This document summarizes Dave McClure's talk on changes in venture capital and building startup ecosystems. Some of the key points discussed include:
1) The venture capital industry and tech startups have changed significantly since the dot-com era, requiring less capital and using online platforms to reach more customers.
2) A "Lean VC" approach of making many small bets on early-stage startups in seed rounds has replaced the traditional large funding rounds of the past.
3) Critical factors for building strong startup ecosystems include mentorship, universities, capital, infrastructure, and successful exits through IPOs or acquisitions.
2. This Talkā¦
ā¢ Changes in Tech + VC
ā¢ āLean VCā = Quantitative Venture Capital
ā¢ Building Startup Ecosystems
ā¢ Global Entrepreneurship
ā¢ Q & A
3. Dave McClure
Founding Partner & Chief Troublemaker, 500 Startups
00ās & 10ās:
ā¢ VC: Founders Fund, Facebook fbFund, 500 Startups
ā¢ Angel: Mashery, Mint.com, SlideShare, Twilio, Wildfire, SendGrid
ā¢ Marketing: PayPal, Simply Hired, Mint.com, OāReilly
!
!
80ās & 90ās:
ā¢ Entrepreneur: Aslan Computing (acqād by Servinet/Panurgy)
ā¢ Developer: Windows / SQL DB consultant (Intel, MSFT)
ā¢ Engineer: Johns Hopkinsā88, BS Eng / Applied Math
4. 500 Startups
Global Seed Fund & Startup Accelerator
ā¢ What is 500?
ā $115M silicon valley VC fund + startup accelerator
ā 35+ people / 12 investing partners
ā Locations: SV/SF, MEX, BRZ, IND, CHN/TWN, KOR, SE Asia
ā 2000+ Founders / 200+ Mentors
ā Community + Content + Conferences
!
ā¢ 850+ Portfolio Coās / 40+ Countries
ā Wildfire (acq GOOG, $350M)
ā MakerBot (acq SSYS, $400M)
ā Viki (acq Rakuten, $200M)
ā Simple (acq BBVA, $117M)
ā Twilio
ā SendGrid
ā Credit Karma
ā Udemy
ā TheRealReal
ā Barkbox
ā HomeJoy
6. This Talkā¦
ā¢ Changes in Tech + VC
ā¢ āLean VCā = Quantitative Venture Capital
ā¢ Building Startup Ecosystems
ā¢ Global Entrepreneurship
ā¢ Q & A
7. Industry Changes
ā¢ Financial Market Crises (2000, 2008)
ā¢ Startup Efficiency, Lean Startup Movement, Reduced Capital Costs
ā¢ Growing Market, Global Distribution Platforms, Growth Hacking
ā¢ Improved Monetization, Developing Payments Infrastructure
ā¢ Developing Startup Ecosystems, Global M&A
!
ā¢ Micro VC: Seed Funds (ex: First Round Capital)
ā¢ Incubators & Accelerators (ex: Y Combinator, TechStars, 500)
ā¢ Funding Platforms (ex: Angel List, Kickstarter)
ā¢ Growing Global Market of Angel Investors
!
more info: http://PreMoney.co (June 27th, San Francisco)
8. Changes in Tech Startups
ā¢ LESS Capital required to build product, get to market
ā Dramatically reduced cost for servers, software, bandwidth
ā Funding Platforms: KickStarter, Angel List, Funders Club, etc
ā Access to online platforms for 100M-1B+ consumers, smallbiz, etc
!
ā¢ MORE Customers via ONLINE platforms (100M+ users)
ā Search (Google)
ā Social (Facebook, Twitter)
ā Mobile (Apple, Android)
ā Media (YouTube, Pinterest, Instagram, Tumblr)
ā Comm (Email, WeChat/WhatsApp/Line/Kakao, Voice, SMS, etc)
!
ā¢ LOTS of little bets: Accelerators, Angels, Angel List, Small Exits
ā Y Combinator, 500 Startups
ā Capital + Co-working + Mentoring -> Design, Data, Distribution
ā āFast, Cheap Failā, network effects, quantitative + iterative investments
9. Before & After 2 Dot-Com Crashes
Daft Punk Startup: Simpler, Faster, Cheaper, Smarter
Before 2000
ā¢ Sun Servers
ā¢ Oracle DB
ā¢ Exodus Hosting
ā¢ 12-24mo dev cycle
ā¢ 6-18mo sales cycle
ā¢ <100M people online
ā¢ $1-2M seed round
ā¢ $3-5M Series A
ā¢ Sand Hill Road crawl
ā¢ Big, Fat, Dinosaur Startup
After 2008
ā¢ AWS, Google, PayPal, FB, TW
ā¢ Cloud + Open Source SW
ā¢ Lean Startup / Startup Wknd
ā¢ 3-90d dev cycle
ā¢ SaaS / online sales
ā¢ >3B people online
ā¢ <$100K incub + <$1M seed
ā¢ $1-3M Series A
ā¢ Angel List global visibility
ā¢ Lean, Little, Cockroach Startup
12. This Talkā¦
ā¢ Changes in Tech + VC
ā¢ āLean VCā = Quantitative Venture Capital
ā¢ Building Startup Ecosystems
ā¢ Global Entrepreneurship
ā¢ Q & A
13. Silicon Valley 2.0:
Lots of Little Bets
aka āMoneyBall for Startupsā
ā¢ VC Evolution: Physician, Scale Thyself (Aug 2012)
ā¢ MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
14. 500 Strategy: Lots of Little Bets*
1) make lots of little
bets on pre-traction,
early-stage startups
2) in 6-24 months,
double-down on top
20-30% performers
3) wait 3-7 years for returns:
-5-10% large exits @20X+ ($50-100M+)
-10-20% small exits @5X ($5-50M)
*See Peter Sims book: āLittle Betsā
15. The Lean VC:
Lots of Little Bets, Incremental Investment
Method: 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.
