Building Startup Ecosystems (Singapore, July 2014)

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<ul><li><p>Changes in Venture Capital + Building Startup Ecosystems</p><p>@DaveMcClure Founding Partner </p><p>@500Startups http://500.co #PreMoney Singapore - July 2014</p></li><li><p>This Talk</p><p> What is 500 Startups? Changes in Tech + VC Lean VC = Quantitative Venture Capital Building Startup Ecosystems Global Entrepreneurship Q &amp; A</p></li><li><p>Dave McClureFounding Partner &amp; Chief Troublemaker, 500 Startups</p><p>00s &amp; 10s: VC: Founders Fund, Facebook fbFund, 500 Startups Angel: Mashery, Mint.com, SlideShare, Twilio, Wildfire, SendGrid Marketing: PayPal, Simply Hired, Mint.com, OReilly ! !80s &amp; 90s: Entrepreneur: Aslan Computing (acqd by Servinet/Panurgy) Developer: Windows / SQL DB consultant (Intel, MSFT) Engineer: Johns Hopkins88, BS Eng / Applied Math</p></li><li><p>500 StartupsGlobal Seed Fund &amp; Startup Accelerator</p><p> 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 </p><p>! 800+ Portfolio Cos / 40+ Countries </p><p> Wildfire (acq GOOG, $350M) MakerBot (acq SSYS, $400M) Viki (acq Rakuten, $200M) Simple (acq BBVA, $117M) Twilio SendGrid Credit Karma Udemy Barkbox HomeJoy</p></li><li><p>500 Startups: Global Seed FundOver 200+ startups outside US, in 40+ countries</p></li><li><p>This Talk</p><p> What is 500 Startups? Changes in Tech + VC Lean VC = Quantitative Venture Capital Building Startup Ecosystems Global Entrepreneurship Q &amp; A</p></li><li><p>Industry Changes Financial Market Crises (2000, 2008) Startup Efficiency, Lean Startup Movement, Reduced Capital Costs Growing Market, Global Distribution Platforms, Growth Hacking Improved Monetization, Developing Payments Infrastructure Developing Startup Ecosystems, Global M&amp;A </p><p>! Micro VC: Seed Funds (ex: First Round Capital) Incubators &amp; Accelerators (ex: Y Combinator, 500) Funding Platforms (ex: Angel List, Kickstarter) Growing Global Market of Angel Investors !more info: http://PreMoney.co (June 27th, San Francisco)</p><p>http://PreMoney.co</p></li><li><p>Changes in Tech Startups LESS Capital required to build product, get to market </p><p> 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 !</p><p> 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) !</p><p> LOTS of little bets: Accelerators, Angels, Angel List, Small Exits Y Combinator, TechStars, 500 Startups Capital + Co-working + Mentoring -&gt; Design, Data, Distribution Fast, Cheap Fail, network effects, quantitative + iterative investments</p></li><li><p>Before &amp; After 2 Dot-Com CrashesDaft Punk Startup: Simpler, Faster, Cheaper, Smarter </p><p>Before 2000 Sun Servers Oracle DB Exodus Hosting 12-24mo dev cycle 6-18mo sales cycle 3B people online </p></li><li><p>Platforms 2.0 Search, Social, Mobile, </p><p>Video, Messaging</p></li><li><p>Angel List: Platform for Investors + Startups</p><p> Startups + Metrics Founders + Bios Investors + Syndicates Accelerators + Online Applications Jobs + Talent</p><p>11</p></li><li><p>This Talk</p><p> What is 500 Startups? Changes in Tech + VC Lean VC = Quantitative Venture Capital Building Startup Ecosystems Global Entrepreneurship Q &amp; A</p></li><li><p>Silicon Valley 2.0: Lots of Little Bets</p><p>aka MoneyBall for Startups</p><p> VC Evolution: Physician, Scale Thyself (Aug 2012) MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)</p><p>http://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/http://500hats.typepad.com/500blogs/2010/07/moneyball-for-startups.html</p></li><li><p>14</p><p>500 Strategy: Lots of Little Bets</p></li><li><p>The Lean VC:Lots of Little Bets, Incremental Investment</p><p>Method: Make little bets in lots of startups using incremental investment, iterative development. Start with many small experiments, filter out failures, and expand investment in successes. </p><p>! Incubator: $0-100K (Build &amp; Validate Product) Seed: $100K-$1M (Test &amp; Grow Marketing Channels) Venture: $1M-$10M (Maximize Growth &amp; Revenue)</p></li><li><p>Investment Stage #1: Product Validation + Customer Usage</p><p> Structure 1-3 founders $25-$100K investment Incubator environment: multiple peers, mentors/advisors </p><p>! Test Functional Prototype / Minimum Viable Product (MVP): </p><p> Prototype-&gt;Alpha, ~3-6 months Develop Minimal Critical Feature Set =&gt; Get to It Works! Someone Uses It. Improve Design &amp; Usability, Setup Conversion Metrics Test Small-Scale Customer Adoption (10-1000 users) </p><p>! Demonstrate Concept, Reduce Product Risk, Test Functional Use Develop Metrics &amp; Filter for Possible Future Investment</p></li><li><p>Investment Stage #2: Market Validation + Revenue Testing</p><p> Structure 2-10 person team $100K-$1M investment Syndicate of Angel Investors / Small VC Funds </p><p>! Improve Product, Expand Customers, Test Revenue: </p><p> Alpha-&gt;Beta, ~6-12 months Scale Customer Adoption =&gt; Many People Use It, &amp; They Pay. Test Marketing Campaigns, Customer Acquisition Channels + Cost Test Revenue Generation, Find Profitable Customer Segments </p><p>! Prove Solution/Benefit, Assess Market Size Test Channel Cost, Revenue Opportunity Determine Org Structure, Key Hires</p></li><li><p>Investment Stage #3: Revenue Validation + Growth</p><p> Structure 5-25 person team $1M-$10M investment Seed &amp; Venture Investors </p><p>! Make Money (or Go Big), Get to Sustainability: </p><p> Beta-&gt;Production, 12-24 months Revenue / Growth =&gt; We Can Make (a lot of) Money! Mktg Plan =&gt; Predictable Channels / Campaigns + Budget Scalability &amp; Infrastructure, Customer Service &amp; Operations Connect with Distribution Partners, Expand Growth </p><p>! Prove/Expand Market, Operationalize Business Future Milestones: Profitable/Sustainable, Exit Options</p></li><li><p>This Talk</p><p> What is 500 Startups? Changes in Tech + VC Lean VC = Quantitative Venture Capital Building Startup Ecosystems Global Entrepreneurship Q &amp; A</p></li><li><p>Critical Ecosystem Factors</p><p> Optimism &amp; 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&amp;A Market (Exits)</p><p>20</p></li><li><p>Startup Investor Ecosystem</p><p>!!Angels &amp; </p><p>Incubators ($0-10M)</p><p>!Micro-VC Funds </p><p>($10-100M)</p><p>Big VC Funds ($100-500M)</p><p>Mega VC Funds (&gt;$500M)</p><p>TrueFirst Round</p><p>A16ZAtomico</p><p>Y-Combinator</p><p>TechStars</p><p>SoftTech (Clavier)</p><p>Felicis (Senkut)</p><p>SV Angel (Conway)</p><p>SequoiaGreylock</p><p>Union Square</p><p>Floodgate (Maples)</p><p>Foundry</p><p>Incubation</p><p>Seed</p><p>Series A</p><p>Series B</p><p>Series C+</p><p>Bootstrap, KickStarter, Crowdfunding</p></li><li><p>Example Startup Ecosystem</p><p> 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+)</p><p>22</p></li><li><p>Entrepreneur Education</p><p> Business Plans Functional Prototypes Lean Startup Software Engineering / Design &amp; UX Online Marketing / Unit Economics Monetization &amp; Payments Customer Service + Support Fundraising &amp; Pitch</p><p>23</p></li><li><p>Investor Education</p><p> Startups are NOT Real Estate Most Startups Fail / Power Law Returns Portfolio Approach (10-20+ investments) Legal Structure, Financial Structure Syndication + Co-Investment Access to Downstream Capital Exits &amp; Liquidity</p><p>24</p></li><li><p>This Talk</p><p> What is 500 Startups? Changes in Tech + VC Lean VC = Quantitative Venture Capital Building Startup Ecosystems Global Entrepreneurship Q &amp; A</p></li><li><p>Local vs Global?</p><p> 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, </p><p>Logistics, Growing Middle Class, Distribution Platforms Wealthy Global Users, Shoppers, Travelers</p></li><li><p>How Big is MicroVC / Seed Stage Market? 5,000 microVCs invest 100,000 startups/yr @ $500K/startup = $50B/yr</p><p>How many people are entrepreneurs? How many startups get started every year? ~1% of Humanity is Entrepreneurial (defn: can create a $10M rev/yr business) 1% x 7B ppl = 70M entrepreneurs, each of which starts 1-5 businesses lifetime entrepreneurs can create 1-5M new startup businesses every year !</p><p>How much capital is needed globally to get seed stage startups rolling? Assume 1M-5M startups/yr x $50K-$1M funding/each Low: 1M x $50K = $50B/yr High: 5M x $1M = $5T/yr !</p><p>How many metros? How many investors / metro? How many startups / metro? 1 microVC can fund 10-20 startups/yr * $50K-$1M = $1M-$10M annual budget 500+ global metros @ 1M+ ppl can generate ~100-1,000 startups / year guesstimate = min ~100K+ startups/yr across top 100-200 global metros 5-50 VCs / metro * 200 metros = 1,000-10,000 VCs globally Potential: 5,000 VCs deploy $10M-&gt;20 startups = $50B/yr -&gt; 100,000 startups</p><p>15</p></li><li><p>Questions? Comments?</p><p> More Info? http://500.co (our company) http://500hats.com (my blog) https://angel.co/500startups (our fund) Dave McClure, @DaveMcClure</p><p>http://500.cohttp://500hats.comhttps://angel.co/500startups</p></li></ul>