The document discusses changes in technology startups and venture capital. It notes that startups now require less capital due to reduced costs and larger online platforms. Venture capital has also evolved, with more "micro-VC" funds and accelerators making many small bets across early-stage startups. This new model of lots of little bets aims to identify the top 20% of performers and double down on those companies, assuming high failure rates but the potential for large exits.

1. Changes
in
Tech
Startups
&
Venture
Capital
@DaveMcClure
#ABAF
Mumbai
Nov
2013

2. This
Talk…
•
•
•
•
•
•
Industry
Changes:
Da$
Punk
Lean
Startup
Myth
BusJng:
The
Series
A
Crunch
500
Strategy:
Lots
of
Li8le
Bets
Venture
Metrics:
The
Lean
VC
Scalable
PlaMorms:
Marke=ng
&
Distribu=on
Demography=Geography:
Local
vs.
Global
Startups

3. Dave McClure
Founding Partner & Chief Troublemaker, 500 Startups
00’s & 10’s:
• VC: Founders Fund, Facebook fbFund, 500 Startups
• Angel: Mashery, Mint.com, SlideShare, Twilio
• 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

4. 500 Startups
Global Seed Fund & Startup Accelerator
•
What is 500?
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$80M under management
30+ people / 10 investing partners
Locations: SV, NYC, MEX, BRZ, IND, CHN, SE Asia
1000+ Founders / 200+ Mentors
25+ positive exits in ~3 years
500+ Portfolio Co’s / 40+ Countries
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–
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Wildfire (acq GOOG, $350M)
MakerBot (acq SSYS, $400M)
Viki (acq Rakuten, $200M)
Twilio
SendGrid
Credit Karma
VivaReal
Udemy
Zozi
The RealReal
Virool
Visually
Gengo
PicCollage
9GAG
ZipDial
TradeBriefs
Tushky

5. 500 Startups: Global Seed Fund
Over 150+ startups outside US, in 40+ countries

6. Startup Investor Ecosystem
Bootstrap, KickStarter,
Crowdfunding
Y-Combinator
TechStars
Angels &
Incubators
($0-10M)
SV Angel (Conway)
Floodgate (Maples)
“Micro-VC” Funds
($10-100M)
First Round
Union Square
Incuba=on
SoftTech (Clavier)
Felicis (Senkut)
Series
A
True
“Big” VC Funds
($100-500M)
Seed
Foundry
Series
B
Atomico
Greylock
“Mega” VC Funds
(>$500M)
A16Z
Sequoia
Series
C+

7. 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
•
MORE Customers via ONLINE platforms (100M+ users)
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•
Search (Google)
Social (Facebook, Twitter)
Mobile (Apple, Android)
Local (Yelp, Groupon, FourSquare)
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

8. Industry
Changes
•
•
•
•
•
•
Startup
Efficiency,
Reduced
Capital
Costs
Growing
Market,
Growing
PlaIorms
VC
Industry
Upheavals
(2000,
2008)
Super
Angel
-­‐>
Micro
VC:
Seed
Funds
(ex:
First
Round)
Incubators
&
Accelerators
(ex:
Y
Combinator)
Big
VC
(ex:
A16Z)
&
PlaMorms
(ex:
Angel
List)
more
info
see:
h.p://PreMoney.co

9. Daft Punk Lean Startup:
Simpler, Faster, Cheaper, Smarter
1. Startup Costs = Lower.
2. # Users, Bandwidth = Bigger.
3. Transaction $$$ = Better.
Ø Building Product => Cheaper, Faster, Better
Ø Getting Customers => Easier, More Measurable
Iterative Product & Marketing Decisions
based on Measured User Behavior

10. Before & After 2 Dot-Com Crashes
Daft Punk Startup: Simpler, Faster, Cheaper, Smarter
Before
2000
• Sun
Servers
• Oracle
DB
• Exodus
HosJng
• 12-­‐24mo
dev
cycle
• 6-­‐18mo
sales
cycle
• <100M
people
online
• $1-­‐2M
seed
round
• $3-­‐5M
Series
A
• Sand
Hill
Road
crawl
• Big,
Fat,
Dinosaur
Startup
Acer
2008
• 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
• Lean,
Li8le,
Cockroach
Startup

11. Series A Crunch: Good or Bad?
Series A rqmts: $1M revenue, 1M active users,
10M downloads, 100% YoY growth
• Lots of Incubation / Seed startups will “fail”
• BUT: Fail Budget = $50-$500K, not $5M+
• Many “failed” startups = ramen-profitable, small
acquisition, or MBA alternative (<$100K)
• Series A/B VCs have lots to choose from
• Overall, founders / market getting smarter
• More focus on customers, problems, revenue
• Many die, some survive (1-5x), a few thrive (20x+).

