Building #500STRONG
Download as PPTX, PDF28 likes14,819 views
Dave McClure outlines his strategy for building 500 Startups into a global seed fund and startup accelerator. He discusses making many small, early-stage investments and filtering out failures while doubling down on successes. McClure also covers selecting startups focused on online platforms, developing community resources like mentors and conferences, using quantitative metrics to evaluate performance, and expanding globally over time. The goal is to create a large portfolio with the potential for some major exits worth $50-100 million or more through this "lots of little bets" approach.
Building #500STRONG
- 1. Building #500STRONG Dave McClure Palo Alto, CA - July, 2013
- 2. Building 500 • Industry Changes & Challenges • Fundraising & Team-Building • Brand & Marketing • Deal Flow & Selection • Platforms, Community, Portfolio Development • Follow-On Strategy & Downstream Investors • Investor Relations & Reporting • Scale, Scalability, Big Data for VC • Local vs Global, Valley vs US Domestic vs Intl • Feedback Loop & Metrics
- 3. Dave McClure Founding Partner & Chief Troublemaker, 500 Startups 00‟s & 10‟s: • VC: Founders Fund, Facebook fbFund, 500 Startups • Angel: Mashery, Mint.com, SlideShare, Twilio, WildFire, SendGrid • Marketing: PayPal, Simply Hired, Mint.com, oDesk, O‟Reilly 80‟s & 90‟s: • Entrepreneur: Aslan Computing (acq‟d by Servinet/Panurgy) • Developer: Windows / SQL DB consultant (Intel, MSFT) • Engineer: Johns Hopkins„88, BS Eng / Applied Math
- 4. 500 Startups Global Seed Fund & Startup Accelerator • What is 500? – ~$70M under management – ~30 people / 10 investing partners – Locations: SV, NYC, MEX, BRZ, IND, CHN, SE Asia – 1000+ Founders / 200+ Mentors – 22 positive exits in <3 years • 500+ Portfolio Co’s / 30+ Countries – Wildfire (acq GOOG, $350M) – MakerBot (acq SSYS, $400M) – Twilio – SendGrid – TaskRabbit – Viki – Smule – AppStack – 9GAG – MediaLets – PicCollage
- 5. 500 Startups: Global Seed Fund Over 100+ startups outside US, in 35+ countries • Q4/12 added: Germany, Korea, Peru; + Russia, Turkey, Ghana in Q2/13 • Priorities in 2012: Brazil, Mexico, India • Priorities In 2013: China, SE Asia, MENA, Eastern Europe
- 6. Silicon Valley 2.0: Lots of Little Bets aka “MoneyBall for Startups” • VC Evolution: Physician, Scale Thyself (Aug 2012) • MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
- 7. Fundraising & Team-Building • Ignorance & Inexperience • New Fund, Small Fund • Crazy Strategy, Crazy People • No Money, No History • Manufacturing a Budget • Writing, Telling, Believing, Living Your Story • Hustle & Humility
- 8. Long Journey • East Coast -> West Coast • Geek: Engineer & Programmer • Entrepreneur: Small Startup, Small Exit • Marketing: PayPal, Simply Hired, Mint.com • Community: Blogs, Frisbee, Facebook, Twitter • Investing: Angel, Founders Fund, fbFund • 500 Startups
- 9. Industry Changes, Challenges • SW Startup Efficiency, Reduced CapX Costs • Growing Market, Growing Platforms • VC Industry Upheavals (2000, 2008) • Super Angel -> Micro VC: Seed Funds (ex: FRC) • Incubators & Accelerators (ex: Y Combinator) • Big VC (ex: A16Z) & Platforms (ex: Angel List) • http://PreMoney.co
