The document discusses changes in technology platforms, venture capital, and startup incubation and metrics. Platforms now focus on distribution and monetization rather than just technology. Venture capital funds are smaller with fewer large funds, and there are more "super angels" and micro-VCs. Incubators make many small bets through quick experiments, focusing on metrics and fast failure to identify successes.

1. Silicon Valley 2.0 The Lean VC Dave McClure http://500startups.com ( @DaveMcClure ) Chicago – July 2011 http://slideshare.net/dmc500hats Re-Inventing Venture Capital through Innovation, Incubation, & Iteration

2. Changes in Tech & VC Platforms = Distribution + Monetization ( not Technology) Search (Google) Social (Facebook, Twitter, LinkedIn, YouTube) Mobile (Apple, Android) Venture Capital = Fewer, Smaller Funds (<$100M) Decline of Large Funds (> $250m), except for HUGE ONES (>$1B). Birth of “Super Angel” / “Micro-VC” seed funds (<$100M) Market Changes: a Few Big IPOs (>$1B), Lots of Small Acquisitions (<$250M) Incubators, Metrics = Many Small Experiments (most FAIL ) Y-Combinator, TechStars, 500 Startups The “Lean Startup”, Design/UX, Distribution Lots of Little Bets; Incremental Investment

3. Read Geoffrey Miller Sex + Evolution + Consumer Mktg = Awesome

4. Dave McClure 2000-2010: Investor : 200+ Startups (Mint, SlideShare, Twilio, WildFire) Marketing : PayPal, Simply Hired, Mint, Founders Fund Community : Startup2Startup , GeeksOnaPlane , StartupVisa Speaker : Lean Startup Metrics, Stanford Facebook class 80’s & 90’s: Entrepreneur : Founder/CEO Aslan Computing (acq.) Developer : Windows App Dev / SQL DB Admin Engineer : Johns Hopkins ‘88, BS Eng / Applied Math

5. 500 Startups – “Super-Angel” Fund Mountain View, CA – Founded 2010 Design , Distribution , Data Seed Fund & Startup Accelerator 25 companies @ 3x/yr Silicon Valley HQ Total Portfolio: 165+ Companies Twilio Wildfire SendGrid FeeFighters (Chi) MyGengo (JPN) BugHerd (AU) Erply (EST) MoonFruit (UK) ChinaNetCloud (CH)

6. Platforms 2.0 Search, Social, Mobile

7. Web 2.0 : Good Times . # Users, Bandwidth = Bigger . Startup Costs = Lower . Transaction $$$ = Better . Building Product => Cheaper, Faster, Better Getting Customers => Easier, More Measurable Product & Marketing Decisions based on Measured User Behavior R.I.P. *BAD* TIMES

8. Platform Viability Successful Platforms have 3 Things: 1) Features 2) Users 3) Money Users . . Money Features Growth Profit Profitable Growth Nirvana

9. Distribution Platforms Customer Reach: 100M+ Search : Google (SEO/SEM) Social : Facebook , Twitter , Zynga, LinkedIn Mobile : Apple (iPhone, iPad), Android Media : YouTube (Video), Blogs, Photos Inbox : Gmail , Yahoo, Microsoft

10. Web 2.0 Business Model: KISS (“Keep It Simple, Stupid”) 1) Re-invent Web 1.0 Businesses Make a Website, a Widget, an App Sell Stuff to People (Transactions, Subscriptions) 2) add Web 2.0 Tech nology Search , Social , Mobile Google , Facebook/Twitter , Apple/Android Email, SMS, Ecommerce / Payments 3 ) Get Customers , Make Money Distribution, Distribution, Distribution (Customer Acq’stn Cost) vs. ($Rev. Per Customer) Low CapX + Profitable Web Businesses

11. Venture Capital 2.0 (smaller / bigger, faster, better? ) Venture Capital 1.0 “ Super” Angel (aka Micro-VC)

12. Silicon Valley Investor Ecosystem True Ventures First Round Capital Founders Fund Accel SoftTech (Clavier) Felicis (Senkut) SV Angel (Conway) Angels & Incubators ($0-10M) “ Seed” Funds ($10-50M) VC Funds ($50-250M) VC Funds (>$250M) Y-Combinator TechStars

13. Big VC: Still Necessary? Good 4 BIG CAPx: Hardware Enterprise SW Clean Tech BioScience Facebook, Zynga, Groupon May Not Be Needed 4: Consumer Internet Small Business Consulting (Pr0n, Gambling, etc…)

