Corporate VC Innovation: Strategies That Don't Suck


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slides from my presentation at IBF Corporate Venturing & Innovation conf (Newport Beach, Feb 2013)

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Corporate VC Innovation: Strategies That Don't Suck

  1. Corp VC InnovationNew Strategies That Don’t Suck. Dave McClure (@DaveMcClure) NewPort Beach, Feb 2013
  2. Why This Talk Will Blow Your Corp VC MindTeaser + Intros•  Funny Videos ‘n Stuff J•  Shameless, Blatant 500 Startups Plug (<3m)•  What’s New in Tech & Startups•  What’s New in Investing•  Lean Startup, Lean VC –> ”Moneyball” Strategy for Corp VCCorp VC: Strategies 4 Innovation•  *STOP* Doing Same Old Crap & Expecting Diff Results.•  Run Vertically-Focused Conferences, Contests, & “Hack”-athons•  Your Relevance to Startups: Customers + Distribution•  How to Disrupt & Disintermediate Big VC (pro tip: BUY EARLY.)•  Turning Your [Company + Tech + Customers] into APIs & Platforms
  3. Blatant Plug.(<3 min, promise)
  4. Dave McClure Founding Partner & Troublemaker, 500 Startups00’s & 10’s:•  Investor: Founders Fund, Facebook fbFund, 500 Startups•  Companies:, SlideShare, Twilio, WildFire, SendGrid•  Marketing: PayPal, Simply Hired,, O’Reilly80’s & 90’s:•  Entrepreneur: Founder/CEO Aslan Computing (acq’d)•  Developer: Windows / SQL DB consultant (Intel, MSFT)•  Engineer: Johns Hopkins‘88, BS Eng / Applied Math
  5. 500 Startups Global Seed Fund & Startup Accelerator•  What is 500? –  $60M+ under management –  20 people / 10 investing partners –  US: SF + NY | INTL: MEX, BRZ, IND, CHN, SEasia –  1000+ Founders / 200+ Mentors –  20+ confs/events per year –  10+ Corp VCs Partners + LPs –  20 exits to 10+ Public Co’s•  450+ Portfolio Co’s / 30+ Countries –  Wildfire (acq GOOG, $350M) –  Twilio –  SendGrid –  TaskRabbit –  MakerBot –  9GAG –  Viki
  6. 500  Corporate  Sponsors,  Tech  Partners,  &  Investors     6
  7. 500 Startups: Global Seed Fund startup investments in 30+ countries•  Q4/12 added: Germany, Korea, Peru; + Russia & Turkey in Q1/13•  Priorities In 2013: SE Asia, Middle East, Eastern Europe
  8. What’s HAWT, What’s NOT.(note: i don’t really care what ppl think is hot / sexy, but since many folks do here’s a quick roundup)
  9. Angel* List: It Rocks. •  Startups & Investors •  Activity & Metrics •  Platform & APIs •  Customers & Corporates •  *ps – not just for Angels, or USA
  10. Trends in TechWhat’s HOT•  Mobile, Mobile, Mobile… and Tablets•  Wearables & Sensors•  Hardware + Software combo•  Crowdfunding (if SEC approves)•  Video Content (+ commerce)•  Big Data•  Enterprise Startups / Consumerization of Enterprise•  Photos (still!)What’s NOT•  Daily Deals•  Social Games•  Photos (except see above)•  Social Media w/ no business model
  11. Trends in InvestingWhat’s HOT•  Big-Ass Funds: A16Z, Accel, Greylock, Battery, NEA•  Micro-VC: Felicis, SoftTech, IA Ventures•  Incubators: Y Combinator, TechStars, AngelPad, 500 J)•  Full-Service VC: A16Z, First Round Capital, Lightbank•  Angel List, Angel List, Angel List!•  Moneyball InvestingWhat’s NOT•  Big Funds w/ no Branding or Results•  Regional Incubators outside SV/NYC•  Incubators w/ no Experience, Smart $ or Mentorship•  Mobile 1st? 2nd? 3rd? (How about Enterprise SW?)
