slides for my talk at eMerge Americas (Miami, June 2017)

1. @DaveMcClure
@500Startups http://500.co
eMerge Americas - Miami, June 2017
Bringing Silicon Valley to Latin America:
Startup Ecosystems & Investment Insights

2. Dave McClure
Founding Partner, 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, 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

3. • What is 500?
– $350M AUM / 4+ main funds / 10+ microfunds
– 150 people / 25 languages / 20 countries
– 1800+ Companies / 3000+ Founders / 200+ Mentors
– Investment, Accelerator, BizDev, Marketing, Events, Education
– Community + Content + Conferences
• 1800+ Co’s / 60+ Countries
– Twilio (NYSE: TWLO)
– Credit Karma (>$3B)
– Grab (>$5B)
– Wildfire (ace GOOG, $350M)
– MakerBot (acq SSYS, $400M)
– Viki (acq Rakuten, $200M)
– Behance (acq Adobe, $150M)
– Simple (acq BBVA, $117M)
– Sunrise (acq MSFT, $100M)
– SendGrid
– TalkDesk
– Intercom
– Udemy
– Ipsy
500 Startups
Global Seed Fund & Startup Platform

4. Silicon Valley -> LatAm
• Startups: Cheaper, Faster, Bigger, Better
• VCs: Lots of Funds, Lots of Bets
• Govt: How to create Silicon Valley? (write checks)
• LatAm: Undervalued Emerging Market
• Miami: LatAm + USA + Hot Sexy Startups

5. Dinosaurs vs. Cockroaches
LEAN Startup: Simpler, Faster, Cheaper, Smarter
1990-2000
”Big, Fat, Dinosaur Startup”
• Sun Servers
• Oracle DB
• Exodus Hosting
• 12-24mo dev cycle
• 6-18mo sales cycle
• <100M people online
• $5-10M Series A/B
• Sand Hill Road crawl
2017
”Lean, Little, Cockroach Startup”
• AWS, Google, PayPal, FB, TW
• Cloud + Open Source SW
• Lean Startup; 3-90d dev cycle
• SaaS / online sales
• >3B people online
• <$100K incub + <$1M seed
• $1-3M Seed / Series A
• Angel List global visibility

6. Startup Platforms:
Search, Social, Mobile,
Pics, Video, Voice, Msgs

7. Startup Risk Reduction
Concept
Early
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

8. Silicon Valley -> LatAm
• Startups: Cheaper, Faster, Bigger, Better
• VCs: Lots of Funds, Lots of Bets
• Govt: How to create Silicon Valley? (write checks)
• LatAm: Undervalued Emerging Market
• Miami: LatAm + USA + Hot Sexy Startups

9. Chances of spotting
unicorn = ~1%/

10. Data from ~600 companies from 500 Startups Funds I + II (2010 - 2013 cohorts)
$1-10M
Q: How Many Startups to Get 1 Unicorn?
Unicorns 50:1 | Centaurs 20:1

11. If portfolio size = 15/

12. / If portfolio size = 30

13. / If portfolio size = 100

14. The Lean Investor
Make lots of little bets:
• Start with many small “experiments”
• Filter out failures + small wins
• Double-down on stuff that looks like it’s working
• Incubation: $0-100K (“Build & Validate Product”)
• Seed: $100K-$1M (“Test & Grow Marketing Channels””)
• Venture: $1M-$10M (“Maximize Growth & Revenue”)

15. 500 Strategy: Lots of Little Bets*
1) make lots of little
bets on early-stage
startups when they’re
just getting started
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 co’s @ $100K 1st checks
100+ co’s @ $200-500K
2nd/3rd checks
(hope for a few big exits @
$100M-$1B+)
(assume high failure rate ~50-80%)

16. Investment Stage #1:
Product Validation + Customer Usage
• Structure
– 1-3 founders
– $0-$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

17. 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

18. 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

19. Building the LatAm
Ecosystem
• Startups: Cheaper, Faster, Bigger, Better
• VCs: Lots of Funds, Lots of Bets
• Govt: How to create Silicon Valley? (write checks)
• LatAm: Undervalued Emerging Market
• Miami: LatAm + USA + Hot Sexy Startups

20. 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)

21. Building Startup Ecosystems

22. Q: How many VC funds needed
to build a startup ecosystem?
• USA: ~800 VC funds; 2.5 per 1M ppl
• China: ~700 VC funds; 0.5 per 1M ppl
• UK/EU: ~100 VC funds; 0.25 per 1M ppl
—-
• LatAm: <25 VC funds; <0.1 per 1M ppl
-> More VC Funds Needed in LatAm & Miami

23. Silicon Valley -> LatAm
• Startups: Cheaper, Faster, Bigger, Better
• VCs: Lots of Funds, Lots of Bets
• Govt: How to create Silicon Valley? (write checks)
• LatAm: Undervalued Emerging Market
• Miami: LatAm + USA + Hot Sexy Startups

24. LatAm Capital Growing in Brazil & Mexico

25. Active Latam VC investors

26. 500 LatAm portfolio:
160+ Investments

27. Silicon Valley -> Miami
• Startups: Cheaper, Faster, Bigger, Better
• VCs: Lots of Funds, Lots of Bets
• Govt: How to create Silicon Valley? (write checks)
• LatAm: Undervalued Emerging Market
• Miami: LatAm + USA + Hot Sexy Startups

28. Miami
The Miami
Opportunity:
Global Hub for
LatAm Startups

29. South Florida Ecosystem

30. Startup Wins
in South Florida
“Mixed Reality” (AR + VR)
Raised $1.4B
Online retailer of pet food and products
Sold $3.35B to PetSmart (Apr 2017)
SaaS (EMR) for specialty healthcare providers
Raised $318M
Cloud-based health info tech (sw + svcs)
Raised $103M
Edtech – teaching English to Latam and Hispanics
Raised $120M

31. Miami is Growth Center for LatAm
Tech, Innovation and Entrepreneurship
Active stakeholders
• Entrepreneurs
• Accelerators and
capacity developers
• Networks / community
building organizations
• Investors
• Foundations
• City projects and companies
attracting investors from
around the globe
• Great quality of life attracting
young, multi-cultural talent
• City is cultural, logistic, and
economic capital for Latin
America
• Great opportunity to access
similar markets and achieve
scale
Thriving ecosystem… … in a BOOMING city

32. $50M fund drives 2,400 jobs in 5
years
Stage #co Invested Subtotal raised subtotal jobs/
co
subtotal
accel 100 $100k $10M $250k $25M 2.5 250
seed 40 $250k $10M $1M $40M 10 400
A 10 $1M $10M $5M $50M 25 250
B 5 $2M $10M $10M $50M 100 500
C 2 $5M $10M $25M $50M 500 1000
$50M
FUND
$215M
LEVERAGE
2,400
JOBS

33. 2,400 jobs drive ~$50M/ year in
rent collective real estate rental
Stage #co FUND
SIZE
JOBS TOTAL commercial
(Sq ft x avg
35 $)
residential (Sq ft x
25$)
accel 100 $10M 250 $1.75M $3.125M
seed 40 $10M 400 $2.8M $5M
A 10 $10M 250 $1.75M $3.125M
B 5 $10M 500 $3.5M $6.25M
C 2 $10M 1000 $7M $12.5M
$50M 2400 $16.8M $30M

34. What’s Most Important?
• You DON’T need to be in Silicon Valley, but…
• Silicon Valley Needs to be in YOU.