slides for my talk at Startup Labs Istanbul (April 2012)

1. Silicon Valley 2.0
“Geeks Gone Global”

2. Changes: Startups, Tech, VC
• Venture Capital = Fewer, Smaller Funds
– Decline of Larger Funds (> $250m), except for a few HUGE ONES (>$1B)
– Rise of “Super Angel” / “Micro-VC” seed funds (<$100M)
– Fewer Large IPOs (>$1B), Lots of Small Acquisitions (<$250M)
– Small funds typically run by Operators, not MBAs
• BIG Customer Platforms = Distribution + Monetization (not Tech)
– Search (Google)
– Social (Facebook, Twitter)
– Mobile (Apple, Android)
– Local (Groupon, Living Social)
• Incubators, Metrics = Many Small Experiments
– Y Combinator, TechStars, 500 Startups
– The “Lean Startup”, Design/UX, Distribution
– Lots of Little Bets; Incremental Investment

3. 500 Strategy: Lots of Little Bets
1. Start with large,
well-screened 30%
funnel of early- Fund
stage companies. Capital
2. After first check / 3-6
70 %
months, identify top
Fund
performers and double-
Capital
down on best of them
1. Build conservative model assuming
5-10% larger exits @ > $100M,
10-20% smaller exits @ <$100M
3

4. 500 Startups:
“Super-Angel / Micro-VC” Fund
• Seed Fund & Startup Accelerator
– $29M Fund I; $50M Fund II
– 9-person team, 4 partners
– 10,000 sq ft, HQ in Silicon Valley
– 175+ Mentors in 10+ Countries
• Fund I Portfolio: 250 co’s
– Twilio (Union Square, Bessemer)
– Wildfire (Summit)
– SendGrid (Foundry, Bessemer)
– TaskRabbit (First Round)
– MakerBot (Foundry)
– Viki (Greylock, Andreessen)
– Smule (Bessemer, Granite)

5. Dave McClure
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 Media
• Speaker: Lean Startup, Web 2.0, Stanford/Facebook
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

6. Why Micro VC? What has changed?
Angel
Money
6

7. Venture Investor Ecosystem
Y-Combinator
Angels &
TechStars Incubators
($0-10M)
SV Angel (Conway)
SoftTech (Clavier)
“Micro-VC” Funds
Floodgate (Maples) ($10-100M)
Felicis (Senkut)
First Round True Ventures
Smaller VC Funds
Union Square ($100-500M) Foundry Group
Andreessen-
Accel
Horowitz
Partners Larger VC Funds
(>$500M)
Sequoia
Greylock

8. Distribution Platforms
Customer Reach: 100M+
• Search: Google (SEO/SEM)
• Social: Facebook, Twitter, Zynga, LinkedIn
• Mobile: Apple (iPhone, iPad), Android
• Local: Groupon, LivingSocial, Yelp, Google, Facebook
• Media: Video (YouTube), Blogs, Photos, Music.
• Comm: Email, IM, Chat, Phone/Voice.

9. Lots of Small Bets = Quantitative Approach
• No heroic exit assumptions
• Double-down on top 20%
• Protected by Law of Large #s.
$ Millions
$150M+ out
50 companies
150
 $250M average exit
High Performers  $5-10M payback/co.
5% of Portfolio  10+ companies (5%)
100
 1-5% Ownership
$50M into $100M of
200+ companies return
 $25M average exit
 $1-2M payback/co.
50
Great Performers Solid Performers  30+ companies (15%)
$ Invested
15% of Portfolio
 5-8% Ownership
Good Performers $50M of return
Ok Performers Ok Performers  $1-5M avg exit
$ Invested $ Distributed Details
9

10. 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”)

11. 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

12. 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

13. 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

14. Going Local, Going Global
web gets bigger -> world gets smaller

15. 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: Tencent/QQ, Taobao/Alibaba/AliPay, Yahoo-J, Softbank, Rakuten, DeNA, Gree