This document discusses new strategies for corporate venture capital that don't rely on traditional approaches. It recommends that corporate VCs stop doing the same old things and expecting different results. Instead, it suggests running specialized conferences and competitions focused on specific industries to engage with startups. It also advises leveraging a company's customers, distribution channels, technologies, and data by turning them into open platforms and APIs. This allows corporate VCs to disrupt existing markets and invest in startups earlier before traditional venture capital firms.

1. Corp VC Innovation
New Strategies That Don’t Suck.
Dave McClure
http://500.co
(@DaveMcClure)
NewPort Beach, Feb 2013
http://slideshare.net/dmc500hats

2. Why This Talk Will
Blow Your Corp VC Mind
Teaser + 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 VC
Corp 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 Startups
00’s & 10’s:
• Investor: Founders Fund, Facebook fbFund, 500 Startups
• Companies: Mint.com, SlideShare, Twilio, WildFire, SendGrid
• Marketing: PayPal, Simply Hired, Mint.com, O’Reilly
80’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 Tech
What’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 Investing
What’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 Investing
What’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
http://slideshare.net/paulsingh/
moneyball-a-quantitative-approach-to-angel-investing-austin-tx-aug-2012
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
a'er
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 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 (“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 REV
fbFund 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 + Incubators
Use 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 Acquisitions
1. Mature Internet Platform Co’s:
– GOOG, MSFT, YHOO, EBAY, AOL, AMZN,
AAPL, INTU, ADBE, FB, TW, LNKD, GRPN
2. 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 + API
Turn your Customers & Technology into an API,
and let Startups use your Company
as a Business Platform

36. Platforms 2.0
Search, Social, Mobile

37. Platform Viability
Successful
PlaSorms
have
3
Things:
Features
1)
Features
2)
Users
3)
Money
Growth
Profit
Nirvana
Profitable
.
Users
.
Growth
Money

38. Distribution Platforms
Customer 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:
– http://500startups.com (our company)
– http://500hats.com (my blog)
– https://angel.co/500-startups-fund-ii (our fund)