The document discusses changes in building technology startups and venture capital investing. Specifically, it notes that startups now require less capital to build products and reach customers due to reduced costs and access to online platforms. It also discusses how venture capital investing has shifted towards making many small bets through micro-VC funds, incubators, and accelerators. Additionally, it outlines how startup ecosystems are developing globally through growing entrepreneurship worldwide.
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slides from my talk @ KAUST in Saudi Arabia (Nov 2013). Note: these slides are old, ugly, out-of-date, and probably will get you jailed or killed... so please don't pay attention to them.
Startup Metrics for Pirates (March 2009)Dave McClure
Slightly updated presentation from my talk at http://EntrepreneurTrek.org at Stanford University (March 2009). note: basically same as FOWA talk, minor update added slide 17.
Startup Metrics for Pirates (KAUST, Nov 2013)Dave McClure
slides from my talk @ KAUST in Saudi Arabia (Nov 2013). Note: these slides are old, ugly, out-of-date, and probably will get you jailed or killed... so please don't pay attention to them.
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Presentation on US Startup & Seed / Angel Investment Market for Startonomics Tokyo (June, 2009). Speakers Dave McClure, Joyce Kim, Dave Troy, Ryan Pipkin.
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How to define and position your VC brand to attract funding and dealflow.
* note: more recent updated version below:
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Also Intelisync, our cutting-edge service designed to streamline and optimize your marketing efforts, leveraging data-driven insights and innovative strategies to drive growth and visibility for your project.
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Silicon Valley 2.0: Make Lots of Little Bets.
1. “Silicon Valley 2.0”
Make Lots of Little Bets.
Expect Most to Fail.
@DaveMcClure
@500Startups http://500.co
Phoenix, March 2015 #VentureMadness
2. [ This Talk ]
• Changes in Building Technology Startups
• Changes in Venture Capital Investing
• Building Startup Ecosystems
• Global Entrepreneurship
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, 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
4. • What is 500?
– $150M silicon valley VC fund + startup accelerator
– 50 people / 15 investing partners / 12 countries / 20+ languages
– Locations: SV/SF, MEX, BRZ, IND, CHN/TWN, KOR, SE Asia, UK, MENA
– 2000+ Founders / 200+ Mentors
– Community + Content + Conferences
!
• ~1000+ Portfolio Co’s / 50+ Countries
– Wildfire (acq GOOG, $350M)
– MakerBot (acq SSYS, $400M)
– Viki (acq Rakuten, $200M)
– Simple (acq BBVA, $117M)
– Sunrise (acq MSFT, $100M)
– Credit Karma
– Twilio
– SendGrid
– Udemy
– TheRealReal
– Barkbox
– HomeJoy
500 Startups
Global Seed Fund & Startup Accelerator
5. [ This Talk ]
• Changes in Building Technology Startups
• Changes in Venture Capital Investing
• Building Startup Ecosystems
• Global Entrepreneurship
6. Changes in Tech Startups
• LESS Capital required to build product, get to market
– Dramatically reduced cost for servers, software, bandwidth
– Funding Platforms: KickStarter, Angel List, Funders Club, etc
– Access to online platforms for 100M-1B+ consumers, smallbiz, etc
!
• MORE Customers via ONLINE platforms (100M+ users)
– Search (Google, Baidu)
– Social (Facebook, Twitter, LinkedIn)
– Mobile (Apple, Android)
– E-Commerce (Amazon, Ebay/PayPal, Alibaba)
– Media (YouTube, Pinterest, Instagram)
– Comm/Msgs (WeChat/WhatsApp, Email, Voice, SMS, etc)
!
• LOTS of little bets: Accelerators, Angels, Angel List, Small Exits
– Capital + Co-working + Mentoring -> Design, Data, Distribution
– “Fast, Cheap Fail”, network effects, quantitative + iterative investments
7. Before & After 2 Dot-Com Crashes
LEAN Startup: Simpler, Faster, Cheaper, Smarter
Before 2000
”Big, Fat, Dinosaur 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
After 2008
”Lean, Little, Cockroach 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
11. [ This Talk ]
• Changes in Building Technology Startups
• Changes in Venture Capital Investing
• Building Startup Ecosystems
• Global Entrepreneurship
12. Industry Changes
• Financial Market Crises (2000, 2008)
• Startup Efficiency, Lean Startup Movement, Reduced Capital Costs
• Growing Market, Global Distribution Platforms, “Growth Hacking”
• Improved Monetization, Payments Infrastructure
• Developing Startup Ecosystems, Global M&A
!
• Micro VC: Seed Funds (ex: First Round Capital)
• Incubators & Accelerators (ex: Y Combinator, 500 Startups)
• Funding Platforms (ex: Angel List, Kickstarter)
• Global Market of Angel Investors, Accelerators, Seed Funds
!
more info: http://PreMoney.co
13. Investor Education
• Startups are NOT Real Estate
• Most Startups Fail / Power Law Returns
• Portfolio Approach (20+ investments)
• Legal Structure, Financial Structure
• Syndication + Co-Investment
• Access to Downstream Capital
• Exits & Liquidity
13
15. Investor Ecosystem
!
!Angels &
Incubators
($0-10M)
!
