The document discusses the startup ecosystem and the role of 500 Startups, highlighting its global seed fund operations and investment strategies. It emphasizes the importance of metrics, mentorship, and structured innovation processes while promoting the idea of 'failing fast' to drive growth and learning. Additionally, it covers various investment stages and the necessity for collaborative environments to foster successful startups.

1. Starting Up Startups.
Methods, Magic, Meta of
Building Startup Ecosystems
Dave McClure
500 Startups
Rio, Mar 2013
slideshare.net/dmc500hats

2. 500 Startups
Global Seed Fund & Startup Accelerator
• What is 500?
– $60M+ under management
– 20 people / 10 investing partners
– Locations: SV, NYC, MEX, BRZ, IND, CHN, SEasia
– 1000+ Founders / 200+ Mentors
– 20+ confs/events per year
• 475+ Portfolio Co’s / 30+ Countries
– Wildfire (acq GOOG, $350M)
– Twilio
– SendGrid
– TaskRabbit
– MakerBot
– 9GAG
– Viki
– Gengo
– VivaReal

3. 500 Startups: Global Seed Fund
100+ startup investments in 30+ countries
• Q4/12 added: Germany, Korea, Peru; + Russia, Israel, Turkey in Q1/13
• Priorities in 2012: Brazil, Mexico, India
• Priorities In 2013: China, SE Asia, MENA, Eastern Europe

4. This Talk...
• Startup Weekend: WTF?
⇒ “Simulation Exercises 4 Startups”
⇒ 4 Geeks, Designers, Founders, Startup Teams
⇒ 4 Organizers, Partners, Investors, etc
 What does it do well?
 What doesn’t it do so well?
 What can be improved? How? Who? When?
• 3Ms: Metrics, Money, Mentorship

5. Startup Weekend: #WINNING
• Test Drive an Idea -> Prototype
• Test Drive a Co-Founder / Team -> Startup
• Test Drive Customers, Workflow, Design, etc
• Recruiting (for Startups, for Corps, for VCs)
• Getaway from Ur Normal Boring Fucking Life

6. Startup Weekend: #FAIL
• Not Enough Time.… • Not Enough Structure.…
– 2 Build a “Real” Product/Biz – 2 Come Up With “Good” Idea
– 2 Get 2 Know Co-Founder/Team – 2 Find Skilled Devs, Design
– 2 Find/Scale Customers – 2 Find/Scale Customers
– 2 Get Funded  – 2 Get Funded 

7. Startup Weekend: #MO.BETTAH?
• Mo’ Structure / Organizers
• Mo’ MO-nay $$$ (Sponsors, Investors)
• Mo’ Experienced Entrepreneurs (WIN, FAIL)
• Mo’ Skilled Devs, Design/UX, Marketing
• Mo’ Customers / Specific Segments?
• Mo’ Platforms for Distribution / Monetization
• Mo’ Specific Outcomes, Metrics, Results:
– Problems not Products (see: Customer Needs)
– Teams not Individuals (see: FounderDating, other?)
– Funding not “Winners” (see: Investors / Corp Sponsors)

8. The Rest of This Talk…
• Too Many Boring Fucking Slides
• Leave Now, Hit The Beach, Start Drinking
• (we’re in Fucking Rio, for Christ’s Sake)

9. 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”)
• VC Evolution: Physician, Scale Thyself (Aug 2012)
• MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)

10. 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

11. 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

12. 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

13. FAILURE IS NECESSARY.
IT’S A PROCESS, NOT A PROBLEM

14. Failure = CRITICAL to Innovation
• Failure not only tolerated, but ENCOURAGED
• Success = Continued Iteration of Failure
• US/SV: Failure = Growth, Education, Shared
• Elsewhere: Failure = Shame, Silence, Death
• Celebrity Role Models for Failure
• “Fall Down 7 Times, Get Up 8” = Fail Warrior!

15. Platform Innovation
Search, Social, Mobile

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

17. Distribution Platforms
Customer Reach: 100M+
• Search: Google, Baidu, Yahoo/Bing, Yandex
• Social/Games: Facebook, Twitter, LinkedIn, TenCent/QQ
• Mobile: Apple (iOS), Android
• Local: Yelp, Groupon, LivingSocial, FourSquare
• Media: Video (YouTube), Blogs (Tumblr), Photos (Pinterest)
• Comm: SMS, IM, Skype, Phone/Voice, etc

18. Startup Investor Ecosystem
Bootstrap, KickStarter,
Crowdfunding, Startup Wknd
Y-Combinator
Angels &
TechStars Incubators
($0-10M)
SV Angel (Conway)
SoftTech (Clavier)
“Micro-VC” Funds
Floodgate (Maples) ($10-100M)
Felicis (Senkut)
First Round True
Smaller VC Funds
Union Square ($100-300M)
Foundry Group
Atomico Andreessen
Larger VC Funds
(>$300M)
Greylock Sequoia

19. Angel* List: It Rocks.
• Startups & Investors
• Activity & Metrics
• Platform & APIs
• Customers & Corporates
• *ps – not just for Angels, or USA

20. Big Data. Little Bets.

21. 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 (Metrics)
3. Double Down on Winners

22. “Lots of Little Bets”*
1) Make lots of little 30%
bets pre-traction, Capital
early-stage startups
2) after 6-12 months, identify 70%
top 20% performers and Capital
double-down higher $$$
3) conservative model assumes
-5-10% large exits @20X ($50-100M+)
-10-20% small exits @5X ($5-50M)
22
*See Peter Sims book: “Little Bets”

23. Bet on Singles, Not HomeRuns.
(Look for Ichiros, Not Barry Bonds)

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

25. 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

26. 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

27. Resources Accelerators Can Provide
global networks,
mentors and staff
training and space
portfolio companies
conferences & events
27

28. Incubator Innovation
• Vertically-Focused Incubators:
– Facebook: fbFund
– Nike: Sensors / Wearables
– Rock Health: Digital Healthcare
– Digital Media: Turner Media, NY Times
• Investing & Partnering with Incubators
– Startup Communities, Conferences, Events
– Entrepreneurs, Hackers, Mentors
– Hackathons, Contests, Demo Days

29. fbFund REV
fbFund REV: Facebook “Social” Incubator: invest in startups, apps,
websites based on Facebook platform & Facebook Connect.
• 22 startups @ ~$35K each (< $1M total)
• 3 month program: Technology, Design, Marketing, Business topics
• Success: 8 startups raised $500K –> 5 Series A -> 3 Series B (+ 3 small exits)
• Wildfire Interactive acquired by GOOG for $350M (>50X) 

30. Questions?
• Someone Get Me a Beer.