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@DaveMcClure
@500Startups http://500.co
Madrid - Oct 2016
The Unicorn Hedge
Why Are Corporations
Buying Unicorns?
Dave McClure

Founding Partner, 500 Startups
00’s & 10’s:
• VC: Founders Fund, Facebook fbFund, 500 Startups
• Angel: Mash...
• What is 500?
– $250M global seed fund + startup accelerator
– 130 people / 25 languages / 20 countries
– 1700+ Companies...
500 Strategy: Lots of Little Bets*
1) make lots of little
bets on early-stage
startups when they’re
just getting started
3...
Old Startups vs. New Startups

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

Search, Social, Mobile,
Video, Messaging
The Lean Investor
Make lots of little bets:
• Start with many small “experiments”
• Filter out failures + small wins
• Dou...
Startup Risk Reduction
Concept
Early
Customer
Usage
Scalable
Customer
Acquisition
[about to be]
Profitable
Unit
Economics
...
Startups Disrupting Corporations
• Uber, Lyft, Tesla = Car Companies
• AirBnb = Hotels
• Twilio = Telecom
• Apple, Spotify...
Corporations are Becoming VCs
The Unicorn “Hedge”
https://500hats.com/welcome-to-the-unicorn-hedge-2fd3c6b50f89
Q: Which is more overvalued? — 100 Unico...
How Many Startups
to Get to 1 Unicorn?
Perils of Becoming a Unicorn
(Before/After IPO)
2009 2016
Jeff Lawson, Founder/CEO Twilio (NYSE:TWLO)
Startup Odds
Unicorns 100:1 | Centaurs 20:1
Data from ~600 companies from 500 Startups Funds I + II (2010 - 2013 cohorts)
...
Startups + Corporation = TEAM
15
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
...
Investor Ecosystem
Angels &
Accelerators
($0-10M)
“Seed” Funds
($10-100M)
“Traditional” VC Funds
($100-500M)
“Unicorn” VC ...
The “Series B Snipe”
(aka Stealing Baby Unicorns)
Seed Series A
Series B/
C
Late Stage /
Unicorn
Driver Team Product Custo...
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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The Unicorn Hedge: Why Are Corporations Buying Unicorns? (Madrid, Oct 2016)

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slides from my talk at #SouthSummit Madrid on how corporations are becoming venture capitalists, buying unicorns, and trying to avoid disruption.

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The Unicorn Hedge: Why Are Corporations Buying Unicorns? (Madrid, Oct 2016)

  1. @DaveMcClure @500Startups http://500.co Madrid - Oct 2016 The Unicorn Hedge Why Are Corporations Buying Unicorns?
  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? – $250M global seed fund + startup accelerator – 130 people / 25 languages / 20 countries – 1700+ Companies / 3500+ Founders / 250+ Mentors – Investment, Accelerator, Distro, 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 Strategy: Lots of Little Bets* 1) make lots of little bets on early-stage startups when they’re just getting started 3) wait 5-10 years for returns: -10-20% small exits @1-5X ($5-25M+) -5-10% larger exits @5-20X ($25-250M+) -1-2% unicorns @20-50X+ ($250M-1B+) *See Peter Sims book: “Little Bets” 2) over the next five years, double-down on top 20-30% ~500 co’s @ $100K 1st checks 100+ co’s @ $200-500K 2nd/3rd checks (hope for a few big exits @ $100M-$1B+) (assume high failure rate ~50-80%)
  5. Old Startups vs. New Startups
 LEAN Startup: Simpler, Faster, Cheaper, Smarter 1996 ”Big, Fat 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 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
  6. Platforms:
 Search, Social, Mobile, Video, Messaging
  7. 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”)
  8. 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
  9. Startups Disrupting Corporations • Uber, Lyft, Tesla = Car Companies • AirBnb = Hotels • Twilio = Telecom • Apple, Spotify = Music, Phones • Netflix = BlockBuster, Movies, Television • Facebook, Google = Media, Advertising • Amazon = Walmart / EVERYTHING! 9
  10. Corporations are Becoming VCs
  11. 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.
  12. How Many Startups to Get to 1 Unicorn?
  13. Perils of Becoming a Unicorn (Before/After IPO) 2009 2016 Jeff Lawson, Founder/CEO Twilio (NYSE:TWLO)
  14. Startup Odds Unicorns 100:1 | Centaurs 20:1 Data from ~600 companies from 500 Startups Funds I + II (2010 - 2013 cohorts) $1-10M
  15. Startups + Corporation = TEAM 15 Startups: • Speed • Talent (People) • Product / IP Corporations: • Customers • Budget / Money
  16. 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
  17. Corporate/Startup Innovation Framework Outcomes People Product Customers
  18. Corporate/Startup Innovation Framework Partnerships Investments M&A Outcomes Strategies People Product Customers
  19. 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
  20. Different Strategies, Rqmts Different Outcomes, Impact Partner Invest Acquire Effort Low Medium High Cost Low Medium High Impact Low Medium High
  21. Investor Ecosystem Angels & Accelerators ($0-10M) “Seed” Funds ($10-100M) “Traditional” VC Funds ($100-500M) “Unicorn” VC Funds (>$500M) Incubation 0-$100K Seed $100K-$1M Series A/B $1-10M Series B/C $10-100M Bootstrap, KickStarter, AngelList, Crowdfunding
  22. The “Series B Snipe” (aka Stealing Baby Unicorns) Seed Series A Series B/ C Late Stage / Unicorn Driver Team Product Customers Business Cost 1X 10X 100X 1000X Risk Very High High Medium Low Size / Ppl 1-10 10-50 50-200 500-1000
  23. 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)
  24. 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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