“Micro-VC” Funds
($10-100M)
“Big” VC Funds
($100-500M)
“Mega” VC Funds
(>$500M)
Incubation
0-$100K
Seed
$100K-$1M
Series A/B
$2-10M
Series B/C
$10-50M
Bootstrap, KickStarter,
AngelList, Crowdfunding
stage where
500 writes
first checks
stage where 500
doubles-down
(maybe)
16. 500 Strategy: Lots of Little Bets*
1) make lots of little
bets on pre-traction,
early-stage startups
3) wait 3-10 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 2 years,
double-down on top 20%
17. 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”)
18. Startup Due Diligence
pro tip: focus on product + customers over team + market
• Business Plans
• Revenue Projections
!
• Can The Team Build the Product? Can They Ship, Market, & Sell?
• Are They Liars, Crooks, or Fools? Are They Lazy or Slow? Are They Crazy?
!
• Does Product Work? Does It Solve a Problem? Better Than Competition?
• Are There Users / Customers? How Many? Do They Pay? How Much?
• Are the Unit Economics Profitable? What is timing of Revenue / Expense?
• Does The Customer Acquisition Strategy Scale? Show Me The Proof.
!
• Will The Business Survive & Grow? Will the Founders Quit? Sell Early?
• If It Works, Will Anybody Buy The Business? Who / Why / How?
19. 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
20. 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 / Unit Economics, Find Profitable Customer Segments
!
• Prove Solution/Benefit, Assess Market Size
• Test Channel Cost, Unit Economics, Revenue Opportunity
• Determine Org Structure, Key Hires
21. 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
22. Building a Portfolio Budget &
Allocation Strategy
• How long will it take companies to exit? (3-7 yrs)
• How much money do you have to lose? (<5-10% net worth)
• (How much time do you have to spend/waste? sure about that?)
!
• Simple allocation for $1M investment budget over 5 years
• 50% 1st checks + 50% 2nd checks
• 20 x 1st checks @ $25K each, 1 / qtr ($500K)
• 5 x 2nd checks @ $100K each, 1 / year ($500K)
1 2 3 54 6 7 8 109 11 12 13 1514 16 17 18 2019
1 5432
23. Tracking Investments
• Set expectations for monthly investor updates & hold accountable
• Get & review monthly/quarterly financials
• WATCH THE BURN: ask what the monthly [net] burn rate is &
compare to previous
• WATCH THE CASH: ask how much cash is left & calc # months @
current burn rate
!
• Raise new round before <6-9 mo’s cash; Worry if <3 mo’s of cash.
• Share info with co-investors on how your companies are doing (they
may have diff info)
• Focus your energy on things that are working.
• Remember: try to be helpful, do no harm, don’t be an ass.
24. When / How to Double-Down?
• When to “follow-on” (write 2nd check):
• user/customers are scaling
• revenue/profit is increasing
• unit economics improving
• other experienced investors putting in more money
• founders never talk about selling / don’t ask for your money
!
• When NOT to double-down:
• founders begging you for money
• still no product / no revenue / un-profitable
• team isn’t shipping product fast / frequent
• valuation too high / raised too much money
• can’t increase ownership by at least 50-100%
• even if making progress; exit still not likely
• you have other / better alternatives
25. The Flat, The Elbow, The Wall
• Invest @ “The Flat”
when prices are low
• Double-down if/when
you detect “The Elbow”
(if valuation isn’t crazy)
!
• Don’t invest @ “The
Wall” unless capital is
infinite — if valuation
starts running away, you
usually can’t buy any
meaningful ownership
relative to existing. Time
Good Shit
Happening Startup W
Startup L
Startup K
“The Flat”
“The Elbow”
“The Wall”
1
2
3
3
26. [ This Talk ]
• Changes in Building Technology Startups
• Changes in Venture Capital Investing
• Building Startup Ecosystems
• Global Entrepreneurship
30. [ This Talk ]
• Changes in Building Technology Startups
• Changes in Venture Capital Investing
• Building Startup Ecosystems
• Global Entrepreneurship
31. Local vs Global?
• Emerging / Developing Markets
• Global Languages: English, Chinese, Spanish, Arabic
• Critical Factors: Education, Mentorship, Capital
• Capital Availability: Incubation, Seed, Series A
• Positive Macro: SmartPhones, Tablets, Payments,
Logistics, Growing Middle Class, Distribution Platforms
• Wealthy Global Users, Shoppers, Travelers
32. How Big is Seed Stage Startup Market?
500 VCs invest in 10,000 startups/yr @ $500K/startup = $5B/yr
How many people are entrepreneurs? How many startups get started every year?
• ~1% of Humanity is “Entrepreneurial” (def’n: “can create a $10M rev/yr business”)
• 1% x 7B ppl = 70M entrepreneurs, each of which starts 1-5 businesses lifetime (70 yrs)
• hypothesis: talented entrepreneurs can create 1-5M new “startup” businesses every year
!
NOW: let’s say we *ONLY* do the top 1% => the best 10,000 startups in the top 200 metros
!
How many metros? How many investors / metro? How many startups / metro?
• 1 [micro] VC can fund 10-20 startups/yr * $50K-$500K = ~$1-10M/yr annual budget
• global metros of 1-10M+ ppl can generate 100-1,000 startups / year
• 1-5 VCs in top 200 metros = 500 VCs x 20 startups/yr = 10,000 startups/yr
• hypothesis: 500 VCs invest $500K each -> 20 startups/yr = $5B/yr -> 10,000 startups
!
… so forget about 500 Startups, and start thinking about 500 VCs.
15