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Farming Unicorns in Emerging Markets (Dubai, Oct 2016) #Gitex

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@DaveMcClure
@500Startups http://500.co
#Gitex Dubai - Oct 2016
Farming Unicorns in Emerging Markets
Building Startup & Investor Ecosystems in MENA
Dave McClure

Founding Partner, 500 Startups
00’s & 10’s:
• VC: Founders Fund, Facebook fbFund, 500 Startups
• Angel: Mashery, Mint.com, SlideShare, Twilio, Wildfire, SendGrid
• Marketing: PayPal, Simply Hired, Mint.com, O’Reilly
80’s & 90’s:
• Entrepreneur: Aslan Computing (acq’d by Servinet/Panurgy)
• Developer: Windows / SQL DB consultant (Intel, MSFT)
• Engineer: Johns Hopkins‘88, BS Eng / Applied Math
• What is 500?
– $275M global seed fund + startup accelerator
– 140 people / 25 languages / 20 countries
– 1700+ Companies / 3500+ Founders / 200+ Mentors
– Investment, Accelerator, Growth Marketing, Events, Education
– Community + Content + Conferences
• 1700+ Co’s / 60+ Countries
– Twilio (NYSE: TWLO)
– Credit Karma
– Grab (aka GrabTaxi)
– Wildfire (acq GOOG, $350M)
– MakerBot (acq SSYS, $400M)
– Viki (acq Rakuten, $200M)
– Behance (acq Adobe, $150M)
– Simple (acq BBVA, $117M)
– Sunrise (acq MSFT, $100M)
– Udemy
– Ipsy
– TalkDesk
– Intercom
500 Startups

Global Seed Fund & Startup Accelerator
500 Falcons Team
Rakan Al Eidi (‫ﺍاﻟﻌﻳﯾﺩدﻱي‬ ‫ﺭرﺍاﻛﺎﻥن‬)
VENTURE PARTNER, 500 Falcons
Hasan Haider (‫ﺣﻳﯾﺩدﺭر‬ ‫ﺣﺳﻥن‬)
GENERAL PARTNER, 500 Falcons
Sharif El Badawi (‫ﺍاﻟﺑﺩدﻭوﻱي‬ ‫ﺷﺭرﻳﯾﻑف‬)
VENTURE PARTNER, 500 Falcons
500 Startups: MENA Portfolio
Dinosaurs vs. Cockroaches

LEAN Startup: Simpler, Faster, Cheaper, Smarter
1996
”Big, Fat, Dinosaur Startup”
• 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
2016
”Lean, Little, Cockroach Startup”
• 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

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Farming Unicorns in Emerging Markets (Dubai, Oct 2016) #Gitex