12. Silicon Valley 2.0:
Lots of Little Bets
aka “MoneyBall for Startups”
•
•
VC Evolution: Physician, Scale Thyself (Aug 2012)
MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)

13. 500
Strategy:
“Lots
of
Li.le
Bets”*
Quan=ta=ve
Inves=ng
before
Trac=on
1)
Make
lots
of
limle
bets
pre-­‐tracJon,
early-­‐stage
startups
2)
acer
6-­‐12
months,
idenJfy
top
20%
performers
and
double-­‐down
higher
$$$
250+
companies
@
$25-­‐100K
(1st
check)
-­‐
Assume
high
failure
rate
(up
to
80%)
Double-­‐Down
a'er
Trac=on
50+
‘winners’
@
$100K-­‐$1M
(2nd
+
3rd
check)
-­‐
-­‐
Target
10+
exits
@
$100M+
3)
conservaJve
model
assumes
-­‐ 5-­‐10%
large
exits
@20X
($50-­‐100M+)
-­‐ 10-­‐20%
small
exits
@5X
($5-­‐50M)
13
*See Peter Sims book: “Little Bets”

14. 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”)

15. 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):
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–
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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

16. 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:
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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

17. 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:
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–
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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

18. EducaJon
+
Community
+
PlaMorms
•
•
•
•
•
•
Cri=cal
Skills:
Engineering,
Design,
MarkeJng
Distribu=on:
Search,
Social,
Mobile,
Video,
Local
Global:
LatAm,
Asia,
India,
EU,
ME,
Africa
Social:
LinkedIn,
Quora,
Angel
List
Angel
List,
Second
Market,
Trusted
Insight
Dashboard.io,
MamerMark,
Funders
Club

19. Platforms 2.0
Search, Social, Mobile,
Video, Messaging

20. Distribution Platforms
Customer Reach: 100M-1B+
• Search: Google, Baidu, Yahoo/Bing, Yandex
• Social: Facebook, Twitter, LinkedIn, TenCent/QQ, WeChat
• Mobile: Apple (iOS), Android
• Media: Video (YouTube), Photos (Instagram, Pinterest), Blogs
• Comm: SMS, IM (WeChat, WhatsApp), Skype, Phone/Voice

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

22. Local
vs
Global?
•
•
•
•
•
Emerging
/
Developing
Markets
Global
Languages:
English,
Chinese,
Spanish,
Arabic
CriJcal
Factors:
Educa=on,
Mentorship,
Capital
Capital
Availability:
Incuba=on,
Seed,
Series
A
PosiJve
Macro:
Payments,
LogisJcs,
Mobile/Web
PenetraJon,
Growing
Middle
Class,
Distribu=on

23. Global Trends
• Growth of Global Languages (see Gengo.com)
– 1B+ speakers: Mandarin, English
– 300-500M+ spkrs: Spanish, Arabic
• Smart Device Proliferation
– mobile, tablet, TV, console, auto, home, 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, Logistics
Dramatically Reduced Cost: Product Dev, Customer Acqstn
Global Distribution Platforms
– US/EU: AAPL, FB, AMZN, GOOG (Search, YouTube, Gmail, Android), TWTR
– Asia: Baidu, Tencent/WeChat, Alibaba, Sina, NHN, Yahoo-J, Softbank, Rakuten

24. QuesJons?
Comments?
• Thanks
for
Listening
• Feedback
Appreciated
G
KLIN
HEC
• More Info?
–
–
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http://500.co (our company)
http://500hats.com (my blog)
https://angel.co/500startups (our fund)
Dave McClure, @DaveMcClure