8/10/2019 2014 Changes in Vc

1/28

Changes in Venture Capital +Building Startup Ecosystems

@DaveMcClureFounding Partner

@500Startups http://500.co#MENAsummit Bahrain - May 2014

8/10/2019 2014 Changes in Vc

2/28

This Talk

What is 500 Startups?

Changes in Tech + VC

Lean VC = Quantitative Venture Capital

Building Startup Ecosystems

Global Entrepreneurship

Q & A

8/10/2019 2014 Changes in Vc

3/28

Dave McClureFounding Partner & Chief Troublemaker, 500 Startups

00s & 10s: VC: Founders Fund, Facebook fbFund, 500 Startups Angel: Mashery, Mint.com, SlideShare, Twilio, Wildfire, SendGrid

Marketing: PayPal, Simply Hired, Mint.com, OReilly

80s & 90s: Entrepreneur: Aslan Computing (acqd by Servinet/Panurgy) Developer: Windows / SQL DB consultant (Intel, MSFT)

Engineer: Johns Hopkins88, BS Eng / Applied Math

8/10/2019 2014 Changes in Vc

4/28

500 StartupsGlobal Seed Fund & Startup Accelerator

What is 500?

$100M silicon valley VC fund + startup accelerator 30+ people / 10 investing partners Locations: SV, NYC, MEX, BRZ, IND, CHN, SE Asia 1500+ Founders / 200+ Mentors Community + Content + Conferences

750+ Portfolio Cos / 40+ Countries Wildfire(acq GOOG, $350M) MakerBot(acq SSYS, $400M) Viki(acq Rakuten, $200M)

Simple(acq BBVA, $117M)

Twilio SendGrid

Credit Karma

Udemy

8/10/2019 2014 Changes in Vc

5/28

500 Startups: Global Seed FundOver 200+ startups outside US, in 40+ countries

8/10/2019 2014 Changes in Vc

6/28

This Talk

What is 500 Startups?

Changes in Tech + VC

Lean VC = Quantitative Venture Capital

Building Startup Ecosystems

Global Entrepreneurship

Q & A

8/10/2019 2014 Changes in Vc

7/28

8/10/2019 2014 Changes in Vc

8/28

Changes in Tech Startups

LESS Capitalrequired 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) Social (Facebook, Twitter) Mobile (Apple, Android) Media(YouTube, Pinterest, Instagram, Tumblr) Comm(Email, WeChat/WhatsApp/Line/Kakao, Voice, SMS, etc)

LOTS of little bets:Accelerators, Angels, Angel List, Small Exits

Y Combinator, TechStars, 500 Startups

Capital + Co-working + Mentoring -> Design, Data, Distribution Fast, Cheap Fail, network effects, quantitative + iterative investments

8/10/2019 2014 Changes in Vc

9/28

Before & After 2 Dot-Com CrashesDaft Punk Startup: Simpler, Faster, Cheaper, Smarter

Before 2000

Sun Servers

Oracle DB

Exodus Hosting 12-24mo dev cycle

6-18mo sales cycle

3B people online

8/10/2019 2014 Changes in Vc

10/28

Lean Startup:

Simpler, Faster, Cheaper, Smarter

1. Startup Costs = Lower.

2. # Users, Bandwidth = Bigger.

3. Transaction $$$ = Better.

! Building Product => Cheaper, Faster, Better

! Getting Customers => Easier, More Measurable

IterativeProduct & Marketing Decisions

based on Measured User Behavior

8/10/2019 2014 Changes in Vc

11/28

Platforms 2.0

Search, Social, Mobile,Video, Messaging

8/10/2019 2014 Changes in Vc

12/28

Angel List:Platform for Investors + Startups

Startups + Metrics

Founders + Bios

Investors + Syndicates Accelerators + Online Applications

Jobs + Talent

12

8/10/2019 2014 Changes in Vc

13/28

This Talk

What is 500 Startups?

