Download - Startup Organizer Summit (Rio, 2013)
Starting Up Startups.Methods, Magic, Meta of
Building Startup Ecosystems
Dave McClure500 Startups Rio, Mar 2013
slideshare.net/dmc500hats
500 StartupsGlobal Seed Fund & Startup Accelerator
• What is 500?– $60M+ under management– 20 people / 10 investing partners– Locations: SV, NYC, MEX, BRZ, IND, CHN, SEasia– 1000+ Founders / 200+ Mentors– 20+ confs/events per year
• 475+ Portfolio Co’s / 30+ Countries– Wildfire (acq GOOG, $350M)– Twilio– SendGrid– TaskRabbit– MakerBot– 9GAG– Viki– Gengo– VivaReal
500 Startups: Global Seed Fund100+ startup investments in 30+ countries
• Q4/12 added: Germany, Korea, Peru; + Russia, Israel, Turkey in Q1/13• Priorities in 2012: Brazil, Mexico, India• Priorities In 2013: China, SE Asia, MENA, Eastern Europe
This Talk...
• Startup Weekend: WTF? “Simulation Exercises 4 Startups” 4 Geeks, Designers, Founders, Startup Teams 4 Organizers, Partners, Investors, etc
What does it do well? What doesn’t it do so well? What can be improved? How? Who? When?
• 3Ms: Metrics, Money, Mentorship
Startup Weekend: #WINNING
• Test Drive an Idea -> Prototype
• Test Drive a Co-Founder / Team -> Startup
• Test Drive Customers, Workflow, Design, etc
• Recruiting (for Startups, for Corps, for VCs)
• Getaway from Ur Normal Boring Fucking Life
Startup Weekend: #FAIL
• Not Enough Time.…– 2 Build a “Real” Product/Biz– 2 Get 2 Know Co-Founder/Team– 2 Find/Scale Customers– 2 Get Funded
• Not Enough Structure.…– 2 Come Up With “Good” Idea– 2 Find Skilled Devs, Design– 2 Find/Scale Customers– 2 Get Funded
Startup Weekend: #MO.BETTAH?
• Mo’ Structure / Organizers• Mo’ MO-nay $$$ (Sponsors, Investors)• Mo’ Experienced Entrepreneurs (WIN, FAIL)• Mo’ Skilled Devs, Design/UX, Marketing• Mo’ Customers / Specific Segments?• Mo’ Platforms for Distribution / Monetization• Mo’ Specific Outcomes, Metrics, Results:
– Problems not Products (see: Customer Needs)– Teams not Individuals (see: FounderDating, other?)– Funding not “Winners” (see: Investors / Corp Sponsors)
The Rest of This Talk…• Too Many Boring Fucking Slides
• Leave Now, Hit The Beach, Start Drinking
• (we’re in Fucking Rio, for Christ’s Sake)
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”)
• VC Evolution: Physician, Scale Thyself (Aug 2012)• MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
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
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
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
Failure = CRITICAL to Innovation• Failure not only tolerated, but ENCOURAGED
• Success = Continued Iteration of Failure
• US/SV: Failure = Growth, Education, Shared
• Elsewhere: Failure = Shame, Silence, Death
• Celebrity Role Models for Failure
• “Fall Down 7 Times, Get Up 8” = Fail Warrior!
Platform Viability
Users .Users . . Money
. Money
FeaturesFeatures
Growth Profit
ProfitableGrowth
Nirvana
Successful Platforms have 3 Things:1) Features2) Users3) Money
Distribution PlatformsCustomer Reach: 100M+
• Search: Google, Baidu, Yahoo/Bing, Yandex
• Social/Games: Facebook, Twitter, LinkedIn, TenCent/QQ
• Mobile: Apple (iOS), Android
• Local: Yelp, Groupon, LivingSocial, FourSquare
• Media: Video (YouTube), Blogs (Tumblr), Photos (Pinterest)
• Comm: SMS, IM, Skype, Phone/Voice, etc
Startup Investor Ecosystem
Angels & Incubators($0-10M)
“Micro-VC” Funds ($10-100M)
Smaller VC Funds ($100-300M)
Larger VC Funds (>$300M)
TrueFirst Round
AndreessenAtomico
Y-Combinator
TechStars
SoftTech (Clavier)
Felicis (Senkut)
SV Angel (Conway)
SequoiaGreylock
Union Square
Floodgate (Maples)
Foundry Group
Bootstrap, KickStarter, Crowdfunding, Startup Wknd
Angel* List: It Rocks.
• Startups & Investors• Activity & Metrics• Platform & APIs• Customers & Corporates
• *ps – not just for Angels, or USA
MoneyBall 4 Startups
http://slideshare.net/paulsingh/moneyball-a-quantitative-approach-to-angel-investing-austin-tx-aug-2012
1. Make Lots Of Little Bets2. Count Cards (Metrics)3. Double Down on Winners
70% Capital
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“Lots of Little Bets”*
1) Make lots of little bets pre-traction, early-stage startups
30% Capital
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”
Incubator 2.0: Fast, Cheap, FAIL• Incubators = supportive startup ecosystem (+ angels, VCs)
• Efficient use of investment capital ($0-100K)
• High fail rate (60-80%) => large initial sample size
Incubator 2.0: Education, Collaboration, Iteration
• Success based on:– MANY, small experiments– common platforms, customers, problems & solutions– physical proximity, open/collaborative environment– Domain-specific mentors & expertise– fast fail, iteration, metrics & feedback loop
• Incremental investment; high-risk, but high-reward
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Resources Accelerators Can Provide
global networks, mentors and staff
training and space
portfolio companies
conferences & events
Incubator Innovation
• Vertically-Focused Incubators: – Facebook: fbFund– Nike: Sensors / Wearables– Rock Health: Digital Healthcare– Digital Media: Turner Media, NY Times
• Investing & Partnering with Incubators– Startup Communities, Conferences, Events– Entrepreneurs, Hackers, Mentors– Hackathons, Contests, Demo Days
fbFund REV
fbFund REV: Facebook “Social” Incubator: invest in startups, apps, websites based on Facebook platform & Facebook Connect.
• 22 startups @ ~$35K each (< $1M total)• 3 month program: Technology, Design, Marketing, Business topics • Success: 8 startups raised $500K –> 5 Series A -> 3 Series B (+ 3 small exits)• Wildfire Interactive acquired by GOOG for $350M (>50X)