Founders / 180+ Mentors•  375+ Portfolio Co’s / 20+ Countries –  Wildfire (acq GOOG, $350M) –  Twilio –  SendGrid –  TaskRabbit –  MakerBot –  9GAG 

Angel List*: It Fucking Rocks. (Use it, You *&#% Idiot) •  Startups & Investors •  Ac)vity & Metrics •  PlaTorm & APIs •  *ps – it’s not just for Angels, US

Making Venture Capital Work BeJer This is Actually Pre^y Easy, Since Most VCs / Funds Suck Balls.

MoneyBall 4 Startups h^p://slideshare.net/paulsingh/ moneyball-‐a-‐quanRtaRve-‐approach-‐to-‐angel-‐invesRng-‐ausRn-‐tx-‐aug-‐2012 1.  Make Lots Of LiJle Bets 2.  Count Cards (Monitor Progress & Stats) 3.  Double Down on Winners

Startups #FAIL & VCs #SUCK. But You Knew That Already •  Play Blackjack, Not RouleJe. (Count Cards. Make Lots of Li^le Bets.) •  Don’t Be An Arrogant, Insuﬀerable Prick. •  Don’t Assume Your Diligence is 4 Shit. •  Don’t Assume You. or They are Smart. •  Build a Fucking Brand That MaJers. •  Increase Sample Size. •  Don’t Make Big Bets Too Early. •  Simplify Revenue Model. (as in: HAVE ONE, you fucking idiot) •  Bet on Hackers, Hustlers, Designers. •  Create a Community. •  Invest afer they have a funcRonal prototype. •  Be early and contrarian, or late and right. •  Use The Tools (you fucking idiot): Twi^er, Facebook, Quora, Instagram, Pinterest, etc •  Talk / Blog / Present about something u know about, care about. •  Admit Your Faults Frequently. •  Laugh a li^le bit. (at yourself, not others). •  Don’t worry too much about legal structure. •  Worry a SHIT TON about valua)on. (because your exits will be SMALL)

Bet on Singles, Not HomeRuns. (Look for Ichiros, Not Barry Bonds)

Early-‐Stage Risk Reduc)on •  Intro: Crazy, Liars or crooks? Fucking idiots? •  Product: does it work? (crappy, not perfect) •  Market: are people using it? (not their mom) •  Revenue: will people pay for it? (just a few) •  Growth: how will it/they scale? •  Finance: what will it cost –  Q1: cost to get a customer? –  Q2: how & when do you make money?

Your [up-‐front] Diligence Is An Illusion (Real Diligence = Quick Check + 3-‐6 mo’s) •  You Might Be Able to Detect Idiots & Assholes. •  You Probably Can’t Figure Out Winners (Yet). •  Your Network is Be^er Than Your Homework. •  Trusted Referrals >> Diligence •  FuncRonal Prototype >> Team. •  Customers/Revenue >> Market. •  You’ll Be Wrong 4x out of 5x. (If U Don’t Suck). •  In 6 Months, You’ll Know If They Don’t Suck. •  In 1-‐2 Years, You’ll Know If They’re Awesome.

TIRED: White Guys in Khakis & Blue Shirts. WIRED: Guild of Geeks. Mentors. YC, 500.

Making Incubators Work BeJer (This is Actually Pre^y HARD.) Find & Fund PotenRal. Help Them Improve. Educa)on & Community. Access to Mentors. Access to Investors. If You’re Lucky, Discover [a few] Winners.

It Takes A Village •  Physical Space. •  People = Tribe. •  Mentors (Advise 1st, Invest 2nd) •  Events, Foods, Awesome. •  This is YOUR FAMILY. Make Them AWESOME. •  This is also YOUR BRAND. So Don’t SUCK. •  Make a Big Tent. (Collaborate, don’t Compete).

EducaRon & Community •  Mentors, Investors •  Design, Data, DistribuRon •  Pla]orm Partners •  Sponsors & Strategics •  MarkeRng & Visibility

Outlier CompeRRon + Modeling Success Behaviors •  You want min 3-‐5 “rockstars” to compete •  Rockstars to model success for others •  You can’t assume >20% rockstars •  Therefore, pick 5x5 = 25 teams •  3-‐5 rockstar teams emerge, compete, win •  5-‐10 *other* non-‐rockstars learn •  Prune losers quickly

Product, Market, Revenue •  Product: assess funcRonal use, improve design/UX •  Market: test usage, distribuRon channels •  Revenue: test cust acq cost, revenue, *Rming* •  Work on Pitch, Help Find Co-‐Investors, etc

Hacker, Hustler, Hipster •  Hacker: engineers & developers •  Hipster: design & UX •  Hustler: markeRng & business 1.  Build funcRonal prototypes 2.  Improve UX so people convert 3.  Scale customer acq & distribuRon

Winners, Losers, Tweeners •  Winners #WIN (with or without you) •  Losers #LOSE (with or without you) •  Tweeners #TWEEN –  They might win with your help –  They might lose with your help –  Be helpful, but don’t dally –  Note: you might be wrong about the losers & tweeners, so don’t be a fucking arrogant asshole.

Scaling VC •  VC is an immature & fragmented market •  It’s Ripe for DisrupRon •  It Hasn’t Scaled (Yet)

Going InternaRonal •  Brazil, Mexico, India •  Canada, UK, Japan •  China, Indonesia, Russia, Turkey

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VC Evolution: Geeks Got Next

by Dave McClure on Sep 20, 2012

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