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VC Evolution: Software Eats Private Equity

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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 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
  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 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
  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 Incubators Work 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 & business 1. Build functional prototypes 2. Improve UX so people convert 3. 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

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