- 10. Changes in Tech Startups • LESS Capital required to build product, get to market – Dramatically reduced $$$ on servers, software, bandwidth – Crowdfunding, KickStarter, Angel List, Funders Club, etc – Cheap access to online platforms for 100M+ consumers, smallbiz, etc • MORE Customers via ONLINE platforms (100M+ users) – Search (Google) – Social (Facebook, Twitter) – Mobile (Apple, Android) – Local (Yelp, Groupon, Living Social) – Media (YouTube, Pinterest, Instagram, Tumblr) – Comm (Email, IM/Chat, Voice, SMS, etc) • LOTS of little bets: Accelerators, Angels, Angel List, Small Exits – Y Combinator, TechStars, 500 Startups – Funding + Co-working + Mentoring -> Design, Data, Distribution – “Fast, Cheap Fail”, network effects, quantitative + iterative investments
- 11. Daft Punk Lean Startup: Simpler, Faster, Cheaper, Smarter 1. Startup Costs = Lower. 2. # Users, Bandwidth = Bigger. 3. Transaction $$$ = Better. Building Product => Cheaper, Faster, Better Getting Customers => Easier, More Measurable Iterative Product & Marketing Decisions based on Measured User Behavior
- 12. Strategy, Brand & Marketing • FUN! IRREVERENCE! FLIP-FLOPS! Etc – don’t be boring; don’t wear khakis + blue shirt + blazer • Lots of Little Bets, Online Platforms • Design, Data, Distribution • Blogging, Facebook, Twitter • #500STRONG: for Geeks, by Geeks • Seed Fund vs Accelerator • Community: from Silicon Valley to the World • Conferences & Events • GeeksOnaPlane.com
- 13. 13 Quantitative Investing before Traction 250+ companies @ $25-100K (1st check) - Assume high failure rate (up to 80%) Double-Down after Traction 50+ ‘winners’ @ $100K-$1M (2nd + 3rd check) - - Target 10+ exits @ $100M+ 500 Strategy: “Lots of Little Bets”* 1) Make lots of little bets pre- traction, early- stage startups 2) after 6-12 months, identify top 20% performers and double-down higher $$$ 3) conservative model assumes - 5-10% large exits @20X ($50-100M+) - 10-20% small exits @5X ($5-50M) *See Peter Sims book: “Little Bets”
- 14. Deal Flow, Strategy & Selection • Lots of Little Bets • Take Lots of Small Risk, Early & Often • Differentiation & Branding • Revenue Emphasis, Small but Real Problems • Focus on Online Platforms • Hacker, Hipster, Hustler • Global vs Local
- 15. Minimum Viable Team: Hacker, Hipster, Hustler • Hacker: engineers & developers • Hipster: design & user experience (UX) • Hustler: marketing & business, “growth hacker” 1. Build functional prototypes 2. Improve UX so people convert 3. Scale customer acquisition & distribution
- 16. 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”)
- 17. 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
- 18. 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
- 19. 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
- 20. Portfolio Development • How do we help? How can we help? • Importance of (trying to be) Helpful • Board seats or not? Useful to VC, not founders • Product, Market, Revenue • Mentorship & Connections • Platforms & Distribution • Downstream Investors & Syndicates
- 21. Platform(s) & Community • Mentors: Engineering, Design, Marketing • Distribution: Search, Social, Mobile • Global: LatAm, Asia, India, EU, etc • Social: LinkedIn, Quora, Angel List • Angel List, Second Market, Trusted Insight • Dashboard.io, MatterMark
- 22. Platforms 2.0 Search, Social, Mobile, Vide o, Messaging
- 23. Distribution Platforms Customer Reach: 100M-1B+ • Search: Google, Baidu, Yahoo/Bing, Yandex • Social: Facebook, Twitter, LinkedIn, TenCent/QQ, WeChat • Mobile: Apple (iOS), Android • Media: Video (YouTube), Photos (Instagram, Pinterest), Blogs • Comm: SMS, IM (WeChat, WhatsApp), Skype, Phone/Voice, etc
- 24. Angel* List: It Rocks. • Startups & Investors • Activity & Metrics • Platform & APIs • *ps – not just for Angels, or USA
