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.
Corporate VC Innovation: Strategies That Don't Suck
1. Corp VC Innovation
New Strategies That Donât 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
â˘âŻ Funny Videos ân Stuff Jď
â˘âŻ Shameless, Blatant 500 Startups Plug (<3m)
â˘âŻ Whatâs New in Tech & Startups
â˘âŻ Whatâs New in Investing
â˘âŻ Lean Startup, Lean VC â> âMoneyballâ Strategy for Corp VC
Corp VC: Strategies 4 Innovation
â˘âŻ *STOP* Doing Same Old Crap & Expecting Diff Results.
â˘âŻ Run Vertically-Focused Conferences, Contests, & âHackâ-athons
â˘âŻ Your Relevance to Startups: Customers + Distribution
â˘âŻ How to Disrupt & Disintermediate Big VC (pro tip: BUY EARLY.)
â˘âŻ Turning Your [Company + Tech + Customers] into APIs & Platforms
7. 500 Startups: Global Seed Fund
startup investments in 30+ countries
â˘âŻ Q4/12 added: Germany, Korea, Peru; + Russia & Turkey in Q1/13
â˘âŻ Priorities In 2013: SE Asia, Middle East, Eastern Europe
8. Whatâs HAWT, Whatâs NOT.
(note: i donât really care what ppl think is hot / sexy,
but since many folks do hereâs a quick roundup)
9. Angel* List: It Rocks.
â˘âŻ Startups & Investors
â˘âŻ Activity & Metrics
â˘âŻ Platform & APIs
â˘âŻ Customers & Corporates
â˘âŻ *ps â not just for Angels, or USA
10. Trends in Tech
Whatâs HOT
â˘âŻ Mobile, Mobile, Mobile⌠and Tablets
â˘âŻ Wearables & Sensors
â˘âŻ Hardware + Software combo
â˘âŻ Crowdfunding (if SEC approves)
â˘âŻ Video Content (+ commerce)
â˘âŻ Big Data
â˘âŻ Enterprise Startups / Consumerization of Enterprise
â˘âŻ Photos (still!)
Whatâs NOT
â˘âŻ Daily Deals
â˘âŻ Social Games
â˘âŻ Photos (except see above)
â˘âŻ Social Media w/ no business model
11. Trends in Investing
Whatâs HOT
â˘âŻ Big-Ass Funds: A16Z, Accel, Greylock, Battery, NEA
â˘âŻ Micro-VC: Felicis, SoftTech, IA Ventures
â˘âŻ Incubators: Y Combinator, TechStars, AngelPad, 500 Jď)
â˘âŻ Full-Service VC: A16Z, First Round Capital, Lightbank
â˘âŻ Angel List, Angel List, Angel List!
â˘âŻ Moneyball Investing
Whatâs NOT
â˘âŻ Big Funds w/ no Branding or Results
â˘âŻ Regional Incubators outside SV/NYC
â˘âŻ Incubators w/ no Experience, Smart $ or Mentorship
â˘âŻ Mobile 1st? 2nd? 3rd? (How about Enterprise SW?)
12. Changes in Startup & VC Ecosystem
â˘âŻ LESS Capital required to build product, get to market
â⯠Dramatically reduced $$$ on servers, software, bandwidth
â⯠Cheap access to online platforms for 100M+ consumers, smallbiz, etc
â⯠A few big IPOs @ $1B+, but LOTS of small acquisitions (<$100M)
â˘âŻ MORE Customers via ONLINE platforms (100M+ users)
â⯠Search (Google)
â⯠Social (Facebook, Twitter, LinkedIn)
â⯠Mobile (Apple, Android)
â˘âŻ LOTS of little bets: Accelerators, Angels, Angel List, Small Exits
â⯠Y Combinator, TechStars, 500 Startups, AngelPad, Betaworks
â⯠Funding + Co-working + Mentoring -> Design, Data, Distribution
â⯠âFast, Cheap Failâ, network effects, quantitative + iterative investments
13. Startup Investor Ecosystem
Bootstrap, KickStarter,
Crowdfunding
Y-Combinator
Incubation
Angels &
TechStars Incubators
($0-10M)
SV Angel (Conway) Seed
âMicro-VCâ 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 âMoneyBall for Startupsâ
â˘âŻ VC Evolution: Physician, Scale Thyself (Aug 2012)
â˘âŻ MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
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. âLots
 of
 Li-le
 Betsâ*
Â
Quan<ta<ve
 Inves<ng
 before
 Trac<on
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1)
 Make
 lots
 of
 li@le
 30%
Â
Â
bets
 pre-ÂâtracCon,
 250+
 companies
 @
 $50K
 avg.
