Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Silicon Valley 2.0: Lots of Little Bets (Hong Kong, May 2013)

11,018 views

Published on

slides for my talk on changes in the VC & Startup industry, at Tie-HK Entrepreneurs Day (Hong Kong, May 2013)

Silicon Valley 2.0: Lots of Little Bets (Hong Kong, May 2013)

  1. Silicon Valley 2.0Lots of Little Bets +Moneyball for StartupsDave McClurehttp://500.co(@DaveMcClure)Hong Kong, May 2013http://slideshare.net/dmc500hats
  2. Dave McClureFounding Partner & Chief Troublemaker, 500 Startups00’s & 10’s:• VC: Founders Fund, Facebook fbFund, 500 Startups• Angel: Mashery, Mint.com, SlideShare, Twilio, WildFire, SendGrid• Marketing: PayPal, Simply Hired, Mint.com, oDesk, O’Reilly80’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. 500 StartupsGlobal Seed Fund & Startup Accelerator• What is 500?– ~$70M under management– 25 people / 12 investing partners– Locations: SV, NYC, MEX, BRZ, IND, CHN, SEasia– 1000+ Founders / 200+ Mentors• 500+ Portfolio Co’s / 30+ Countries– Wildfire (acq GOOG, $350M)– Twilio– SendGrid– TaskRabbit– MakerBot– Doodle Mobile (BJ)– ChinaNetCloud (SH)– 9GAG (HK)– Viki (SG)– PicCollage (TWN)– Cubie (TWN)
  4. 500 Startups: Global Seed FundOver 100+ startups outside US, in 35+ countries• Q4/12 added: Germany, Korea, Peru; + Russia, Israel, Turkey in Q1/13• Priorities in 2012: Brazil, Mexico, India• Priorities In 2013: China, SE Asia, MENA, Eastern Europe
  5. Venture Capital 2.0:Lots of Little Betsaka “MoneyBall for Startups”• VC Evolution: Physician, Scale Thyself (Aug 2012)• MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
  6. Changes in Tech Startups• LESS Capital required to build product, get to market– Dramatically reduced $$$ on servers, software, bandwidth– Crowdfunding, KickStarter, Angel List, Funders Club, etc– Cheap access to online platforms for 100M+ consumers, smallbiz, etc– A few big IPOs @ $1B+, but LOTS of small acquisitions (<$100M)• MORE Customers via ONLINE platforms (100M+ users)– Search (Google)– Social (Facebook, Twitter, LinkedIn)– Mobile (Apple, Android)– Local (Yelp, Groupon, Living Social)– Media (YouTube, Pinterest, Instagram, Tumblr)– Comm (Email, IM/Chat, Voice, SMS, etc)• LOTS of little bets: Accelerators, Angels, Angel List, Small Exits– Y Combinator, TechStars, 500 Startups– Funding + Co-working + Mentoring -> Design, Data, Distribution– “Fast, Cheap Fail”, network effects, quantitative + iterative investments
  7. Web 2.0 + Lean Startup1. Startup Costs = Lower.2. # Users, Bandwidth = Bigger.3. Transaction $$$ = Better. Building Product => Cheaper, Faster, Better Getting Customers => Easier, More MeasurableIterative Product & Marketing Decisionsbased on Measured User Behavior
  8. Think Different.
  9. MoneyBall 4 Startupshttp://slideshare.net/paulsingh/moneyball-a-quantitative-approach-to-angel-investing-austin-tx-aug-20121. Make Lots Of Little Bets2. Count Cards (Monitor Progress &Stats)3. Double Down on Winners
  10. 70%Capital10500 Strategy: “Lots of Little Bets”*1) Make lots of littlebets pre-traction,early-stage startups30%Capital2) after 6-12 months, identifytop 20% performers anddouble-down higher $$$3) conservative model assumes-5-10% large exits @20X ($50-100M+)-10-20% small exits @5X ($5-50M)*See Peter Sims book: “Little Bets”
  11. Startup Investor EcosystemAngels &Incubators($0-10M)“Micro-VC” Funds($10-100M)Smaller VC Funds($100-500M)Larger VC Funds(>$500M)TrueFirst RoundAndreessenAtomicoY-CombinatorTechStarsSoftTech (Clavier)Felicis (Senkut)SV Angel (Conway)SequoiaGreylockUnion SquareFloodgate (Maples)Foundry GroupBootstrap, KickStarter,Crowdfunding
  12. Angel* List: It Rocks.• Startups & Investors• Activity & Metrics• Platform & APIs• *ps – not just for Angels, or USA
  13. Early-Stage Risk Reduction• 1stMtg: 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 2.0Search, Social, Mobile
  17. Platform ViabilityUsers .Users ..Money.MoneyFeaturesFeaturesGrowth ProfitProfitableGrowthNirvanaSuccessful Platformshave 3 Things:1) Features2) Users3) Money
  18. Distribution PlatformsCustomer 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 Acquisitions1. Mature Internet Platform Co’s:– GOOG, MSFT, YHOO, EBAY, AOL, AMZN,AAPL, INTU, ADBE, FB, TW, LNKD, GRPN1. Non-Tech “BigCo” / Consumer Verticalsbuying 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 inSept 2009 for $170M
  21. Lean Startup, Lean VCCustomers, 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 & MetricsLots 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 & business1.Build functional prototypes2.Improve UX so people convert3.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• Identify losers quickly (but don’t be an ass)
  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 REVfbFund 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 InvestmentMethod: Invest in lots of startups using incrementalinvestment, iterative development. Start with manysmall experiments, filter out failures, and expandinvestment 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 Globalweb 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 • Questions / More Info?– http://500.co (our company)– http://500hats.com (my blog)– https://angel.co/500startups (our fund)– Rui Ma, 500 Startups China (@MissRuiMa)– Khailee Ng, 500 Startups SE Asia (@Khailee)– Dave McClure, 500 Startups USA (@DaveMcClure)

×