Changes in Venture Capital +Building Startup Ecosystems
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
What is 500 Startups?
Changes in Tech & VC
“Lean VC” = Quantitative Venture Capital
Building Startup Ecosystems
Global Entrepreneurship
Q & A
This Talk..
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Dave McClureFounding Partner & Chief Troublemaker, 500 Startups
00’s & 10’s
VC Founders fund Facebook fbFund 500 Startups
Mashery mint.com SlideShare Twilio Wildfire SendGrid
PayPal Simply Hired mint.com O’Reilly
Angel
Marketing
80’s & 90’s
Entrepreneur
Developer
Engineer
Aslan Computing (acq’d by Servinet / Panurgy)
Windows / SQL DB consultant (Intel, MSFT)
John Hopkins’88 BS Eng / Applied Math
500 StartupsGlobal Seed Fund & Startup Accelerators
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
• $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
Wildfire acq GOOG $350M
MakerBot acq SSYS $400M
Viki acq Rakuten $200M
Simple acq BBVA $117M
Twilio SendGrid CreditKarma Udemy
What is 500?
750+ Portfolio Co’s 40+ Countries
500 Startups: Global Seed FundOver 200+ startups outside US, in 40+ countries
Regional Coverage areas
Countries where we’ve invested
People on the ground
San Francisco
Silicon Valley
Mexico City
Brazil
New York
India
China
Southeast Asia
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
What is 500 Startups?
Changes in Tech & VC
“Lean VC” = Quantitative Venture Capital
Building Startup Ecosystems
Global Entrepreneurship
Q & A
This Talk..
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Industry Changes
Startup Efficiency, Reduced Capital Costs
Growing Market, Distribution Platforms
Financial Market Crises (2000, 2008)
Lean Startups
Micro VC: Seed Funds (ex: First Round Capital)
Incubators & Accelerators (ex: Y Combinator, 500)
Funding Platforms (ex: Angel List, Kickstarter)
Growing Global Market of Angel Investors
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
more info: http://PreMoney.co (June 27th, San Francisco)
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
LESS Capital required to build product,
get to market
MORE Customers via Online platforms
(100M+ users)
LOTS of little bets: Accelerators, Angels, Angel List,Small Exits
Access to Online Platforms
Dramatically Reduced Cost
Funding Platforms
Accelerators
Social
“Fast, Cheap Fail”, network effects, quantitative + iterative investments
Y Combinator, TechStars, 500 Startups
Capital + Co-working + Mentoring
Mobile
Media Design Data Distribution
servers software bandwidth
KickStarter Angel List Funders Club, etc
100M-1B+ consumers, smallbiz, etc
Facebook Twitter
Apple Android
YouTube Pinterest Instagram Tumblr
Search
Angels?
Small Exits?
Changes in Tech Startups
Daft Punk Startup: Simpler, Faster, Cheaper, Smarter
After 2008
Before & After 2 Dot-Com Crashes
Big, Fat, Dinosaur Startup Lean, Little, Cockroach Startup
• Sun Servers • Oracle DB • Exodus Hosting • 12 - 24 mo dev cycle • 6- 18mo sales cycle • <100M people online • $1-2M seed round • $3-5M Series A • Sand Hill Road crawl
• 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
Before 2000
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Lean Startup
A Product that’s cheaper, faster and better.
More Customers that are easier to obtain and measure.
Iterative Product & Marketing Decisions based on Measured User Behaviour
Learn Build
CodeData
Ideas
Measure
Lower Startup Costs
Bigger Number of Users & Bandwith
Better Transaction Dollars
1
2
3
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Platforms 2.0
Search
Social
Mobile
Media
Messaging
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Angel List: Platform for Investors & Startups
Startups & Metrics
Founders & Bios
Investors & Syndicates
Accelerators & Online Applications
Jobs & Talent
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
What is 500 Startups?
Changes in Tech & VC
“Lean VC” = Quantitative Venture Capital
Building Startup Ecosystems
Global Entrepreneurship
Q & A
This Talk..
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Silicon Valley 2.0: Lots of Little Betsaka “MoneyBall for Startups”
Invest BEFORE product market fit, Double down AFTER
VC Evolution: Physician, Scale Thyself (Aug 2012) MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Silicon Valley
500 Strategy: “Lots of Little Bets”
Make lots of little bets pre-traction, early-stage startups
1
2
3
After 6-12 months, identify top 20% performers and double-down higher $$$
Conservative model assumes: - 5-10% large exits @20X ($50-100M+) - 10-20% small exits @5X ($5-50M) $
Double-Down after Traction
Quantitative Investing before Traction
50+ ‘winners’ @ $100k - $1M2nd & 3rd check
Target 10+ exits @ $100M
250+ companies @ $25-100k1st check
Assume failure rate up to 80%
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Method
Venture
Incubator
Seed
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. !
