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Building #500STRONG

slides for my talk at TomTomFestival (Charlottesville, VA, April 2017)

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Building #500STRONG
Dave McClure, 500 Startups
@davemcclure / 500.co
Charlottesville, VA - April 2017
Tom Tom Festival #TomTomFest
Dave McClure

Founding Partner & Chief Troublemaker, 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, oDesk, 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
What a Long, Strange Trip It’s Been…
EAST COAST (1966-1989)
• Hillbilly: born in WV — “LET’S GO MOUNTAINEERS!”
• WV->MD: grew up in Morgantown, WV -> Columbia, MD
• College: Johns Hopkins (Baltimore), class of ’86.. ’87, wait.. ’88 (finally)
• Go West Young Man: headed to California in ’89 (..earthquake!)
WEST COAST (1989-present)
• Geek: Software Developer / SQL DB Programmer (1989-94)
• Entrepreneur: Small Startup, Small Exit <$1M (1994-98)
• Marketing: PayPal, Simply Hired, Mint.com (2001-05)
• Community: Blogs, Facebook, Twitter, etc (2002-present)
• Investor: Angel, Founders Fund, Facebook fbFund (2004-08, 2008-10)
• Founder/VC: 500 Startups, #500STRONG (2010-17+)
• What is 500?
– $330M 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
– Grab
– Wildfire (acq 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
Startup Investor Ecosystem
Angels &
Incubators
($0-10M)
“Micro-VC” Funds
($10-100M)
“Big” VC Funds
($100-500M)
“Mega” VC Funds
(>$500M)
TrueFirst Round
AndreessenAtomico
Y-Combinator
TechStars
SoftTech (Clavier)
Felicis (Senkut)
SV Angel (Conway)
SequoiaGreylock
Union Square
Floodgate (Maples)
Foundry Group
Incubation
Seed
Series A
Series B
Series C+
Bootstrap, KickStarter,
Crowdfunding
Football
“West Coast
Offense”
Baseball
“MoneyBall”
Basketball
“3-pt revolution” Venture Capital
500 Startups
“Lots of little bets”
500 Strategy: MoneyBall for Startups
Re-inventing a 50-year old sport
Ad

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Building #500STRONG

  • 1. Building #500STRONG Dave McClure, 500 Startups @davemcclure / 500.co Charlottesville, VA - April 2017 Tom Tom Festival #TomTomFest
  • 2. Dave McClure
 Founding Partner & Chief Troublemaker, 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, oDesk, 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 a Long, Strange Trip It’s Been… EAST COAST (1966-1989) • Hillbilly: born in WV — “LET’S GO MOUNTAINEERS!” • WV->MD: grew up in Morgantown, WV -> Columbia, MD • College: Johns Hopkins (Baltimore), class of ’86.. ’87, wait.. ’88 (finally) • Go West Young Man: headed to California in ’89 (..earthquake!) WEST COAST (1989-present) • Geek: Software Developer / SQL DB Programmer (1989-94) • Entrepreneur: Small Startup, Small Exit <$1M (1994-98) • Marketing: PayPal, Simply Hired, Mint.com (2001-05) • Community: Blogs, Facebook, Twitter, etc (2002-present) • Investor: Angel, Founders Fund, Facebook fbFund (2004-08, 2008-10) • Founder/VC: 500 Startups, #500STRONG (2010-17+)
  • 4. • What is 500? – $330M 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 – Grab – Wildfire (acq 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
  • 5. Startup Investor Ecosystem Angels & Incubators ($0-10M) “Micro-VC” Funds ($10-100M) “Big” VC Funds ($100-500M) “Mega” VC Funds (>$500M) TrueFirst Round AndreessenAtomico Y-Combinator TechStars SoftTech (Clavier) Felicis (Senkut) SV Angel (Conway) SequoiaGreylock Union Square Floodgate (Maples) Foundry Group Incubation Seed Series A Series B Series C+ Bootstrap, KickStarter, Crowdfunding
  • 6. Football “West Coast Offense” Baseball “MoneyBall” Basketball “3-pt revolution” Venture Capital 500 Startups “Lots of little bets” 500 Strategy: MoneyBall for Startups Re-inventing a 50-year old sport
  • 7. 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
  • 8. Startup Platforms:
 Search, Social, Mobile, Pics, Video, Voice, Msgs
  • 9. !19 500 Strategy: “Lots of Little Bets”* *See Peter Sims book: “Little Bets”
  • 10. Q: How Many Series A Startups Turn Into Unicorns? (~1%)
  • 11. 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
  • 12. 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
  • 13. Strategy, Brand, Marketing • Lots of Little Bets, Online Platforms • Design, Data, Distribution • Blogging, Facebook, Twitter • #500STRONG: for Geeks, by Geeks • Seed Fund vs Accelerator ! • FUN: don’t be boring (t-shirts + flip-flops) • Community: from Silicon Valley to the World • Conferences & Events + GeeksOnaPlane.com
  • 14. Fundraising & Team-Building • Ignorance & Inexperience • New Fund, Small Fund • Crazy Strategy, Crazy People • No Money, No History • Manufacturing a Budget • Writing, Telling, Believing, Living Your Story • Hustle & Humility
  • 15. Deal Flow, Strategy & Selection • Lots of Little Bets • Take Lots of Small Risk, Early & Often • Differentiation & Branding • Revenue Emphasis, Small but Real Problems • Focus on Online Platforms • Hacker, Hipster, Hustler • Global vs Local
  • 16. Minimum Viable Team:
 Hacker, Hipster, Hustler • Hacker: engineers & developers • Hipster: design & user experience (UX) • Hustler: marketing & business, “growth hacker” 1. Build functional prototypes (MVP) 2. Improve UX, conversion 3. Scale customer acquisition & distribution
  • 17. 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”)
  • 18. 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
  • 19. 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
  • 20. 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
  • 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 • Other: <10-50 funds; <0.1 per 1M ppl
  • 23. A Brief History of US Venture Capital • first VC funds: ARDC, JH Whitney (1946) • SBICs / Small Business Investment Act (US, 1958) • Shockley -> “Traitorous Eight” -> Fairchild (1958) -> Intel (1968) • Sutter Hill (1964), Venrock (1969), Kleiner, Sequoia (1972) • ERISA laws + “prudent man rule” (1974, 1978) • Pension Funds in VCs: $39M (1977) -> $570M (1978) -> $4B (1989) • Tech Explosion: 80’s, 90’s, 00’s • Microsoft (1975), Apple (1976), Oracle (1977), Sun (1982), Cisco (1984), Amazon (1994), eBay (1995), Yahoo (1995), Google (1998), PayPal (1998), LinkedIn (2002), Facebook (2004), Twitter (2006)
  • 24. 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)