Successfully reported this slideshow.

More Related Content

Related Books

Free with a 14 day trial from Scribd

See all

Related Audiobooks

Free with a 14 day trial from Scribd

See all

Silicon Valley 2.0: Lots of Little Bets

  1. Silicon Valley 2.0 Lots of Little Bets + Moneyball for Startups Dave McClure http://500.co (@DaveMcClure) January 2013 http://slideshare.net/dmc500hats
  2. 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
  3. 500 Startups Global Seed Fund & Startup Accelerator • What is 500? – $50M+ under management – 20 people / 10 investing partners – Silicon Valley HQ + Incubator – SF, NY, MEX, BRZ, IND, CHN, SE Asia – 800+ Founders / 200+ Mentors – 20+ confs/events per year – Focus: Design, Data, Distribution • 400+ Portfolio Co’s / 30+ Countries – Wildfire (acq GOOG, $350M) – Twilio – SendGrid – TaskRabbit – MakerBot – 9GAG – Viki
  4. 500 Startups: Global Seed Fund startup investments in over 30 countries Last 6 months added: Germany, Korea, Peru; Russia & Turkey in Q1/13
  5. Venture Capital 2.0: Lots of Little Bets aka “MoneyBall for Startups”
  6. Changes in Tech Startups • LESS Capital required to build product, get to market – Dramatically reduced $$$ on servers, software, bandwidth – Crowdfunding, KickStarter, Angel List, Funders Club, etc – Cheap access to online platforms for 100M+ consumers, smallbiz, etc – A few big IPOs @ $1B+, but LOTS of small acquisitions (<$100M) • MORE Customers via ONLINE platforms (100M+ users) – Search (Google) – Social (Facebook, Twitter, LinkedIn) – Mobile (Apple, Android) – Local (Yelp, Groupon, Living Social) – Media (YouTube, Pinterest, Instagram, Tumblr) – Comm (Email, IM/Chat, Voice, SMS, etc) • LOTS of little bets: Accelerators, Angels, Angel List, Small Exits – Y Combinator, TechStars, 500 Startups – Funding + Co-working + Mentoring -> Design, Data, Distribution – “Fast, Cheap Fail”, network effects, quantitative + iterative investments
  7. Web 2.0 + Lean Startup 1. Startup Costs = Lower. 2. # Users, Bandwidth = Bigger. 3. Transaction $$$ = Better.  Building Product => Cheaper, Faster, Better  Getting Customers => Easier, More Measurable Iterative Product & Marketing Decisions based on Measured User Behavior
  8. Think Different.
  9. 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
  10. 500 Strategy: “Lots of Little Bets”* 1) Make lots of little 30% bets pre-traction, Capital early-stage startups 2) after 6-12 months, identify 70% top 20% performers and Capital double-down higher $$$ 3) conservative model assumes -5-10% large exits @20X ($50-100M+) -10-20% small exits @5X ($5-50M) 10 *See Peter Sims book: “Little Bets”
  11. Startup Investor Ecosystem Bootstrap, KickStarter, Crowdfunding Y-Combinator Angels & TechStars Incubators ($0-10M) SV Angel (Conway) SoftTech (Clavier) “Micro-VC” Funds Floodgate (Maples) ($10-100M) Felicis (Senkut) First Round True Smaller VC Funds Union Square ($100-500M) Foundry Group Atomico Andreessen Larger VC Funds (>$500M) Greylock Sequoia
  12. Angel* List: It Rocks. • Startups & Investors • Activity & Metrics • Platform & APIs • *ps – not just for Angels, or USA
  13. Early-Stage Risk Reduction • 1st Mtg: Crazy, Idiots, Liars or Crooks? • Product: does it work? (crappy, not perfect) • Market: are people using it? (not their mom) • Revenue: will people pay for it? (just a few) • Growth: how will it/they scale? (online? offline?) • Finance: what will it cost? – Q1: cost to get a customer? – Q2: how & when do you make money?
  14. Early-Stage Startups: Your “Due Diligence” Is An Illusion (Better approach = write a quick, small check then wait ~6 mo’s) • Problems in Early-Stage Due Diligence: – You Might Be Able to Detect Idiots & Liars, but… – Not much history, product, customers, or revenue (yet), so… – You probably can’t figure out Winners (yet). • The New Due Diligence = Incremental Achievements – “Due Diligence”  Trusted Referrals + History – “Great Team”  Functional Prototype + Usage – “Size of Market”  Evidence = Customers, Revenue • The Odds Are: They Suck, You’re Wrong – You’ll Be Wrong 4x out of 5x. (If U Don’t Suck). – In 6 Months, You’ll Know If They Don’t Suck. – In 1-2 Years, You’ll Know If They’re Awesome.