- 25. Follow-On Strategy • Should we follow-on? Why or Why Not? • Signaling Risk vs Portfolio Returns • Investor opinion shouldn’t matter more than business fundamentals (if so, it’s a problem) • Downstream Investor Syndicate is critical • Using Angel List to drive visibility • Global Strategies (more capital, connections)
- 26. Startup Investor Ecosystem Angels & Incubators ($0-10M) “Micro-VC” Funds ($10-100M) “Big” VC Funds ($100-500M) “Mega” VC Funds (>$500M) TrueFirst Round AndreessenAtomico Y-Combinator TechStars SoftTech (Clavier) Felicis (Senkut) SV Angel (Conway) SequoiaGreylock Union Square Floodgate (Maples) Foundry Group Incubation Seed Series A Series B Series C+ Bootstrap, KickStarter, Crowdfunding
- 27. Got Crunched Yet? Source: Bullpen Capital
- 28. Before & After 2 Dot-Com Crashes Daft Punk Startup: Simpler, Faster, Cheaper, Smarter Before 2000 • Sun Servers • Oracle DB • Exodus Hosting • 12-24mo dev cycle • 6-18mo sales cycle • <100M people online • $1-2M seed round • $3-5M Series A • Sand Hill Road crawl • Big, Fat, Dinosaur Startup After 2008 • AWS, Google, PayPal, FB, TW • Cloud + Open Source SW • Lean Startup / Startup Wknd • 3-90d dev cycle • SaaS / online sales • >3B people online • <$100K incub + <$1M seed • $1-3M Series A • Angel List global visibility • Lean, Little, Cockroach Startup
- 29. Crunch Good? Crunch Bad? • Series A bar higher: $1M revenue, 1M active users, 10M downloads, 100% YoY growth • Lots of Incubation / Seed startups will “fail” • BUT: Fail Budget = $50-$500K, not $5M+ • Many “failed” startups = ramen-profitable, small acquisition, or MBA alternative (<$100K) • Series A/B VCs have lots to choose from • Overall, founders / market getting smarter • More focus on customers, problems, revenue • Many die, some survive (1-5x), a few thrive (20x+).
- 30. Investor Relations & Reporting • What do Investors Care About? • Returns? Dealflow? Strategy? • How / When do you report this? • Data Collection & Accuracy • LPs and Co-Investors are Community too!
- 31. Scale & Scaling VC • Lots of Little Bets? Or a Few Big Bets? • Power Laws, Singles vs Home Runs • Focus on Network Effects • Communication Platforms • Ideal Portfolio Size vs Investment Stage
- 32. Local vs Global? • The Valley is Unique… sort of. • Emerging / Developing Markets: • Too Soon? Too Late? Valuation? • English, Chinese, Spanish, Arabic • Investor Ecosystems • Mentorship & Community • Limited History of Exits & IPOs • Does the Future look different? (yes, we hope) • Selling Into Future Rounds
- 33. Going Local, Going Global web gets bigger -> world gets smaller
- 34. Global Trends • Growth of Global Languages (see MyGengo.com) – 1B+ speakers: Mandarin, English – 300-500M+ spkrs: Spanish, 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: Baidu, Tencent, Alibaba, Sina, NHN, Yahoo-J, Softbank, Rakuten, DeNA, Gree
- 35. Feedback Loop & Metrics • Bad decisions = obvious quickly • Good decisions = not obvious for years • Short-term metrics: revenue, users, next round • Sharing best practices for decisions • Lots of Little Bets helps speed up learning • “Winners” vs Numeric Returns • Economics of 1st check vs follow-on • Easy to get big multiples on small checks, BUT • Larger checks with smaller multiples still good
- 36. Questions? Comments? Heckles? • Thanks for Listening • Feedback Appreciated • We’re Still Learning • More Info? – http://500.co (our company) – http://500hats.com (my blog) – https://angel.co/500startups (our fund) – Dave McClure, @DaveMcClure