 (1st
 check)
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 Assume
 high
 failure
 rate
 (up
 to
 80%)
Â
 Capital
Â
early-Ââstage
 startups
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Â
2)
 aHer
 6-Ââ12
 months,
 idenCfy
 Double-ÂâDown
 a'er
 Trac<on
 70%
Â
Â
top
 20%
 performers
 and
 50+
 âwinnersâ
 @
 $100K-Ââ$1M
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 Capital
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double-Ââdown
 higher
 $$$
 (2nd
 +
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 check)
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 conservaCve
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 ($50-Ââ100M+)
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 small
 exits
 @5X
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17
Â
*See Peter Sims book: âLittle Betsâ
18. Bet on Singles, Not HomeRuns.
(Look for Ichiros, Not Barry Bonds)
19. Lean Startup, Lean VC
â˘âŻ âMoneyball for Startupsâ = Lots of Little Checks
â˘âŻ Filter out Fail, Invest Incrementally in Success
â˘âŻ Apply to Venture, as well as Startups
â˘âŻ ⌠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).
â˘âŻ Incubator: $0-100K (âBuild & Validate Productâ)
â˘âŻ Seed: $100K-$1M (âTest & Grow Marketing Channelsââ)
â˘âŻ Venture: $1M-$10M (âMaximize Growth & Revenueâ)
21. Investment Stage #1:
Product Validation + Customer Usage
â˘âŻ Structure
â⯠1-3 founders
â⯠$25-$100K investment
â⯠Incubator environment: multiple peers, mentors/advisors
â˘âŻ 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)
â˘âŻ Demonstrate Concept, Reduce Product Risk, Test Functional Use
â˘âŻ Develop Metrics & Filter for Possible Future Investment
22. Investment Stage #2:
Market Validation + Revenue Testing
â˘âŻ Structure
â⯠2-10 person team
â⯠$100K-$1M investment
â⯠Syndicate of Angel Investors / Small VC Funds
â˘âŻ 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
â˘âŻ Prove Solution/Benefit, Assess Market Size
â˘âŻ Test Channel Cost, Revenue Opportunity
â˘âŻ Determine Org Structure, Key Hires
23. Investment Stage #3:
Revenue Validation + Growth
â˘âŻ Structure
â⯠5-25 person team
â⯠$1M-$10M investment
â⯠Seed & Venture Investors
â˘âŻ 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
â˘âŻ Prove/Expand Market, Operationalize Business
â˘âŻ 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
â˘âŻ Incubators = supportive startup ecosystem (+ angels, VCs)
â˘âŻ Efficient use of investment capital ($0-100K)
â˘âŻ High fail rate (60-80%) => large initial sample size
27. Incubator 2.0:
Education, Collaboration, Iteration
â˘âŻ Success based on:
â⯠MANY, small experiments
â⯠common platforms, customers, problems & solutions
â⯠physical proximity, open/collaborative environment
â⯠Domain-specific mentors & expertise
â⯠fast fail, iteration, metrics & feedback loop
â˘âŻ Incremental investment; high-risk, but high-reward
28. fbFund REV
fbFund REV: Facebook âSocialâ Incubator: invest in startups, apps,
websites based on Facebook platform & Facebook Connect.
