Changes in Venture Capital
+Building Startup Ecosystems
@ Dave McClure - Founding Partner @ 500 Startups http://500.co
#ME...
What is 500 Startups?
Changes in Tech & VC
“Lean VC” = Quantitative Venture Capital
Building Startup Ecosystems
Global Ent...
Dave McClure
Founding Partner & Chief Troublemaker, 500 Startups
00’s & 10’s
VC Founders fund
Facebook fbFund
500 Startups...
500 Startups
Global Seed Fund & Startup Accelerators
@ Dave McClure - Founding Partner @ 500 Startups http://500.co
#MENAs...
500 Startups: Global Seed Fund
Over 200+ startups outside US, in 40+ countries
Regional Coverage areas
Countries where we’...
What is 500 Startups?
Changes in Tech & VC
“Lean VC” = Quantitative Venture Capital
Building Startup Ecosystems
Global Ent...
Industry Changes
Startup Efficiency, Reduced Capital Costs
Growing Market, Distribution Platforms
Financial Market Crises (...
@ Dave McClure - Founding Partner @ 500 Startups http://500.co
#MENAsummit Bahrain - May 2014
LESS Capital
required to bui...
Daft Punk Startup: Simpler, Faster, Cheaper, Smarter
After 2008
Before & After 2 Dot-Com Crashes
Big, Fat, Dinosaur Startu...
Lean Startup
A Product that’s cheaper,
faster and better.
More Customers that are
easier to obtain and measure.
Iterative ...
Platforms 2.0
Search
Social
Mobile
Media
Messaging
@ Dave McClure - Founding Partner @ 500 Startups http://500.co
#MENAsum...
Angel List: Platform for Investors & Startups
Startups &
Metrics
Founders &
Bios
Investors &
Syndicates
Accelerators &
Onl...
What is 500 Startups?
Changes in Tech & VC
“Lean VC” = Quantitative Venture Capital
Building Startup Ecosystems
Global Ent...
Silicon Valley 2.0: Lots of Little Bets
aka “MoneyBall for Startups”
Invest BEFORE product market fit,
Double down AFTER
VC...
500 Strategy: “Lots of Little Bets”
Make lots of little bets pre-traction,
early-stage startups
1
2
3
After 6-12 months, i...
@ Dave McClure - Founding Partner @ 500 Startups http://500.co
#MENAsummit Bahrain - May 2014
Method
Venture
Incubator
See...
@ Dave McClure - Founding Partner @ 500 Startups http://500.co
#MENAsummit Bahrain - May 2014
Structure
Test Functional Pr...
@ Dave McClure - Founding Partner @ 500 Startups http://500.co
#MENAsummit Bahrain - May 2014
Structure
Improve Product, E...
@ Dave McClure - Founding Partner @ 500 Startups http://500.co
#MENAsummit Bahrain - May 2014
Structure
Make Money (or Go ...
What is 500 Startups?
Changes in Tech & VC
“Lean VC” = Quantitative Venture Capital
Building Startup Ecosystems
Global Ent...
@ Dave McClure - Founding Partner @ 500 Startups http://500.co
#MENAsummit Bahrain - May 2014
Critical Ecosystem Factors
“...
Startup Investor Ecosystem
@ Dave McClure - Founding Partner @ 500 Startups http://500.co
#MENAsummit Bahrain - May 2014
B...
@ Dave McClure - Founding Partner @ 500 Startups http://500.co
#MENAsummit Bahrain - May 2014
Example Startup Ecosystem
1,...
@ Dave McClure - Founding Partner @ 500 Startups http://500.co
#MENAsummit Bahrain - May 2014
Entrepreneur Education
Busin...
@ Dave McClure - Founding Partner @ 500 Startups http://500.co
#MENAsummit Bahrain - May 2014
Investor Education
Startups ...
What is 500 Startups?
Changes in Tech & VC
“Lean VC” = Quantitative Venture Capital
Building Startup Ecosystems
Global Ent...
@ Dave McClure - Founding Partner @ 500 Startups http://500.co
#MENAsummit Bahrain - May 2014
Local vs Global?
Wealthy Glo...
@ Dave McClure - Founding Partner @ 500 Startups http://500.co
#MENAsummit Bahrain - May 2014
500.co (our company)

500hat...
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Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

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We're big fans of Dave and his team at 500 Startups, so we decided to clean up and redesign Dave's annual presentation at the 2014 MENA Angel Investors Summit, "Changes in Venture Capital + Building Startup Ecosystems". Hope you and they appreciate it!

P.S. Hey, 500 crew, shoot us a note if you'd like us to send over the source files + artwork.

