2. Building 500
⢠Industry Changes & Challenges
⢠Fundraising & Team-Building
⢠Brand & Marketing
⢠Deal Flow & Selection
⢠Platforms, Community, Portfolio Development
⢠Follow-On Strategy & Downstream Investors
⢠Investor Relations & Reporting
⢠Scale, Scalability, Big Data for VC
⢠Local vs Global, Valley vs US Domestic vs Intl
⢠Feedback Loop & Metrics
3. Dave McClure
Founding Partner & Chief Troublemaker, 500 Startups
00âs & 10âs:
⢠VC: Founders Fund, Facebook fbFund, 500 Startups
⢠Angel: Mashery, Mint.com, SlideShare, Twilio, WildFire, SendGrid
⢠Marketing: PayPal, Simply Hired, Mint.com, oDesk, OâReilly
80âs & 90âs:
⢠Entrepreneur: Aslan Computing (acqâd by Servinet/Panurgy)
⢠Developer: Windows / SQL DB consultant (Intel, MSFT)
⢠Engineer: Johns Hopkinsâ88, BS Eng / Applied Math
4. 500 Startups
Global Seed Fund & Startup Accelerator
⢠What is 500?
â ~$70M under management
â ~30 people / 10 investing partners
â Locations: SV, NYC, MEX, BRZ, IND, CHN, SE Asia
â 1000+ Founders / 200+ Mentors
â 22 positive exits in <3 years
⢠500+ Portfolio Coâs / 30+ Countries
â Wildfire (acq GOOG, $350M)
â MakerBot (acq SSYS, $400M)
â Twilio
â SendGrid
â TaskRabbit
â Viki
â Smule
â AppStack
â 9GAG
â MediaLets
â PicCollage
5. 500 Startups: Global Seed Fund
Over 100+ startups outside US, in 35+ countries
⢠Q4/12 added: Germany, Korea, Peru; + Russia, Turkey, Ghana in Q2/13
⢠Priorities in 2012: Brazil, Mexico, India
⢠Priorities In 2013: China, SE Asia, MENA, Eastern Europe
6. Silicon Valley 2.0:
Lots of Little Bets
aka âMoneyBall for Startupsâ
⢠VC Evolution: Physician, Scale Thyself (Aug 2012)
⢠MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
7. 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
8. Long Journey
⢠East Coast -> West Coast
⢠Geek: Engineer & Programmer
⢠Entrepreneur: Small Startup, Small Exit
⢠Marketing: PayPal, Simply Hired, Mint.com
⢠Community: Blogs, Frisbee, Facebook, Twitter
⢠Investing: Angel, Founders Fund, fbFund
⢠500 Startups
10. Changes in Tech Startups
⢠LESS Capital required to build product, get to market
â Dramatically reduced $$$ on servers, software, bandwidth
â Crowdfunding, KickStarter, Angel List, Funders Club, etc
â Cheap access to online platforms for 100M+ consumers, smallbiz, etc
⢠MORE Customers via ONLINE platforms (100M+ users)
â Search (Google)
â Social (Facebook, Twitter)
â Mobile (Apple, Android)
â Local (Yelp, Groupon, Living Social)
â Media (YouTube, Pinterest, Instagram, Tumblr)
â Comm (Email, IM/Chat, Voice, SMS, etc)
⢠LOTS of little bets: Accelerators, Angels, Angel List, Small Exits
â Y Combinator, TechStars, 500 Startups
â Funding + Co-working + Mentoring -> Design, Data, Distribution
â âFast, Cheap Failâ, network effects, quantitative + iterative investments
11. Daft Punk Lean Startup:
Simpler, Faster, Cheaper, Smarter
1. Startup Costs = Lower.
2. # Users, Bandwidth = Bigger.