Changes in Tech + VC

Lean VC = Quantitative Venture Capital

Building Startup Ecosystems

Global Entrepreneurship

Q & A

8/10/2019 2014 Changes in Vc

14/28

Silicon Valley 2.0:

Lots of Little Betsaka MoneyBall for Startups

VC Evolution: Physician, Scale Thyself(Aug 2012)

MoneyBall for Startups, 500 Startups Investment Thesis(Jul 2010)

http://500hats.typepad.com/500blogs/2010/07/moneyball-for-startups.htmlhttp://500hats.com/VC-evolution-geeks-got-next/http://500hats.typepad.com/500blogs/2010/07/moneyball-for-startups.htmlhttp://500hats.com/VC-evolution-geeks-got-next/

8/10/2019 2014 Changes in Vc

15/28

15

500 Strategy: Lots of Little Bets

8/10/2019 2014 Changes in Vc

16/28

The Lean VC:Lots of Little Bets, Incremental Investment

Method: Make little bets in lots of startups usingincremental investment, iterative development.Start with many small experiments, filter out failures,

and expand investment in successes.

Incubator: $0-100K (Build & Validate Product)

Seed: $100K-$1M (Test & Grow Marketing Channels)

Venture: $1M-$10M (Maximize Growth & Revenue)

8/10/2019 2014 Changes in Vc

17/28

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

8/10/2019 2014 Changes in Vc

18/28

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

8/10/2019 2014 Changes in Vc

19/28

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

8/10/2019 2014 Changes in Vc

20/28

This Talk

What is 500 Startups?

Changes in Tech + VC

Lean VC = Quantitative Venture Capital

Building Startup Ecosystems

Global Entrepreneurship

Q & A

8/10/2019 2014 Changes in Vc

21/28

Critical Ecosystem Factors

Optimism & Belief (Silicon Valley)

Mentorship + Education (Knowledge)

Universities + Companies (People)

Capital, Legal, Finance (Infrastructure)

Engineering + Design / UX (Product)

Platforms + Distribution (Customers) Online Payments (Monetization)

IPO / M&A Market (Exits)

21

8/10/2019 2014 Changes in Vc

22/28

Startup Investor Ecosystem

Angels&Incubators($0-10M)

Micro-VC Funds($10-100M)

Big VC Funds($100-500M)

Mega VC Funds(>$500M)

TrueFirst Round

A16ZAtomico

Y-Combinator

TechStars

SoftTech (Clavier)

Felicis (Senkut)

SV Angel (Conway)

SequoiaGreylock

Union Square

Floodgate (Maples)

Foundry

Bootstrap, KickStarter,Crowdfunding

8/10/2019 2014 Changes in Vc

23/28

Example Startup Ecosystem

1,000 Bootstrap Startups ($0-10K)

300 Accelerator Startups ($10-100K)

100 Seed-Stage Startups ($100K-$1M)

30 Series A/B Startups ($1-10M)

10 Later-Stage Companies ($10-100M)

1-3 Mature Company IPOs ($100M+)

23

8/10/2019 2014 Changes in Vc

24/28

Entrepreneur Education

Business Plans

Functional Prototypes

Lean Startup

Software Engineering / Design & UX

Online Marketing / Unit Economics

Monetization & Payments Customer Service + Support

Fundraising & Pitch

24

8/10/2019 2014 Changes in Vc

25/28

Investor Education

Startups are NOTReal Estate

Most Startups Fail / Power Law Returns

Portfolio Approach (10-20+ investments)

Legal Structure, Financial Structure

Syndication + Co-Investment

Access to Downstream Capital Exits & Liquidity

25

8/10/2019 2014 Changes in Vc

26/28

This Talk

What is 500 Startups?

Changes in Tech + VC

Lean VC = Quantitative Venture Capital

Building Startup Ecosystems Global Entrepreneurship

Q & A

8/10/2019 2014 Changes in Vc

27/28

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

8/10/2019 2014 Changes in Vc

28/28

Questions? Comments?

More Info?

http://500.co(our company) http://500hats.com(my blog) https://angel.co/500startups(our fund) Dave McClure, @DaveMcClure

https://angel.co/500startupshttp://500hats.com/http://500.co/