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Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

  1. 1. Changes in Venture Capital +Building Startup Ecosystems @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
  2. 2. What is 500 Startups? Changes in Tech & VC “Lean VC” = Quantitative Venture Capital Building Startup Ecosystems Global Entrepreneurship Q & A This Talk.. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
  3. 3. Dave McClure Founding Partner & Chief Troublemaker, 500 Startups 00’s & 10’s VC Founders fund Facebook fbFund 500 Startups Mashery mint.com SlideShare Twilio Wildfire SendGrid PayPal Simply Hired mint.com O’Reilly Angel Marketing 80’s & 90’s Entrepreneur Developer Engineer Aslan Computing (acq’d by Servinet / Panurgy) Windows / SQL DB consultant (Intel, MSFT) John Hopkins’88 BS Eng / Applied Math
  4. 4. 500 Startups Global Seed Fund & Startup Accelerators @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 • $100M silicon valley VC fund + startup accelerator • 30+ people / 10 investing partners • Locations: SV, NYC, MEX, BRZ, IND, CHN, SE Asia • 1500+ Founders / 200+ mentors • Community + Content + Conferences Wildfire acq GOOG $350M MakerBot acq SSYS $400M Viki acq Rakuten $200M Simple acq BBVA $117M Twilio SendGrid CreditKarma Udemy What is 500? 750+ Portfolio Co’s 40+ Countries
  5. 5. 500 Startups: Global Seed Fund Over 200+ startups outside US, in 40+ countries Regional Coverage areas Countries where we’ve invested People on the ground San Francisco Silicon Valley Mexico City Brazil New York India China Southeast Asia @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
  6. 6. What is 500 Startups? Changes in Tech & VC “Lean VC” = Quantitative Venture Capital Building Startup Ecosystems Global Entrepreneurship Q & A This Talk.. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
  7. 7. Industry Changes Startup Efficiency, Reduced Capital Costs Growing Market, Distribution Platforms Financial Market Crises (2000, 2008) Lean Startups Micro VC: Seed Funds (ex: First Round Capital) Incubators & Accelerators (ex: Y Combinator, 500) Funding Platforms (ex: Angel List, Kickstarter) Growing Global Market of Angel Investors @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 more info: http://PreMoney.co (June 27th, San Francisco)
  8. 8. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 LESS Capital required to build product, get to market MORE Customers via Online platforms (100M+ users) LOTS of little bets: Accelerators, Angels, Angel List,Small Exits Access to Online Platforms Dramatically Reduced Cost Funding Platforms Accelerators Social “Fast, Cheap Fail”, network effects, quantitative + iterative investments Y Combinator, TechStars, 500 Startups Capital + Co-working + Mentoring Mobile Media Design Data Distribution servers software bandwidth KickStarter Angel List Funders Club, etc 100M-1B+ consumers, smallbiz, etc Google Facebook Twitter Apple Android YouTube Pinterest Instagram Tumblr Search Angels? Small Exits? Changes in Tech Startups
  9. 9. Daft Punk Startup: Simpler, Faster, Cheaper, Smarter After 2008 Before & After 2 Dot-Com Crashes Big, Fat, Dinosaur Startup Lean, Little, Cockroach Startup • Sun Servers • Oracle DB • Exodus Hosting • 12 - 24 mo dev cycle • 6- 18mo sales cycle • <100M people online • $1-2M seed round • $3-5M Series A • Sand Hill Road crawl • AWS, Google,PayPal,FB, TW • Cloud+ Open Source SW • Lean Startup / Startup Wknd • 3- 90d dev cycle • Saas / Online sales • >3B people online • <100K incub + <$1M seed • $1-3M Series A • Angel List global visibility Before 2000 @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
  10. 10. Lean Startup A Product that’s cheaper, faster and better. More Customers that are easier to obtain and measure. Iterative Product & Marketing Decisions based on Measured User Behaviour Learn Build CodeData Ideas Measure Lower Startup Costs Bigger Number of Users & Bandwith Better Transaction Dollars 1 2 3 @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
  11. 11. Platforms 2.0 Search Social Mobile Media Messaging @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
  12. 12. Angel List: Platform for Investors & Startups Startups & Metrics Founders & Bios Investors & Syndicates Accelerators & Online Applications Jobs & Talent @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
  13. 13. What is 500 Startups? Changes in Tech & VC “Lean VC” = Quantitative Venture Capital Building Startup Ecosystems Global Entrepreneurship Q & A This Talk.. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
  14. 14. Silicon Valley 2.0: Lots of Little Bets aka “MoneyBall for Startups” Invest BEFORE product market fit, Double down AFTER VC Evolution: Physician, Scale Thyself (Aug 2012) MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010) @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 Silicon Valley
  15. 15. 500 Strategy: “Lots of Little Bets” Make lots of little bets pre-traction, early-stage startups 1 2 3 After 6-12 months, identify top 20% performers and double-down higher $$$ Conservative model assumes: - 5-10% large exits @20X ($50-100M+) - 10-20% small exits @5X ($5-50M) $ Double-Down after Traction Quantitative Investing before Traction 50+ ‘winners’ @ $100k - $1M 2nd & 3rd check Target 10+ exits @ $100M 250+ companies @ $25-100k 1st check Assume failure rate up to 80% @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
