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

Founding Partner, 500 Startups
00’s & 10’s:
• VC: Founders Fund, Facebook fbFund, 500 Startups
• Angel: Mash...
• What is 500?
– $275M global seed fund + startup accelerator
– 140 people / 25 languages / 20 countries
– 1700+ Companies...
500 Falcons Team
Rakan Al Eidi (‫ﺍاﻟﻌﻳﯾﺩدﻱي‬ ‫ﺭرﺍاﻛﺎﻥن‬)
VENTURE PARTNER, 500 Falcons
Hasan Haider (‫ﺣﻳﯾﺩدﺭر‬ ‫ﺣﺳﻥن‬)
GENE...
500 Startups: MENA Portfolio
Dinosaurs vs. Cockroaches

LEAN Startup: Simpler, Faster, Cheaper, Smarter
1996
”Big, Fat, Dinosaur Startup”
• Sun Servers...
Platforms:

Search, Social, Mobile,
Video, Messaging
Data from ~600 companies from 500 Startups Funds I + II (2010 - 2013 cohorts)
$1-10M
Q: How Many Startups to Get 1 Unicorn...
99 VC Problems
But a Batch Ain’t 1
9
http://bit.ly/99VCProblems
Q: Chances of spotting
unicorn?/
a) 1%
b) 2%
c) 5%
d) 10%
e) ZERO
Chances of spotting
unicorn = ~1%/
If portfolio size = 15/
/ If portfolio size = 30
/ If portfolio size = 100
Perils of Becoming a Unicorn
(Before/After IPO)
2009 2016
Jeff Lawson, Founder/CEO Twilio (NYSE:TWLO)
How Many Startups
to Get to 1 Unicorn?
Investor Ecosystem
Funding, Liquidity, Exits
• Bootstrap, FFF, Crowdfunding (0-$100K)
• Angel Investors (0-$100K)
• Accele...
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 pe...
A Brief History of
US Venture Capital
• first VC funds: ARDC, JH Whitney (1946)
• SBICs / Small Business Investment Act (U...
Q: How to Bring 500 VC Funds
to Emerging Markets?
A) Invite VCs to Dinner?
Q: How to Bring 500 VC Funds
to Emerging Markets?
A) Invite VCs to Dinner?
B) Give VCs some Arabic Coffee?
Q: How to Bring 500 VC Funds
to Emerging Markets?
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
t...
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: Ho...
Startup Risk Reduction
Concept
Early
Customer
Usage
Scalable
Customer
Acquisition
[about to be]
Profitable
Unit
Economics
...
The Lean Investor
Make lots of little bets:
• Start with many small “experiments”
• Filter out failures + small wins
• Dou...
Investment Stage #1: 

Product Validation + Customer Usage
• Structure
– 1-3 founders
– $0-$100K investment
– Incubator en...
Investment Stage #2: 

Market Validation + Revenue Testing
• Structure
– 2-10 person team
– $100K-$1M investment
– Syndica...
Investment Stage #3: 

Revenue Validation + Growth
• Structure
– 5-25 person team
– $1M-$10M investment
– Seed & Venture I...
The Unicorn “Hedge”
https://500hats.com/welcome-to-the-unicorn-hedge-2fd3c6b50f89
Q: Which is more overvalued? — 100 Unico...
Startups + Corporation = TEAM
31
Startups:
• Speed
• Talent (People)
• Product / IP
Corporations:
• Customers
• Budget / M...
Corporate/Startup
Innovation Framework
Partnerships
Investments
M&A
Outcomes
Strategies
People
Product
Customers
Dealflow
...
Corporate/Startup
Innovation Framework
Outcomes
People
Product
Customers
Corporate/Startup
Innovation Framework
Partnerships
Investments
M&A
Outcomes
Strategies
People
Product
Customers
Corporate/Startup
Innovation Framework
Partnerships
Investments
M&A
Outcomes
Strategies
People
Product
Customers
Dealflow
...
Different Strategies, Rqmts
Different Outcomes, Impact
Partner Invest Acquire
Effort Low Medium High
Cost Low Medium High
...
Building Startup Ecosystems
Critical Ecosystem Factors
• Optimism & Belief (“Silicon Valley”)
• Mentorship + Education (Knowledge)
• Universities + Co...
What’s Most Critical?
• You DON’T need to be in Silicon Valley, but…
• Silicon Valley Needs to be in YOU.
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Farming Unicorns in Emerging Markets (Dubai, Oct 2016) #Gitex

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slides for my talk at #GITEX in Dubai

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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
  7. Platforms:
 Search, Social, Mobile, Video, Messaging
  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
  11. Chances of spotting unicorn = ~1%/
  12. If portfolio size = 15/
  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
  32. Corporate/Startup Innovation Framework Partnerships Investments M&A Outcomes Strategies People Product Customers Dealflow Accelerators PR & Sponsorships Competitions & Events Silicon Valley Outposts Investing in VC funds
  33. Corporate/Startup Innovation Framework Outcomes People Product Customers
  34. Corporate/Startup Innovation Framework Partnerships Investments M&A Outcomes Strategies People Product Customers
  35. Corporate/Startup Innovation Framework Partnerships Investments M&A Outcomes Strategies People Product Customers Dealflow Accelerators PR & Sponsorships Competitions & Events Silicon Valley Outposts Investing in VC funds
  36. Different Strategies, Rqmts Different Outcomes, Impact Partner Invest Acquire Effort Low Medium High Cost Low Medium High Impact Low Medium High
  37. Building Startup Ecosystems
  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.

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