  12. Changes in Startup & VC Ecosystem•  LESS Capital required to build product, get to market –  Dramatically reduced $$$ on servers, software, bandwidth –  Cheap access to online platforms for 100M+ consumers, smallbiz, etc –  A few big IPOs @ $1B+, but LOTS of small acquisitions (<$100M)•  MORE Customers via ONLINE platforms (100M+ users) –  Search (Google) –  Social (Facebook, Twitter, LinkedIn) –  Mobile (Apple, Android)•  LOTS of little bets: Accelerators, Angels, Angel List, Small Exits –  Y Combinator, TechStars, 500 Startups, AngelPad, Betaworks –  Funding + Co-working + Mentoring -> Design, Data, Distribution –  “Fast, Cheap Fail”, network effects, quantitative + iterative investments
  13. Startup Investor Ecosystem Bootstrap, KickStarter, Crowdfunding Y-Combinator Incubation Angels & TechStars Incubators ($0-10M) SV Angel (Conway) Seed “Micro-VC” Funds SoftTech (Clavier) Floodgate (Maples) ($10-100M) Felicis (Senkut) First Round Series A True Smaller VC Funds Union Square ($100-300M) Foundry Group Series B Atomico Andreessen Larger VC Funds (>$300M)Greylock Sequoia Series C+
  14. Venture Capital 2.0: Lots of Little Bets aka “MoneyBall for Startups”•  VC Evolution: Physician, Scale Thyself (Aug 2012)•  MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
  15. Think Different.
  16. MoneyBall 4 Startups 1.  Make Lots Of Little Bets 2.  Count Cards (Monitor Progress & Stats) 3.  Double Down on Winners
  17. “Lots  of  Li-le  Bets”*   Quan<ta<ve  Inves<ng  before  Trac<on  1)  Make  lots  of  li@le   30%     bets  pre-­‐tracCon,   250+  companies  @  $50K  avg.  (1st  check)     -­‐  Assume  high  failure  rate  (up  to  80%)     Capital   early-­‐stage  startups    2)  aHer  6-­‐12  months,  idenCfy   Double-­‐Down  aer  Trac<on   70%     top  20%  performers  and   50+  ‘winners’  @  $100K-­‐$1M     Capital   double-­‐down  higher  $$$   (2nd  +  3rd  check)                                                 -­‐  -­‐  Target  10+  exits  @  $100M+      3)  conservaCve  model  assumes    -­‐  5-­‐10%  large  exits  @20X  ($50-­‐100M+)  -­‐  10-­‐20%  small  exits  @5X    ($5-­‐50M)   17   *See Peter Sims book: “Little Bets”
  18. Bet on Singles, Not HomeRuns. (Look for Ichiros, Not Barry Bonds)
  19. Lean Startup, Lean VC•  “Moneyball for Startups” = Lots of Little Checks•  Filter out Fail, Invest Incrementally in Success•  Apply to Venture, as well as Startups•  … and, can we apply this to Corp VC as well?
  20. The Lean VC: Lots of Little Bets, Incremental InvestmentMethod: 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 (“Build & Validate Product”)•  Seed: $100K-$1M (“Test & Grow Marketing Channels””)•  Venture: $1M-$10M (“Maximize Growth & Revenue”)
  21. Investment Stage #1: Product Validation + Customer Usage•  Structure –  1-3 founders –  $25-$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
  22. 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
  23. 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
  24. Startup Incubators Lots of Little Bets. Most FAIL. (but a few succeed :)
  25. Incubator 2.0: Fast, Cheap, FAIL•  Incubators = supportive startup ecosystem (+ angels, VCs)•  Efficient use of investment capital ($0-100K)•  High fail rate (60-80%) => large initial sample size
  26. Incubator Community & Resources•  Mentors, Investors•  Design, Data, Distribution•  Platform Partners (Google, Facebook, Twitter)•  Corp Strategics (GE, BBVA, Docomo, Qualcomm)•  Marketing & Visibility•  Downstream Investors / Acquirers
  27. Incubator 2.0: Education, Collaboration, Iteration•  Success based on: –  MANY, small experiments –  common platforms, customers, problems & solutions –  physical proximity, open/collaborative environment –  Domain-specific mentors & expertise –  fast fail, iteration, metrics & feedback loop•  Incremental investment; high-risk, but high-reward