  16. 16. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 Method Venture Incubator Seed Make little bets in lots of startups using incremental investment, iterative development. 
 Start with many small experiments, filter out failures, and expand investment in successes. ! $0-100K “Build & Validate Product” $100K-$1M “Test & Grow Marketing Channels” $1M-$10M “Maximize Growth & Revenue” The Lean VC: Lots of Little Bets, Incremental Investment
  17. 17. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 Structure Test Functional Prototype / “Minimum Viable Product” (MVP) Develop Metrics, Filter for Possible Future Investment Demonstrate Concept, Reduce Product Risk, Test Functional Use Investment Stage #1: Product Validation + Customer Usage • 1-3 Founders • $25 - $100K Investment • Incubator environment: Multiple Peers, Mentors / Advisors • Prototype Alpha (~3-6 months) • Develop Minimal Critical Feature Set —> Get to “It Works! Someone Uses It.” • Improve Design & Usability, Setup Conversion Metrics • Test Small-Scale Customer Adoption (10-1000 users)
  18. 18. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 Structure Improve Product, Expand Customers, Test Revenue Test Channel Cost, Revenue Opportunity Prove Solution / Benefit, Asses Market Size Investment Stage #2: Market Validation + Revenue Testing • 2-10 person team • $100K - $1M Investment • Syndicate of Angel Investors / Small VC Funds • Alpha —> Beta (~6-12 months) • Scale Customer Adoption —> “Many people use it and they pay.” • Test Marketing Campaigns, Customer Acquisition, Channels + Cost • Improve Design & Usability, Setup Conversion Metrics Determine Org Structure, Key Hires
  19. 19. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 Structure Make Money (or Go Big), Get to Sustainability Future Milestones: Profitable / Sustainable, Exit Options Prove / Expand Market, Operationalize Business Investment Stage #3: Revenue Validation + Growth • 5 - 25 person team • $1M - $10M Investment • Seed & Venture Investors • Beta —> Production (~12-24 months) • Revenue / Growth —> “We can Make (a lot of) Money!” • Scalability & Infrastructure, Customer Service & Operations • Connect with Distribution Partners, Expand Growth
  20. 20. What is 500 Startups? Changes in Tech & VC “Lean VC” = Quantitative Venture Capital Building Startup Ecosystems Global Entrepreneurship Q & A This Talk.. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
  21. 21. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 Critical Ecosystem Factors “Silicon Valley” Knowledge People Infrastructure Product Customers Monetization Exits Optimism & Belief Mentorship + Education Universities + Companies Capital, Legal, Finance Engineering + Design / UX Platforms + Distribution Online Payment IPO / M&A Market
  22. 22. Startup Investor Ecosystem @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 Bootstrap, KickStarter, Crowdfunding Y-Combinator Tech Stars SV Angel (Conway) Floodgate (Maples) First Round Union Square Atomico Greylock True A16Z Sequoia Foundry Angels & Incubators ($0-10M) “Micro-VC” Funds ($10-100M) “Big” VC Funds ($100-500M) “Mega” VC Funds (>$500M) SoftTech (Clavier) Felicis (Senkut)
  23. 23. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 Example Startup Ecosystem 1,000 Bootstrap Startups 300 Accelerator Startups 100 Seed-Stage Startups 30 Series A / B Startups 10 Later-Stage Companies 1-3 Mature Company IPOs - $0-10K - $10-100K - $100K- $1M - $1-10M - $10-100M - $100M+
  24. 24. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 Entrepreneur Education Business Plans Functional Prototypes Lean Startup Software Engineering / Design & UX Online Marketing / Unit Economics Monetization & Payments Online Payment IPO / M&A Market
  25. 25. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 Investor Education Startups are NOT Real Estate Most Startups Fail/ Power Law Returns Portfolio Approach (10 - 20+ investments) Exits & Liquidity Legal Structure, Financial Structure Syndication + Co-Investment Access to Downstream Capital
  26. 26. What is 500 Startups? Changes in Tech & VC “Lean VC” = Quantitative Venture Capital Building Startup Ecosystems Global Entrepreneurship Q & A This Talk.. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
  27. 27. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 Local vs Global? Wealthy Global Users Shoppers Travelers Emerging / Developing Markets Global Languages English Chinese Spanish Arabic Critical Factors Education Mentorship Capital Capital Availability Incubation Seed Series A Positive Macro SmartPhones Tablets Payments Logistics Growing Middle Class Distribution Platforms Users
  28. 28. @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014 500.co (our company)
 500hats.com (my blog)
 angel.co/500startups (our fund) Dave McClure, @DaveMcClure More Info? Questions? Comments?
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