3. Transaction $$$ = Better.
ď Building Product => Cheaper, Faster, Better
ď Getting Customers => Easier, More Measurable
Iterative Product & Marketing Decisions
based on Measured User Behavior
12. Strategy, Brand & Marketing
⢠FUN! IRREVERENCE! FLIP-FLOPS! Etc
â donât be boring; donât wear khakis + blue shirt + blazer
⢠Lots of Little Bets, Online Platforms
⢠Design, Data, Distribution
⢠Blogging, Facebook, Twitter
⢠#500STRONG: for Geeks, by Geeks
⢠Seed Fund vs Accelerator
⢠Community: from Silicon Valley to the World
⢠Conferences & Events
⢠GeeksOnaPlane.com
13. 13
Quantitative Investing before Traction
250+ companies @ $25-100K
(1st check)
- Assume high failure rate (up to 80%)
Double-Down after
Traction
50+ âwinnersâ @ $100K-$1M
(2nd + 3rd check)
- - Target 10+ exits @ $100M+
500 Strategy: âLots of Little Betsâ*
1) Make lots of little
bets pre-
traction, early-
stage startups
2) after 6-12 months, identify
top 20% performers and
double-down higher $$$
3) conservative model assumes
- 5-10% large exits @20X ($50-100M+)
- 10-20% small exits @5X ($5-50M)
*See Peter Sims book: âLittle Betsâ
14. 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. The Lean VC:
Lots of Little Bets, Incremental Investment
Method: Invest in lots of startups using incremental
investment, iterative development. Start with many
small experiments, filter out failures, and expand
investment in successes⌠(Rinse & Repeat).
⢠Incubator: $0-100K (âBuild & Validate Productâ)
⢠Seed: $100K-$1M (âTest & Grow Marketing Channelsââ)
⢠Venture: $1M-$10M (âMaximize Growth & Revenueâ)
17. Investment Stage #1:
Product Validation + Customer Usage
⢠Structure
â 1-3 founders
â $25-$100K investment
â Incubator environment: multiple peers, mentors/advisors
⢠Test Functional Prototype / âMinimum Viable Productâ (MVP):
â Prototype->Alpha, ~3-6 months
â Develop Minimal Critical Feature Set => Get to âIt Works! Someone Uses It.â
â Improve Design & Usability, Setup Conversion Metrics
â Test Small-Scale Customer Adoption (10-1000 users)
⢠Demonstrate Concept, Reduce Product Risk, Test Functional Use
⢠Develop Metrics & Filter for Possible Future Investment
18. Investment Stage #2:
Market Validation + Revenue Testing
⢠Structure
â 2-10 person team
â $100K-$1M investment
â Syndicate of Angel Investors / Small VC Funds
⢠Improve Product, Expand Customers, Test Revenue:
â Alpha->Beta, ~6-12 months
â Scale Customer Adoption => âMany People Use It, & They Pay.â
â Test Marketing Campaigns, Customer Acquisition Channels + Cost
â Test Revenue Generation, Find Profitable Customer Segments
⢠Prove Solution/Benefit, Assess Market Size
⢠Test Channel Cost, Revenue Opportunity
⢠Determine Org Structure, Key Hires
19. Investment Stage #3:
Revenue Validation + Growth
⢠Structure
â 5-25 person team
â $1M-$10M investment
â Seed & Venture Investors
⢠Make Money (or Go Big), Get to Sustainability:
â Beta->Production, 12-24 months
â Revenue / Growth => âWe Can Make (a lot of) Money!â
â Mktg Plan => Predictable Channels / Campaigns + Budget
â Scalability & Infrastructure, Customer Service & Operations
â Connect with Distribution Partners, Expand Growth
⢠Prove/Expand Market, Operationalize Business
⢠Future Milestones: Profitable/Sustainable, Exit Options
20. Portfolio Development
⢠How do we help? How can we help?
⢠Importance of (trying to be) Helpful
⢠Board seats or not? Useful to VC, not founders
⢠Product, Market, Revenue
⢠Mentorship & Connections
⢠Platforms & Distribution
⢠Downstream Investors & Syndicates
21. Platform(s) & Community
⢠Mentors: Engineering, Design, Marketing
⢠Distribution: Search, Social, Mobile
⢠Global: LatAm, Asia, India, EU, etc
⢠Social: LinkedIn, Quora, Angel List
⢠Angel List, Second Market, Trusted Insight
⢠Dashboard.io, MatterMark
24. Angel* List: It Rocks.
⢠Startups & Investors
⢠Activity & Metrics
⢠Platform & APIs
⢠*ps â not just for Angels, or
USA
25. Follow-On Strategy
⢠Should we follow-on? Why or Why Not?
