venture capital unlocked (stanford) / venture capital 2.0

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  • @DaveMcClure @500Startups http://500.co

    Stanford Univ - Feb 2016

    Venture Capital 2.0 Make Lots of Little Bets.

    Expect Most to Fail.

    http://500.co

  • Dave McClureFounding Partner, 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

  • How to Become a VC

    Option 1: Go to Harvard/Stanford/Wharton, Get MBA, Become VC Associate, Work at McKinsey / Google / Facebook, Re-Join VC as Junior Partner or Partner

    Option 2: Start a Startup, Grow Really Big, Sell for $1B+, Join VC as Partner

    Option 3: Wander around lost in the forest, Work Your Ass Off for 25 yrs, do some angel investing, Start your own Firm

  • What is 500? $220M silicon valley VC fund + startup accelerator 100 people / 30 partners / 25 languages / 20 countries 1500+ Companies / 3000+ Founders / 200+ Mentors Investment, Accelerator, Distro, Marketing, Events, Education Community + Content + Conferences

    1500+ Cos / 50+ Countries Credit Karma ($3.5B) Twilio ($1B+) GrabTaxi ($1B+) Wildfire (acq GOOG, $350M) MakerBot (acq SSYS, $400M) Viki (acq Rakuten, $200M) Behance (acq Adobe, $150M) Simple (acq BBVA, $117M) Sunrise (acq MSFT, $100M) Udemy Ipsy TalkDesk Intercom

    500 Startups Global Seed Fund & Startup Accelerator

  • Re-inventing a 50 year old sport:Venture Capital 2.0

  • Football

    West Coast Offense

    Baseball

    MoneyBall

    Basketball

    3 point revolution

    Venture Capital

    500 Startups

    Lots of little bets

    500 Strategy: MoneyBall for StartupsRe-inventing a 50-year old sport

  • 500 Startups WTF?

  • 500 Startups Mission

    1. Find Smart People.

    2. Give Them Money.

    3. Wait for Good Shit to Happen.

  • Building Startup Ecosystems

  • 500 Startups Mission

    Provide capital, community, education to smart people (founders, investors)

    Build functional startup ecosystems (founders, team, angels, accelerators, VC funds, capital, exits, liquidity, etc)

    #HFGSD: Have Fun, Get Shit Done.

  • 500 Startups History: What a Long Strange Trip Its Been

  • Year People Locations AUM $ Companies

    2010 5 MV 10 75

    2011 10 BRZ 30 250

    2012 15 MX, IND 50 450

    2013 30 CHN, SEA 75 650

    2014 50 SF, MENA 125 900

    2015 100 Korea, UK, Thailand, Vietnam, Germany, E.EU,

    Israel, Japan, Turkey

    200 1400

    2016 150+ +10-20 More ??? 2000+

    500 Startups History: What a Long Strange Trip Its Been

  • 500 Startups: a Platform made of People#500STRONG #500LOVE #HFGSD

  • 100 People, 20 Countries, 25 Languages

  • 500 Startups: Full-Stack VC

  • Legal review Partner approvalAngel Pre-Seed Seed Post-Seed Series A/B Growth

    Accelerator

    Seed

    Distro"

    Follow-On

    Selection Criteria Data-Driven Process Based on Pre-defined Metrics Product or service solves a problem for a specific target customer Capital-efficient business; operational at less than $1M in external financing Scalable internet-based distribution (search, social, mobile) or proven ability to scale sales Functional prototype required before investing (or previous product success) Measurable traction: engaged users, some revenue, and attractive unit economics Cross-functional team with design, engineering and marketing expertise

    How 500 Invests: Accelerator, Seed, Distro

  • http://bit.ly/99VCProblems

    http://bit.ly/99VCProblemshttp://bit.ly/99VCProblems

  • Portfolio Diversification Spray, not Pray

  • Q: Chances of spotting unicorn? /

    a) 1% b) 2% c) 5% d) 10% e) ZERO

  • Chances of spotting unicorn = ~1%/

  • If portfolio size = 15 companies /

  • / If portfolio size = 30 companies

  • / If portfolio size = 100 companies

  • 500 Strategy: Lots of Little Bets*

    1) make lots of little bets on pre-traction, early-stage startups

    3) wait 5-10 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 five years, double-down on top 20-30%

    ~500 cos @ $100K 1st checks

    100-200 cos @ $200-500K 2nd/3rd checks

    (target 25-50 exits @ $100M+)

    (assume high failure rate ~50-80%)

    http://petersims.com/book/

  • Startup Risk Reduction

    ConceptEarly

    Customer Usage

    Scalable Customer

    Acquisition

    [about to be] Profitable

    Unit Economics

    Scalable Profitable Business

    Functional Prototype

    PRODUCT

    MARKET

    REVENUE

    Exit?

    When 500 Likes to Invest

  • 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-$2M

    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)

  • [ This Talk ]

    Changes in Building Technology Startups Changes in Venture Capital Investing The Lean Investor + Portfolio Approach Investment Workshop: VC101 in 60m Q&A

  • 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, PayPal, Alibaba) Media (YouTube, Pinterest, Instagram) Comm/Msgs (WeChat, WhatsApp, SnapChat, 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

  • Platforms 2.0 Search, Social, Mobile,

    Video, Messaging

  • Before & After 2 Dot-Com CrashesLEAN 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 3B people online

  • Startup Education Business Plans / Revenue Projections Software + Design/UX Lean Startups + Continuous Deploy (Iterate) Metrics Framework + Continuous Testing Functional Prototypes / Customer Development Scalable [Internet] Marketing & Sales Cash-Flow Positive Unit Economics Pitching + Fundraising (Angel List) Monetization + Payments Customer Service + Support

    32

  • [ This Talk ]

    Changes in Building Technology Startups Changes in Venture Capital Investing The Lean Investor + Portfolio Approach Investment Workshop: VC101 in 60m Q&A

  • 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

    http://PreMoney.co

  • SV Investor Ecosystem

    Angels & Incubators ($0-10M)

    Micro-VC Funds ($10-100M)

    Big VC Funds ($100-500M)

    Mega VC Funds (>$500M)

    First Round

    A16Z

    Y-Combinator

    SoftTech (Clavier)

    Felicis (Senkut)

    SV Angel

    Sequoia

    Union Square

    Incubation

    Seed/A

    Series A/B

    Series B/C

    Bootstrap, KickStarter, AngelList, Crowdfunding

  • Angel List: Platform for Investors + Startups

    Startups + Metrics Founders + Bios Investors + Syndicates Accelerators + Online Applications Jobs + Talent

    36

  • Investor Education Startups are NOT Real Estate Most Startups Fail / Power Law Returns Portfolio Approach (20-100+ investments) Legal Structure, Financial Structure Syndication + Co-Investment Access to Downstream Capital Exits & Liquidity

    37

  • 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)

    38

  • [ This Talk ]

    Changes in Building Technology Startups Changes in Venture Capital Investing The Lean Investor + Portfolio Approach Investment Workshop: VC101 in 60m Q&A

  • Building Startup Ecosystems

  • 500 Strategy: Lots of Little Bets*

    1) make lots of little bets on pre-traction, early-stage startups

    3) wait 5-10 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 five years, double-down on top 20-30%

    ~500 cos @ $100