$0-100K “Build & Validate Product”
$100K-$1M “Test & Grow Marketing Channels”
$1M-$10M “Maximize Growth & Revenue”
The Lean VC:Lots of Little Bets, Incremental Investment
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Structure
Test Functional Prototype / “Minimum Viable Product” (MVP)
Develop Metrics, Filter for Possible Future Investment
Demonstrate Concept, Reduce Product Risk, Test Functional Use
Investment Stage #1:Product Validation + Customer Usage
• 1-3 Founders • $25 - $100K Investment • Incubator environment: Multiple Peers, Mentors / Advisors
• 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)
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Structure
Improve Product, Expand Customers, Test Revenue
Test Channel Cost, Revenue Opportunity
Prove Solution / Benefit, Asses Market Size
Investment Stage #2:Market Validation + Revenue Testing
• 2-10 person team • $100K - $1M Investment • Syndicate of Angel Investors / Small VC Funds
• Alpha —> Beta (~6-12 months) • Scale Customer Adoption —> “Many people use it and they pay.” • Test Marketing Campaigns, Customer Acquisition, Channels + Cost • Improve Design & Usability, Setup Conversion Metrics
Determine Org Structure, Key Hires
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Structure
Make Money (or Go Big), Get to Sustainability
Future Milestones: Profitable / Sustainable, Exit Options
Prove / Expand Market, Operationalize Business
Investment Stage #3:Revenue Validation + Growth
• 5 - 25 person team • $1M - $10M Investment • Seed & Venture Investors
• Beta —> Production (~12-24 months) • Revenue / Growth —> “We can Make (a lot of) Money!” • Scalability & Infrastructure, Customer Service & Operations • Connect with Distribution Partners, Expand Growth
What is 500 Startups?
Changes in Tech & VC
“Lean VC” = Quantitative Venture Capital
Building Startup Ecosystems
Global Entrepreneurship
Q & A
This Talk..
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Critical Ecosystem Factors
“Silicon Valley” Knowledge People Infrastructure Product Customers Monetization Exits
Optimism & Belief Mentorship + Education
Universities + Companies Capital, Legal, Finance
Engineering + Design / UX Platforms + Distribution
Online Payment IPO / M&A Market
Startup Investor Ecosystem
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Bootstrap, KickStarter, Crowdfunding
Y-CombinatorTech Stars
SV Angel (Conway)Floodgate (Maples)
First RoundUnion Square
AtomicoGreylock
True
A16ZSequoia
Foundry
Angels & Incubators ($0-10M)
“Micro-VC” Funds
($10-100M)
“Big” VC Funds
($100-500M)
“Mega” VC Funds (>$500M)
SoftTech (Clavier)Felicis (Senkut)
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Example Startup Ecosystem
1,000 Bootstrap Startups
300 Accelerator Startups
100 Seed-Stage Startups
30 Series A / B Startups
10 Later-Stage Companies
1-3 Mature Company IPOs
- $0-10K
- $10-100K
- $100K- $1M
- $1-10M
- $10-100M
- $100M+
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Entrepreneur Education
Business Plans
Functional Prototypes
Lean Startup
Software Engineering / Design & UX
Online Marketing / Unit Economics
Monetization & Payments
Online Payment
IPO / M&A Market
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Investor Education
Startups are NOT Real Estate
Most Startups Fail/ Power Law Returns
Portfolio Approach (10 - 20+ investments)
Exits & Liquidity
Legal Structure, Financial Structure
Syndication + Co-Investment
Access to Downstream Capital
What is 500 Startups?
Changes in Tech & VC
“Lean VC” = Quantitative Venture Capital
Building Startup Ecosystems
Global Entrepreneurship
Q & A
This Talk..
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
Local vs Global?
Wealthy Global Users Shoppers Travelers
Emerging / Developing Markets
Global Languages English Chinese Spanish Arabic
Critical Factors
Education Mentorship Capital
Capital AvailabilityIncubation Seed Series A
Positive Macro SmartPhones Tablets Payments Logistics Growing Middle Class Distribution Platforms
Users
@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014
500.co (our company)
500hats.com (my blog)
angel.co/500startups (our fund)
Dave McClure, @DaveMcClure
More Info?
Questions? Comments?