⢠Signaling Risk vs Portfolio Returns
⢠Investor opinion shouldnât matter more than
business fundamentals (if so, itâs a problem)
⢠Downstream Investor Syndicate is critical
⢠Using Angel List to drive visibility
⢠Global Strategies (more capital, connections)
26. Startup Investor Ecosystem
Angels &
Incubators
($0-10M)
âMicro-VCâ Funds
($10-100M)
âBigâ VC Funds
($100-500M)
âMegaâ 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
28. Before & After 2 Dot-Com Crashes
Daft Punk Startup: Simpler, Faster, Cheaper, Smarter
Before 2000
⢠Sun Servers
⢠Oracle DB
⢠Exodus Hosting
⢠12-24mo dev cycle
⢠6-18mo sales cycle
⢠<100M people online
⢠$1-2M seed round
⢠$3-5M Series A
⢠Sand Hill Road crawl
⢠Big, Fat, Dinosaur Startup
After 2008
⢠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
⢠Lean, Little, Cockroach Startup
29. Crunch Good? Crunch Bad?
⢠Series A bar higher: $1M revenue, 1M active
users, 10M downloads, 100% YoY growth
⢠Lots of Incubation / Seed startups will âfailâ
⢠BUT: Fail Budget = $50-$500K, not $5M+
⢠Many âfailedâ startups = ramen-profitable, small
acquisition, or MBA alternative (<$100K)
⢠Series A/B VCs have lots to choose from
⢠Overall, founders / market getting smarter
⢠More focus on customers, problems, revenue
⢠Many die, some survive (1-5x), a few thrive (20x+).
30. Investor Relations & Reporting
⢠What do Investors Care About?
⢠Returns? Dealflow? Strategy?
⢠How / When do you report this?
⢠Data Collection & Accuracy
⢠LPs and Co-Investors are Community too!
31. Scale & Scaling VC
⢠Lots of Little Bets? Or a Few Big Bets?
⢠Power Laws, Singles vs Home Runs
⢠Focus on Network Effects
⢠Communication Platforms
⢠Ideal Portfolio Size vs Investment Stage
32. Local vs Global?
⢠The Valley is Unique⌠sort of.
⢠Emerging / Developing Markets:
⢠Too Soon? Too Late? Valuation?
⢠English, Chinese, Spanish, Arabic
⢠Investor Ecosystems
⢠Mentorship & Community
⢠Limited History of Exits & IPOs
⢠Does the Future look different? (yes, we hope)
⢠Selling Into Future Rounds
34. Global Trends
⢠Growth of Global Languages (see MyGengo.com)
â 1B+ speakers: Mandarin, English
â 300-500M+ spkrs: Spanish, Arabic
⢠Smart Device Proliferation
â mobile, tablet, TV, console, etc
⢠More Young, More Old ($$$) Users Online
⢠More Bandwidth, More Video, More Social, More Mobile
⢠Wealthy Chinese + Indian, Web + IRL Globetrotters ($$$B)
⢠Acceleration of Global Payment, E-Commerce
⢠Dramatically Reduced Cost: Product Dev, Customer Acqstn
⢠Global Distribution Platforms
â US/EU: Apple, Facebook, AMZN, GOOG (Search, YouTube, Gmail, Android), Twitter
â Asia: Baidu, Tencent, Alibaba, Sina, NHN, Yahoo-J, Softbank, Rakuten, DeNA, Gree
35. Feedback Loop & Metrics
⢠Bad decisions = obvious quickly
⢠Good decisions = not obvious for years
⢠Short-term metrics: revenue, users, next round
⢠Sharing best practices for decisions
⢠Lots of Little Bets helps speed up learning
⢠âWinnersâ vs Numeric Returns
⢠Economics of 1st check vs follow-on
⢠Easy to get big multiples on small checks, BUT
⢠Larger checks with smaller multiples still good
36. Questions? Comments? Heckles?
⢠Thanks for Listening
⢠Feedback Appreciated
⢠Weâre Still Learning
⢠More Info?
â http://500.co (our company)
â http://500hats.com (my blog)
â https://angel.co/500startups (our fund)
â Dave McClure, @DaveMcClure