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Bringing Silicon Valley to LatAm: Startup Ecosystems & Investment

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slides for my talk at eMerge Americas (Miami, June 2017)

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Bringing Silicon Valley to LatAm: Startup Ecosystems & Investment

  1. @DaveMcClure @500Startups http://500.co eMerge Americas - Miami, June 2017 Bringing Silicon Valley to Latin America: Startup Ecosystems & Investment Insights
  2. Dave McClure
 Founding Partner, 500 Startups 00’s & 10’s: • VC: Founders Fund, Facebook fbFund, 500 Startups • Angel: Mashery, Mint.com, SlideShare, Twilio, Wildfire, SendGrid • Marketing: PayPal, Simply Hired, Mint.com, O’Reilly 80’s & 90’s: • Entrepreneur: Aslan Computing (acq’d by Servinet/Panurgy) • Developer: Windows / SQL DB consultant (Intel, MSFT) • Engineer: Johns Hopkins‘88, BS Eng / Applied Math
  3. • What is 500? – $350M AUM / 4+ main funds / 10+ microfunds – 150 people / 25 languages / 20 countries – 1800+ Companies / 3000+ Founders / 200+ Mentors – Investment, Accelerator, BizDev, Marketing, Events, Education – Community + Content + Conferences • 1800+ Co’s / 60+ Countries – Twilio (NYSE: TWLO) – Credit Karma (>$3B) – Grab (>$5B) – Wildfire (ace GOOG, $350M) – MakerBot (acq SSYS, $400M) – Viki (acq Rakuten, $200M) – Behance (acq Adobe, $150M) – Simple (acq BBVA, $117M) – Sunrise (acq MSFT, $100M) – SendGrid – TalkDesk – Intercom – Udemy – Ipsy 500 Startups
 Global Seed Fund & Startup Platform
  4. Silicon Valley -> LatAm • Startups: Cheaper, Faster, Bigger, Better • VCs: Lots of Funds, Lots of Bets • Govt: How to create Silicon Valley? (write checks) • LatAm: Undervalued Emerging Market • Miami: LatAm + USA + Hot Sexy Startups
  5. Dinosaurs vs. Cockroaches
 LEAN Startup: Simpler, Faster, Cheaper, Smarter 1990-2000 ”Big, Fat, Dinosaur Startup” • Sun Servers • Oracle DB • Exodus Hosting • 12-24mo dev cycle • 6-18mo sales cycle • <100M people online • $5-10M Series A/B • Sand Hill Road crawl 2017 ”Lean, Little, Cockroach Startup” • AWS, Google, PayPal, FB, TW • Cloud + Open Source SW • Lean Startup; 3-90d dev cycle • SaaS / online sales • >3B people online • <$100K incub + <$1M seed • $1-3M Seed / Series A • Angel List global visibility
  6. Startup Platforms:
 Search, Social, Mobile, Pics, Video, Voice, Msgs
  7. Startup Risk Reduction Concept Early Customer Usage Scalable Customer Acquisition [about to be] Profitable Unit Economics Scalable Profitable Business Functional Prototype PRODUCT MARKET REVENUE Exit? When 500 Likes to Invest
  8. Silicon Valley -> LatAm • Startups: Cheaper, Faster, Bigger, Better • VCs: Lots of Funds, Lots of Bets • Govt: How to create Silicon Valley? (write checks) • LatAm: Undervalued Emerging Market • Miami: LatAm + USA + Hot Sexy Startups
  9. Chances of spotting unicorn = ~1%/
  10. Data from ~600 companies from 500 Startups Funds I + II (2010 - 2013 cohorts) $1-10M Q: How Many Startups to Get 1 Unicorn? Unicorns 50:1 | Centaurs 20:1
  11. If portfolio size = 15/
  12. / If portfolio size = 30
  13. / If portfolio size = 100
  14. The Lean Investor Make lots of little bets: • Start with many small “experiments” • Filter out failures + small wins • Double-down on stuff that looks like it’s working • Incubation: $0-100K (“Build & Validate Product”) • Seed: $100K-$1M (“Test & Grow Marketing Channels””) • Venture: $1M-$10M (“Maximize Growth & Revenue”)
  15. 500 Strategy: Lots of Little Bets* 1) make lots of little bets on early-stage startups when they’re just getting started 3) wait 5-10 years for returns: -10-20% small exits @1-5X ($5-25M+) -5-10% larger exits @5-20X ($25-250M+) -1-2% unicorns @20-50X+ ($250M-1B+) *See Peter Sims book: “Little Bets” 2) over the next five years, double-down on top 20-30% ~500 co’s @ $100K 1st checks 100+ co’s @ $200-500K 2nd/3rd checks (hope for a few big exits @ $100M-$1B+) (assume high failure rate ~50-80%)
  16. Investment Stage #1: 
 Product Validation + Customer Usage • Structure – 1-3 founders – $0-$100K investment – Incubator environment: multiple peers, mentors/advisors • Test Functional Prototype / “Minimum Viable Product” (MVP): – 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) • Demonstrate Concept, Reduce Product Risk, Test Functional Use • Develop Metrics & Filter for Possible Future Investment
