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VC Evolution: Software Eats Private Equity


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slides from my talk at Quebec City Public Policy Forum on Venture Capital & Innovation (Oct 2012)

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VC Evolution: Software Eats Private Equity

  1. VC Evolution: Geeks Got Next. (aka “Software Eats Venture Capital”) @DaveMcClure @500Startups Public Policy Forum on Venture Capital & Innovation Quebec City, Oct 2012
  2. This Talk Is About… (Pro Tip: Leave Now B4 This Gets Ugly)• 500 Startups: Internet Seed Fund + Accelerator + Business School 2.0• Angel List: It Rocks. Use It.• Making Venture Capital Work Better (This is Easy) – “MoneyBall 4 Startups” – Startups #FAIL & VCs #SUCK. – Early Stage Investing = Risk Reduction – Your Diligence Is an Illusion – Guild of Geeks / Mentor Network• Making Incubators Work Better (This is Hard) – Takes A Village: Mentors, Founders, Investors – Education & Community – Outlier Competition & Success Behaviors – Product, Market, Revenue – Hacker, Hustler, Hipster – Winners Win, Losers Lose, Tweeners Tween• Scaling VC• Going Intl
  3. Dave McClure Founding Partner & Sith Lord, 500 Startups00’s & 10’s:• Investor: Founders Fund, Facebook fbFund, 500 Startups• Companies:, SlideShare, Twilio, WildFire, SendGrid• Marketing: PayPal, Simply Hired,, O’Reilly80’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
  4. 500 Startups Mountain View, CA – Founded 2010• Seed Fund & Startup Accelerator – $50M under management – 18 people / 9 investing partners – 10,000 sq ft / Silicon Valley HQ – SF, NY, MEX, BRZ, IND (+ more) – 700 Founders / 200 Mentors – Focus: Design, Data, Distribution• 400+ Portfolio Co’s / 20+ Countries – Wildfire (acq GOOG, $350M) – Twilio – SendGrid – TaskRabbit – MakerBot – Viki – 9GAG
  5. Angel* List: It Rocks. (Use it, You Idiot) • Startups & Investors • Activity & Metrics • Platform & APIs • *ps – not just for Angels, or USA
  6. Making Venture Capital Work Better (Easy) “MoneyBall for Startups” (Lots of Little Bets, Double Down on Winners)
  7. MoneyBall 4 Startups 1. Make Lots Of Little Bets 2. Count Cards (Monitor Progress & Stats) 3. Double Down on Winners
  8. Startups #FAIL & VCs #SUCK. But You Knew That Already• Play Blackjack, Not Roulette. (Count Cards. Make Lots of Little Bets.)• Don’t Be An Arrogant, Insufferable Prick.• Don’t Assume Your Diligence is 4 Shit.• Don’t Assume You. or They are Smart.• Build a Brand That Matters.• Increase Sample Size.• Don’t Make Big Bets Too Early.• Simplify Revenue Model. (as in: HAVE ONE, you idiot)• Bet on Hackers, Hustlers, Designers.• Create a Community.• Invest after they have a functional prototype.• Be early and contrarian, or late and right.• Use The Tools: Twitter, Facebook, Quora, Instagram, Pinterest, etc• Talk / Blog / Present about something u know about, care about.• Admit Your Faults Frequently.• Laugh a little bit. (at yourself, not others).• Don’t worry too much about legal structure.• Worry a SHIT TON about valuation. (because your exits will be SMALL)
  9. Bet on Singles, Not HomeRuns. (Look for Ichiros, Not Barry Bonds)
  10. Early-Stage Risk Reduction• Intro: Crazy, Liars or crooks? Fucking idiots?• 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?• Finance: what will it cost – Q1: cost to get a customer? – Q2: how & when do you make money?
  11. Your [up-front] Diligence Is An Illusion (Real Diligence = Quick Check + 3-6 mo’s)• You Might Be Able to Detect Idiots & Assholes.• You Probably Can’t Figure Out Winners (Yet).• Your Network is Better Than Your Homework.• Trusted Referrals >> Diligence• Functional Prototype >> Team.• Customers/Revenue >> Market.• 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.
  12. TIRED: White Guys in Blue Shirts.WIRED: Guild of Geeks. YC, 500.
  13. Making IncubatorsWork Better (Hard) Find, Fund [Lots of] Startups. Education & Community. Data, Design, Distribution. Access to Mentors + Investors Move Fast & Break Things.
  14. It Takes A Village• Physical Space.• People = Tribe.• Mentors (Advise 1st, Invest 2nd)• Events, Foods, Awesome.• This is YOUR FAMILY. Make Them AWESOME.• This is also YOUR BRAND. So Don’t SUCK.• Make a Big Tent. (Collaborate, don’t Compete).
  15. Education & Community• Mentors, Investors• Design, Data, Distribution• Platform Partners• Sponsors & Strategics• Marketing & Visibility
  16. 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
  17. 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
  18. Hacker, Hustler, Hipster• Hacker: engineers & developers• Hipster: design & UX• Hustler: marketing & business1. Build functional prototypes2. Improve UX so people convert3. Scale customer acq & distribution
  19. 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.
  20. Scaling VC• VC is an immature & fragmented market• It’s Ripe for Disruption• It Hasn’t Scaled (Yet)
  21. Going International• Brazil, Mexico, India• China, SE Asia, Japan, Korea• Russia, Turkey, Middle East