  15. Bet on Singles, Not HomeRuns. (Look for Ichiros, Not Barry Bonds)
  16. Platforms 2.0 Search, Social, Mobile
  17. Platform Viability Successful Platforms have 3 Things: Features Features 1) Features 2) Users 3) Money Growth Profit Nirvana .. Profitable Users Users .. Growth Money Money
  18. 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 (WeChat, Line, WhatsApp, Kakao), Skype, Phone/Voice, etc
  19. Web 2.0 Business Model: KISS (“Keep It Simple, Stupid”) • 1) Re-invent Web 1.0 Businesses – Make a Website, a Widget, an App – Sell Stuff (Transactions, Subscriptions, Affiliate) • 2) add Web 2.0 Technology – Search, Social, Mobile, Local, Media, Comm – Google, Facebook/Twitter, Apple/Android, YouTube – Email, SMS, Ecommerce / Payments • 3) Get Customers, Make Money – Distribution, Distribution, Distribution – (Customer Acq’stn Cost) vs. ($Rev. Per Customer) – Low CapX + Profitable Web Businesses
  20. 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 1. Non-Tech “BigCo” / Consumer Verticals buying tech startups (for distribution) • BigCo = Lots of Customers, $$$ • BigCo = Bureaucracy, Innovator Dilemma • Outsource Innovation; Buy Talent / Products • Acquiring LOTS (Small) Startups • Great for Founders, Investors  * Mint acquired by Intuit in Sept 2009 for $170M
  21. Lean Startup, Lean VC Customers, Metrics, Iteration. Invest BEFORE Traction; Double Down AFTER.
  22. The Lean Startup • Progress ≠ Features; Measure Conversion • Talk to Customers; Discover Problems • Focus on “Product/Market Fit” (good solution) • Fast, Frequent Iteration (+ Feedback Loop) • Keep it Simple & Actionable
  23. Startup Incubators & Metrics Lots of Little Bets. Most FAIL. (but a few succeed :)
  24. 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
  25. 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
  26. Education & Community • Mentors, Investors • Design, Data, Distribution • Platform Partners • Sponsors & Strategics • Marketing & Visibility
  27. Product, Market, Revenue • Product: assess functional use, improve design/UX • Market: test usage, distribution channels • Revenue: test cust acq cost, revenue, *timing* • Work on Pitch, Help Find Co-Investors, etc
  28. Hacker, Hustler, Hipster • Hacker: engineers & developers • Hipster: design & UX • Hustler: marketing & business 1.Build functional prototypes 2.Improve UX so people convert 3.Scale customer acq & distribution
  29. Outlier Competition + Modeling Success Behaviors • You want min 3-5 “rockstars” to compete • Rockstars to model success for others • You can’t assume >20% rockstars • Therefore, pick 5x5 = 25 teams • 3-5 rockstar teams emerge, compete, win • 5-10 *other* non-rockstars learn • Prune losers quickly
  30. Winners, Losers, Tweeners • Winners #WIN (with or without you) • Losers #LOSE (with or without you) • Tweeners #TWEEN – They might win with your help – They might lose with your help – Be helpful, but don’t dally – Note: you might be wrong about the losers & tweeners, so don’t be an arrogant a-hole.
  31. 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) 
  32. 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”)
  33. 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
  34. 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
  35. 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
  36. Going Local, Going Global web gets bigger -> world gets smaller
  37. Global Trends • Growth of Global Languages (see MyGengo.com) – 1B+ speakers: Mandarin, English – 300-500M+ spkrs: Spanish, Arabic • Smart Device Proliferation – mobile, tablet, TV, console, etc • More Young, More Old ($$$) Users Online • More Bandwidth, More Video, More Social, More Mobile • Wealthy Chinese + Indian, Web + IRL Globetrotters ($$$B) • Acceleration of Global Payment, E-Commerce • Dramatically Reduced Cost: Product Dev, Customer Acqstn • Global Distribution Platforms – US/EU: Apple, Facebook, AMZN, GOOG (Search, YouTube, Gmail, Android), Twitter – Asia: Baidu, Tencent, Alibaba, Sina, NHN, Yahoo-J, Softbank, Rakuten, DeNA, Gree
  38. 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)

×