  17. Investment Stage #2: 
 Market Validation + Revenue Testing • Structure – 2-10 person team – $100K-$1M investment – Syndicate of Angel Investors / Small VC Funds • Improve Product, Expand Customers, Test Revenue: – Alpha->Beta, ~6-12 months – Scale Customer Adoption => “Many People Use It, & They Pay.” – Test Marketing Campaigns, Customer Acquisition Channels + Cost – Test Revenue Generation, Find Profitable Customer Segments • Prove Solution/Benefit, Assess Market Size • Test Channel Cost, Revenue Opportunity • Determine Org Structure, Key Hires
  18. Investment Stage #3: 
 Revenue Validation + Growth • Structure – 5-25 person team – $1M-$10M investment – Seed & Venture Investors • Make Money (or Go Big), Get to Sustainability: – Beta->Production, 12-24 months – Revenue / Growth => “We Can Make (a lot of) Money!” – Mktg Plan => Predictable Channels / Campaigns + Budget – Scalability & Infrastructure, Customer Service & Operations – Connect with Distribution Partners, Expand Growth • Prove/Expand Market, Operationalize Business • Future Milestones: Profitable/Sustainable, Exit Options
  19. Building the LatAm Ecosystem • Startups: Cheaper, Faster, Bigger, Better • VCs: Lots of Funds, Lots of Bets • Govt: How to create Silicon Valley? (write checks) • LatAm: Undervalued Emerging Market • Miami: LatAm + USA + Hot Sexy Startups
  20. Critical Ecosystem Factors • Optimism & Belief (“Silicon Valley”) • Mentorship + Education (Knowledge) • Universities + Companies (People) • Capital, Legal, Finance (Infrastructure) • Engineering + Design / UX (Product) • Platforms + Distribution (Customers) • Online Payments (Monetization) • IPO / M&A Market (Exits)
  21. Building Startup Ecosystems
  22. Q: How many VC funds needed to build a startup ecosystem? • USA: ~800 VC funds; 2.5 per 1M ppl • China: ~700 VC funds; 0.5 per 1M ppl • UK/EU: ~100 VC funds; 0.25 per 1M ppl —- • LatAm: <25 VC funds; <0.1 per 1M ppl -> More VC Funds Needed in LatAm & Miami
  23. Silicon Valley -> LatAm • Startups: Cheaper, Faster, Bigger, Better • VCs: Lots of Funds, Lots of Bets • Govt: How to create Silicon Valley? (write checks) • LatAm: Undervalued Emerging Market • Miami: LatAm + USA + Hot Sexy Startups
  24. LatAm Capital Growing in Brazil & Mexico
  25. Active Latam VC investors
  26. 500 LatAm portfolio: 160+ Investments
  27. Silicon Valley -> Miami • Startups: Cheaper, Faster, Bigger, Better • VCs: Lots of Funds, Lots of Bets • Govt: How to create Silicon Valley? (write checks) • LatAm: Undervalued Emerging Market • Miami: LatAm + USA + Hot Sexy Startups
  28. Miami The Miami Opportunity: Global Hub for LatAm Startups
  29. South Florida Ecosystem
  30. Startup Wins in South Florida “Mixed Reality” (AR + VR) Raised $1.4B Online retailer of pet food and products Sold $3.35B to PetSmart (Apr 2017) SaaS (EMR) for specialty healthcare providers Raised $318M Cloud-based health info tech (sw + svcs) Raised $103M Edtech – teaching English to Latam and Hispanics Raised $120M
  31. Miami is Growth Center for LatAm Tech, Innovation and Entrepreneurship Active stakeholders • Entrepreneurs • Accelerators and capacity developers • Networks / community building organizations • Investors • Foundations • City projects and companies attracting investors from around the globe • Great quality of life attracting young, multi-cultural talent • City is cultural, logistic, and economic capital for Latin America • Great opportunity to access similar markets and achieve scale Thriving ecosystem… … in a BOOMING city
  32. $50M fund drives 2,400 jobs in 5 years Stage #co Invested Subtotal raised subtotal jobs/ co subtotal accel 100 $100k $10M $250k $25M 2.5 250 seed 40 $250k $10M $1M $40M 10 400 A 10 $1M $10M $5M $50M 25 250 B 5 $2M $10M $10M $50M 100 500 C 2 $5M $10M $25M $50M 500 1000 $50M FUND $215M LEVERAGE 2,400 JOBS
  33. 2,400 jobs drive ~$50M/ year in rent collective real estate rental Stage #co FUND SIZE JOBS TOTAL commercial (Sq ft x avg 35 $) residential (Sq ft x 25$) accel 100 $10M 250 $1.75M $3.125M seed 40 $10M 400 $2.8M $5M A 10 $10M 250 $1.75M $3.125M B 5 $10M 500 $3.5M $6.25M C 2 $10M 1000 $7M $12.5M $50M 2400 $16.8M $30M
  34. What’s Most Important? • You DON’T need to be in Silicon Valley, but… • Silicon Valley Needs to be in YOU.

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