14. More & Smaller Acquisitions Mature Internet Platform Co’s: GOOG, MSFT, YHOO, EBAY, AOL, AMZN, AAPL, INTU, ADBE, Fbook Non-Tech BigCo / Consumer Verticals buying tech startups (for distribution) Lots of Users, $$$ Outsourcing Innovation * Mint acquired by Intuit in Sept 2009 for $170M Lots of M&A (but small) Founders own MORE % Will Sell for LESS $ Great for Angels & Entrepreneurs Not so Great for (big) VCs

15. Startup Incubators & Metrics Lots of Little Bets. Most FAIL . (but a few succeed :)

16. Incubator 2.0: Fast, Cheap, FAIL Incubators = supportive startup ecosystem (+ angels, VCs) Efficient use of investment capital ($0-100K) High fail rate (60-80%) => large initial sample size

17. Incubator 2.0: Education, Collaboration, Iteration Success based on: MANY , small experiments common platforms , customers , problems & solutions physical proximity , open/collaborative environment Domain-specific mentors & expertise fast fail, iteration , metrics & feedback loop Incremental investment; high-risk, but high-reward

18. fbFund REV fbFund REV : Facebook “Social” Incubator: invest in startups, apps, websites based on Facebook platform & Facebook Connect. 22 startups @ ~$35K each ($850K total) 3 month program: Technology, Design, Marketing, Business topics Success: ~ 8 startups funded >$500K – Wildfire Interactive raised $4M

19. Lean Startup, Lean VC Customers , Metrics, Iteration. Invest BEFORE Traction; Double Down AFTER .

20. The Lean Startup Progress ≠ Features; Measure Conversion Talk to Customers ; Discover Problems Focus on “ Product/Market Fit” (good solution) Fast, Frequent Iteration (+ Feedback Loop ) Keep it Simple & Actionable

21. Discover Customers (Steve Blank, SteveBlank.com)

22. Iterate : Learn, Measure, Build. (Eric Ries, StartupLessonsLearned.com) LEARN BUILD MEASURE IDEAS CODE DATA

23. Startup Metrics for Pirates A cquisition: users come to site from various channels A ctivation: users enjoy 1 st visit: &quot; happy ” experience R etention: users come back , visit site multiple times R eferral: users like product enough to refer others R evenue: users conduct some monetization behavior (note: If you’re in a hurry, Google “Startup Metrics” & watch 5m video) AARRR !

24. AARRR! : 5-Step Startup Metrics Model Website.com R evenue $$$ Biz Dev Ads, Lead Gen, Subscriptions, ECommerce A CQUISITION SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains R etention Emails & Alerts System Events & Time-based Features Blogs, RSS, News Feeds

25. One Step at a Time. Make a Good Product : Activation & Retention Market the Product : Acquisition & Referral Make Money : Revenue & Profitability

26. 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 Market ing Channels” ”) Venture : $1M-$10M (“ Maximize Growth & Revenue ”)

27. 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

28. 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 Generation, Find Profitable Customer Segments Prove Solution/Benefit, Assess Market Size Test Channel Cost, Revenue Opportunity Determine Org Structure, Key Hires

29. Investment Stage #3: Revenue Validation + Growth Structure 5-25 person team $1M-$5M 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

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

31. Global Trends Growth of Global Languages (see MyGengo.com ) 1B+ speakers: Mandarin , English 500M+ spkrs: Spanish , Hindi, Arabic Smart Device Proliferation mobile, tablet, TV, console, 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 Dramatically Reduced Cost : Product Dev, Customer Acqstn Global Distribution Platforms US/EU: Apple, Facebook, AMZN, GOOG (Search, YouTube, Gmail, Android), Twitter Asia: Tencent/QQ, Taobao/Alibaba/AliPay, Youku, MediaTek, Rakuten, DeNA, Gree

32. Local Hacks Dominate your local/native market first Or, move so that your local market is bigger (China, US, India) Language + Visual Design Matters Read: Spent , Influence, Understanding Comics Niche 2 Win: Big Enough Markets + Great Customer 1M users @ $9/mo = ~$100M+/yr business Sell Something : Shoes, Clicks, Bits, Anything. Transactns, Subscriptns, Virtual Goods, LeadGen You Don’t Need to Be [in] Silicon Valley But, Silicon Valley Needs to BE IN YOU . (Use The Force Luke… Close Yo ur Eyes, Let Go  )

33. Summary Platforms 2.0 = Distribution + Monetization (not Tech) Customer Acquisition MUCH easier, MUCH faster Monetization keeps getting BETTER Capital Rqmts MUCH lower Incubators, Metrics = Lots of Small Bets / Experiments Most Fail, a Few Succeed Quantity Over (Perceived) Quality Incremental Investment after Success Venture Capital 2.0 = Fewer, Smaller Funds (<$100M) More, Smaller Exits (<$100M) Globalization, Specialization, Verticalization