â˘âŻ 22 startups @ ~$35K each (< $1M total)
â˘âŻ 3 month program: Technology, Design, Marketing, Business topics
â˘âŻ Success: 8 startups raised $500K â> 5 Series A -> 3 Series B (+ 3 small exits)
â˘âŻ Wildfire Interactive acquired by GOOG for $350M (>50X) ď
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 GrandDaddyâs Corp VC
â˘âŻ Vertically-Focused Incubators:
â⯠Facebook fbFund
â⯠Nike / Sensors / Wearables
â⯠Digital Health: Rock Health
â⯠Digital Media: Turner Media, NY Times
â˘âŻ Investing & Partnering with Incubators & Micro-VCs
â⯠Startup Community Development & Outreach
â⯠Vertically-focused conferences & events
â⯠Hackathons, Contests using your Company as a Platform / API
â⯠Portfolio Review, Custom Demo Days, Co-investment
â⯠Research & Support for targeted M&A
31. Services
 Early-ÂâStage
 VCs
 &
 accelerators
Â
Â
Can
 Provide
 to
 Corp
 VCs
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Access
 to
 global
 networks,
Â
mentors
 and
 staďŹ
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Training
 and
 space
 for
 Corp
Â
VC
 team
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Introduc@ons
 to
 porAolio
Â
companies,
 including
 Mini
Â
Demo
 Days
Â
31
32. Ver<cally-ÂâFocused
 Conferences
 &
 Events
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Par@cipa@on
 at
 demo
 days,
Â
conferences,
 and
 events
Â
send
 Mentors
 to
 work
 with
Â
the
 Corp
 teams
Â
Customized
 repor@ng
 and
Â
sharing
 of
 informa@on;
Â
mee@ng
 on
 a
 regular
Â
basis
 to
 discuss
 latest
Â
trends
 and
 innova@ons
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32
33. More Acquirers (tech + non-tech);
More & Smaller Acquisitions
1.⯠Mature Internet Platform Coâs:
â⯠GOOG, MSFT, YHOO, EBAY, AOL, AMZN,
AAPL, INTU, ADBE, FB, TW, LNKD, GRPN
2.⯠Non-Tech âBigCoâ / Consumer Verticals
buying tech startups (for distribution)
â˘âŻ BigCo = Lots of Customers, $$$ * Mint acquired by INTU in
â˘âŻ BigCo = Bureaucracy, Innovator Dilemma 2009 for $170M
â˘âŻ Outsource Innovation; Buy Talent / Products * SlideShare
â˘âŻ Acquiring LOTS (Small) Startups acquired by LNKD
â˘âŻ Great for Founders, Investors Jď in 2012 for $110M
34. Corp VC + Startups:
Customers & Distribution, Little Checks, Early Acquisitions
â˘âŻ Your Customers = HUGE Strategic Advantage
â˘âŻ Big Companies need Innovation + Products
â˘âŻ Small Startups need Customers + Distribution
â˘âŻ Designing Strategy 4 Early, Targeted Acquisitions
â⯠âRFP for Acquisitionâ with a price-tag / unit economics
â⯠âWeâll buy your startup for $5-10M or $X per customerâ
35. Corp VC as Platform + API
Turn your Customers & Technology into an API,
and let Startups use your Company
as a Business Platform
37. Platform Viability
Successful
 PlaSorms
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 3
 Things:
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39. The Future:
Corp VC as Platform + API
â˘âŻ Identify Key Domain Expertise + Vertical Processes
â˘âŻ Identify Customer Attributes / Values / Needs
â˘âŻ Identify Customer & Business Unit Economics
â˘âŻ Give Startups Access to Your Company via APIs
â˘âŻ Let Startups Offer Products, Svcs to Your Customers
â˘âŻ Provide Distribution to Leverage Investment
â˘âŻ Lastly: Buy Early, Fast, & Often