  28. fbFund REVfbFund REV: Facebook “Social” Incubator: invest in startups, apps, websites based on Facebook platform & Facebook Connect.•  22 startups @ ~$35K each (< $1M total)•  3 month program: Technology, Design, Marketing, Business topics•  Success: 8 startups raised $500K –> 5 Series A -> 3 Series B (+ 3 small exits)•  Wildfire Interactive acquired by GOOG for $350M (>50X) 
  29. Innovation Strategies for Corporate VC Partner with Startup Community + IncubatorsUse Customers & Distribution, Early Acquisition as Leverage Turn Your Company + Tech into an API + Platform
  30. Not Your GrandDaddy’s Corp VC•  Vertically-Focused Incubators: –  Facebook fbFund –  Nike / Sensors / Wearables –  Digital Health: Rock Health –  Digital Media: Turner Media, NY Times•  Investing & Partnering with Incubators & Micro-VCs –  Startup Community Development & Outreach –  Vertically-focused conferences & events –  Hackathons, Contests using your Company as a Platform / API –  Portfolio Review, Custom Demo Days, Co-investment –  Research & Support for targeted M&A
  31. Services  Early-­‐Stage  VCs  &  accelerators     Can  Provide  to  Corp  VCs  Access  to  global  networks,   mentors  and  staff   Training  and  space  for  Corp   VC  team   Introduc@ons  to  porAolio   companies,  including  Mini   Demo  Days   31
  32. Ver<cally-­‐Focused  Conferences  &  Events  Par@cipa@on  at  demo  days,   conferences,  and  events  send  Mentors  to  work  with   the  Corp  teams  Customized  repor@ng  and   sharing  of  informa@on;   mee@ng  on  a  regular   basis  to  discuss  latest   trends  and  innova@ons     32
  33. More Acquirers (tech + non-tech); More & Smaller Acquisitions1.  Mature Internet Platform Co’s: –  GOOG, MSFT, YHOO, EBAY, AOL, AMZN, AAPL, INTU, ADBE, FB, TW, LNKD, GRPN2.  Non-Tech “BigCo” / Consumer Verticals buying tech startups (for distribution)•  BigCo = Lots of Customers, $$$ * Mint acquired by INTU in•  BigCo = Bureaucracy, Innovator Dilemma 2009 for $170M•  Outsource Innovation; Buy Talent / Products * SlideShare•  Acquiring LOTS (Small) Startups acquired by LNKD•  Great for Founders, Investors J in 2012 for $110M
  34. Corp VC + Startups:Customers & Distribution, Little Checks, Early Acquisitions•  Your Customers = HUGE Strategic Advantage•  Big Companies need Innovation + Products•  Small Startups need Customers + Distribution•  Designing Strategy 4 Early, Targeted Acquisitions –  “RFP for Acquisition” with a price-tag / unit economics –  “We’ll buy your startup for $5-10M or $X per customer”
  35. Corp VC as Platform + APITurn your Customers & Technology into an API, and let Startups use your Company as a Business Platform
  36. Platforms 2.0Search, Social, Mobile
  37. Platform ViabilitySuccessful  PlaSorms    have  3  Things:   Features    1)  Features    2)  Users      3)  Money     Growth     Profit     Nirvana   Profitable   .                                                             Users                                                .   Growth   Money  
  38. Distribution PlatformsCustomer Reach: 100M+ •  Search: Google, Baidu, Yahoo/Bing, Yandex •  Social/Games: Facebook, Twitter, LinkedIn, TenCent/QQ •  Mobile: Apple (iOS), Android •  Local: Yelp, Groupon, LivingSocial, FourSquare •  Media: Video (YouTube), Blogs (Tumblr), Photos (Pinterest) •  Comm: SMS, IM, Skype, Phone/Voice, etc
  39. The Future: Corp VC as Platform + API•  Identify Key Domain Expertise + Vertical Processes•  Identify Customer Attributes / Values / Needs•  Identify Customer & Business Unit Economics•  Give Startups Access to Your Company via APIs•  Let Startups Offer Products, Svcs to Your Customers•  Provide Distribution to Leverage Investment•  Lastly: Buy Early, Fast, & Often
  40. Thanks •  Want more info? Go visit: – (our company) – (my blog) – (our fund)