  • 1. @DaveMcClure @500Startups http://500.co #Gitex Dubai - Oct 2016 Farming Unicorns in Emerging Markets Building Startup & Investor Ecosystems in MENA
  • 2. Dave McClure
 Founding Partner, 500 Startups 00’s & 10’s: • VC: Founders Fund, Facebook fbFund, 500 Startups • Angel: Mashery, Mint.com, SlideShare, Twilio, Wildfire, SendGrid • Marketing: PayPal, Simply Hired, Mint.com, O’Reilly 80’s & 90’s: • Entrepreneur: Aslan Computing (acq’d by Servinet/Panurgy) • Developer: Windows / SQL DB consultant (Intel, MSFT) • Engineer: Johns Hopkins‘88, BS Eng / Applied Math
  • 3. • What is 500? – $275M global seed fund + startup accelerator – 140 people / 25 languages / 20 countries – 1700+ Companies / 3500+ Founders / 200+ Mentors – Investment, Accelerator, Growth Marketing, Events, Education – Community + Content + Conferences • 1700+ Co’s / 60+ Countries – Twilio (NYSE: TWLO) – Credit Karma – Grab (aka GrabTaxi) – Wildfire (acq GOOG, $350M) – MakerBot (acq SSYS, $400M) – Viki (acq Rakuten, $200M) – Behance (acq Adobe, $150M) – Simple (acq BBVA, $117M) – Sunrise (acq MSFT, $100M) – Udemy – Ipsy – TalkDesk – Intercom 500 Startups
 Global Seed Fund & Startup Accelerator
  • 4. 500 Falcons Team Rakan Al Eidi (‫ﺍاﻟﻌﻳﯾﺩدﻱي‬ ‫ﺭرﺍاﻛﺎﻥن‬) VENTURE PARTNER, 500 Falcons Hasan Haider (‫ﺣﻳﯾﺩدﺭر‬ ‫ﺣﺳﻥن‬) GENERAL PARTNER, 500 Falcons Sharif El Badawi (‫ﺍاﻟﺑﺩدﻭوﻱي‬ ‫ﺷﺭرﻳﯾﻑف‬) VENTURE PARTNER, 500 Falcons
  • 5. 500 Startups: MENA Portfolio
  • 6. Dinosaurs vs. Cockroaches
 LEAN Startup: Simpler, Faster, Cheaper, Smarter 1996 ”Big, Fat, Dinosaur Startup” • 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 2016 ”Lean, Little, Cockroach Startup” • 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
  • 8. Data from ~600 companies from 500 Startups Funds I + II (2010 - 2013 cohorts) $1-10M Q: How Many Startups to Get 1 Unicorn? Unicorns 50:1 | Centaurs 20:1
  • 9. 99 VC Problems But a Batch Ain’t 1 9 http://bit.ly/99VCProblems
  • 10. Q: Chances of spotting unicorn?/ a) 1% b) 2% c) 5% d) 10% e) ZERO
  • 13. / If portfolio size = 30
  • 14. / If portfolio size = 100
  • 15. Perils of Becoming a Unicorn (Before/After IPO) 2009 2016 Jeff Lawson, Founder/CEO Twilio (NYSE:TWLO)
  • 16. How Many Startups to Get to 1 Unicorn?
  • 17. Investor Ecosystem Funding, Liquidity, Exits • Bootstrap, FFF, Crowdfunding (0-$100K) • Angel Investors (0-$100K) • Accelerators (0-$100K) • Seed funds ($100K-$1M) • Series A/B ($2-10M) • Later Stage Funds ($20M+) • M&A / Secondary Markets • IPOs
  • 18. Q: How many VC funds do we need to build an ecosystem? • USA: ~800 VC funds; 2.5 per 1M ppl • China: ~700 VC funds; 0.5 per 1M ppl • MENA: ~30 funds; 0.1 per 1M ppl NOT EVEN CLOSE!
  • 19. A Brief History of US Venture Capital • first VC funds: ARDC, JH Whitney (1946) • SBICs / Small Business Investment Act (US, 1958) • Shockley -> “Traitorous Eight” -> Fairchild (1958) -> Intel (1968) • Sutter Hill (1964), Venrock (1969), Kleiner, Sequoia (1972) • ERISA laws + “prudent man rule” (1974, 1978) • Pension Funds in VCs: $39M (1977) -> $570M (1978) -> $4B (1989) • Tech Explosion: 80’s, 90’s, 00’s • Microsoft (1975), Apple (1976), Oracle (1977), Sun (1982), Cisco (1984), Amazon (1994), eBay (1995), Yahoo (1995), Google (1998), PayPal (1998), LinkedIn (2002), Facebook (2004), Twitter (2006)
  • 20. Q: How to Bring 500 VC Funds to Emerging Markets?
  • 21. A) Invite VCs to Dinner? Q: How to Bring 500 VC Funds to Emerging Markets?
  • 22. A) Invite VCs to Dinner? B) Give VCs some Arabic Coffee? Q: How to Bring 500 VC Funds to Emerging Markets?
  • 23. A) Invite VCs to Dinner? B) Give VCs some Arabic Coffee? C) Take VCs for a Ride on a Camel? Q: How to Bring 500 VC Funds to Emerging Markets? Umm, NO.
  • 24. A) Invite VCs to Dinner? B) Give VCs some Arabic Coffee? C) Take VCs for a Ride on a Camel? … or… D) Invest in VCs!* Q: How to Bring 500 VC Funds to Emerging Markets? Umm, NO.
  • 25. Startup Risk Reduction Concept Early Customer Usage Scalable Customer Acquisition [about to be] Profitable Unit Economics Scalable Profitable Business Functional Prototype PRODUCT MARKET REVENUE Exit? When 500 Likes to Invest
  • 26. The Lean Investor Make lots of little bets: • Start with many small “experiments” • Filter out failures + small wins • Double-down on stuff that looks like it’s working • Incubation: $0-100K (“Build & Validate Product”) • Seed: $100K-$1M (“Test & Grow Marketing Channels””) • Venture: $1M-$10M (“Maximize Growth & Revenue”)
  • 27. Investment Stage #1: 
 Product Validation + Customer Usage • Structure – 1-3 founders – $0-$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
  • 28. 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
  • 29. 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
  • 30. The Unicorn “Hedge” https://500hats.com/welcome-to-the-unicorn-hedge-2fd3c6b50f89 Q: Which is more overvalued? — 100 Unicorn startups or Fortune 500? TREND: Non-tech public companies buying innovation (aka Unicorns) as a hedge against the value of their own stock. Examples: Dollar Shave Club -> Unilever, Cruise -> GM, Jet.com -> Walmart.
  • 31. Startups + Corporation = TEAM 31 Startups: • Speed • Talent (People) • Product / IP Corporations: • Customers • Budget / Money
  • 36. Different Strategies, Rqmts Different Outcomes, Impact Partner Invest Acquire Effort Low Medium High Cost Low Medium High Impact Low Medium High
  • 38. Critical Ecosystem Factors • Optimism & Belief (“Silicon Valley”) • Mentorship + Education (Knowledge) • Universities + Companies (People) • Capital, Legal, Finance (Infrastructure) • Engineering + Design / UX (Product) • Platforms + Distribution (Customers) • Online Payments (Monetization) • IPO / M&A Market (Exits)
  • 39. What’s Most Critical? • You DON’T need to be in Silicon Valley, but… • Silicon Valley Needs to be in YOU.