!
ā¢ Incubator: $0-100K (āBuild & Validate Productā)
ā¢ Seed: $100K-$1M (āTest & Grow Marketing Channelsāā)
ā¢ Venture: $1M-$10M (āMaximize Growth & Revenueā)
16. Investment Stage #1:
Product Validation + Customer Usage
ā¢ Structure
ā 1-3 founders
ā $25-$100K investment
ā Incubator environment: multiple peers, mentors/advisors
!
ā¢ Test Functional Prototype / āMinimum Viable Productā (MVP):
ā Prototype->Alpha, ~3-6 months
ā Develop Minimal Critical Feature Set => Get to āIt Works! Someone Uses It.ā
ā Improve Design & Usability, Setup Conversion Metrics
ā Test Small-Scale Customer Adoption (10-1000 users)
!
ā¢ Demonstrate Concept, Reduce Product Risk, Test Functional Use
ā¢ Develop Metrics & Filter for Possible Future Investment
17. Investment Stage #2:
Market Validation + Revenue Testing
ā¢ Structure
ā 2-10 person team
ā $100K-$1M investment
ā Syndicate of Angel Investors / Small VC Funds
!
ā¢ Improve Product, Expand Customers, Test Revenue:
ā Alpha->Beta, ~6-12 months
ā Scale Customer Adoption => āMany People Use It, & They Pay.ā
ā Test Marketing Campaigns, Customer Acquisition Channels + Cost
ā Test Revenue Generation, Find Profitable Customer Segments
!
ā¢ Prove Solution/Benefit, Assess Market Size
ā¢ Test Channel Cost, Revenue Opportunity
ā¢ Determine Org Structure, Key Hires
18. Investment Stage #3:
Revenue Validation + Growth
ā¢ Structure
ā 5-25 person team
ā $1M-$10M investment
ā Seed & Venture Investors
!
ā¢ Make Money (or Go Big), Get to Sustainability:
ā Beta->Production, 12-24 months
ā Revenue / Growth => āWe Can Make (a lot of) Money!ā
ā Mktg Plan => Predictable Channels / Campaigns + Budget
ā Scalability & Infrastructure, Customer Service & Operations
ā Connect with Distribution Partners, Expand Growth
!
ā¢ Prove/Expand Market, Operationalize Business
ā¢ Future Milestones: Profitable/Sustainable, Exit Options
19. This Talkā¦
ā¢ Changes in Tech + VC
ā¢ āLean VCā = Quantitative Venture Capital
ā¢ Building Startup Ecosystems
ā¢ Global Entrepreneurship
ā¢ Q & A
23. Entrepreneur Education
ā¢ Business Plans
ā¢ Functional Prototypes
ā¢ Lean Startup
ā¢ Software Engineering / Design & UX
ā¢ Online Marketing / Unit Economics
ā¢ Monetization & Payments
ā¢ Customer Service + Support
ā¢ Fundraising & Pitch
23
24. Investor Education
ā¢ Startups are NOT Real Estate
ā¢ Most Startups Fail / Power Law Returns
ā¢ Portfolio Approach (20+ investments)
ā¢ Legal Structure, Financial Structure
ā¢ Syndication + Co-Investment
ā¢ Access to Downstream Capital
ā¢ Exits & Liquidity
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25. This Talkā¦
ā¢ Changes in Tech + VC
ā¢ āLean VCā = Quantitative Venture Capital
ā¢ Building Startup Ecosystems
ā¢ Global Entrepreneurship
ā¢ Q & A
26. Local vs Global?
ā¢ Emerging / Developing Markets
ā¢ Global Languages: English, Chinese, Spanish, Arabic
ā¢ Critical Factors: Education, Mentorship, Capital
ā¢ Capital Availability: Incubation, Seed, Series A
ā¢ Positive Macro: SmartPhones, Tablets, Payments,
Logistics, Growing Middle Class, Distribution Platforms
ā¢ Wealthy Global Users, Shoppers, Travelers