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Changes in Venture Capital & Tech Startups (Nov 2013, Mumbai)

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slides from my talk on Changes in Venture Capital, #ABAF conf (Mumbai, Nov 2013)

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Changes in Venture Capital & Tech Startups (Nov 2013, Mumbai)

  1. Changes  in  Tech  Startups   &  Venture  Capital   @DaveMcClure   #ABAF  Mumbai   Nov  2013  
  2. This  Talk…   •  •  •  •  •  •  Industry  Changes:  Da$  Punk  Lean  Startup   Myth  BusJng:  The  Series  A  Crunch   500  Strategy:  Lots  of  Li8le  Bets   Venture  Metrics:  The  Lean  VC   Scalable  PlaMorms:  Marke=ng  &  Distribu=on   Demography=Geography:  Local  vs.  Global  Startups  
  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 •  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
  4. 500 Startups Global Seed Fund & Startup Accelerator •  What is 500? –  –  –  –  –  •  $80M under management 30+ people / 10 investing partners Locations: SV, NYC, MEX, BRZ, IND, CHN, SE Asia 1000+ Founders / 200+ Mentors 25+ positive exits in ~3 years 500+ Portfolio Co’s / 40+ Countries –  –  –  –  –  –  –  –  –  –  –  –  –  –  –  –  –  –  Wildfire (acq GOOG, $350M) MakerBot (acq SSYS, $400M) Viki (acq Rakuten, $200M) Twilio SendGrid Credit Karma VivaReal Udemy Zozi The RealReal Virool Visually Gengo PicCollage 9GAG ZipDial TradeBriefs Tushky
  5. 500 Startups: Global Seed Fund Over 150+ startups outside US, in 40+ countries
  6. Startup Investor Ecosystem Bootstrap, KickStarter, Crowdfunding Y-Combinator TechStars     Angels & Incubators ($0-10M) SV Angel (Conway) Floodgate (Maples) “Micro-VC” Funds ($10-100M) First Round Union Square Incuba=on   SoftTech (Clavier) Felicis (Senkut) Series  A   True “Big” VC Funds ($100-500M) Seed   Foundry Series  B   Atomico Greylock “Mega” VC Funds (>$500M) A16Z Sequoia Series  C+  
  7. Changes in Tech Startups •  LESS Capital required to build product, get to market –  Dramatically reduced $$$ on servers, software, bandwidth –  Crowdfunding, KickStarter, Angel List, Funders Club, etc –  Cheap access to online platforms for 100M+ consumers, smallbiz, etc •  MORE Customers via ONLINE platforms (100M+ users) –  –  –  –  –  –  •  Search (Google) Social (Facebook, Twitter) Mobile (Apple, Android) Local (Yelp, Groupon, FourSquare) Media (YouTube, Pinterest, Instagram, Tumblr) Comm (Email, IM/Chat, Voice, SMS, etc) LOTS of little bets: Accelerators, Angels, Angel List, Small Exits –  Y Combinator, TechStars, 500 Startups –  Funding + Co-working + Mentoring -> Design, Data, Distribution –  “Fast, Cheap Fail”, network effects, quantitative + iterative investments
  8. Industry  Changes   •  •  •  •  •  •    Startup  Efficiency,  Reduced  Capital  Costs   Growing  Market,  Growing  PlaIorms   VC  Industry  Upheavals  (2000,  2008)   Super  Angel  -­‐>  Micro  VC:  Seed  Funds  (ex:  First  Round)   Incubators  &  Accelerators  (ex:  Y  Combinator)   Big  VC  (ex:  A16Z)  &  PlaMorms  (ex:  Angel  List)   more  info  see:  h.p://PreMoney.co      
  9. Daft Punk Lean Startup: Simpler, Faster, Cheaper, Smarter       1.  Startup Costs = Lower. 2.  # Users, Bandwidth = Bigger. 3.  Transaction $$$ = Better. Ø  Building Product => Cheaper, Faster, Better Ø  Getting Customers => Easier, More Measurable Iterative Product & Marketing Decisions based on Measured User Behavior
  10. Before & After 2 Dot-Com Crashes Daft Punk Startup: Simpler, Faster, Cheaper, Smarter Before  2000   •  Sun  Servers   •  Oracle  DB   •  Exodus  HosJng   •  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   Acer  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,  Li8le,  Cockroach  Startup  
  11. Series A Crunch: Good or Bad? Series A rqmts: $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+).
  12. 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)
  13. 500  Strategy:  “Lots  of  Li.le  Bets”*   Quan=ta=ve  Inves=ng  before  Trac=on   1)  Make  lots  of  limle   bets  pre-­‐tracJon,   early-­‐stage  startups   2)  acer  6-­‐12  months,  idenJfy   top  20%  performers  and   double-­‐down  higher  $$$   250+  companies  @  $25-­‐100K     (1st  check)     -­‐  Assume  high  failure  rate  (up  to  80%)       Double-­‐Down  a'er  Trac=on   50+  ‘winners’  @  $100K-­‐$1M     (2nd  +  3rd  check)                                                 -­‐  -­‐  Target  10+  exits  @  $100M+     3)  conservaJve  model  assumes   -­‐  5-­‐10%  large  exits  @20X  ($50-­‐100M+)   -­‐  10-­‐20%  small  exits  @5X    ($5-­‐50M)       13   *See Peter Sims book: “Little Bets”
  14. 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”)
  15. 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
  16. 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
  17. 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
  18. EducaJon  +  Community  +  PlaMorms   •  •  •  •  •  •  Cri=cal  Skills:  Engineering,  Design,  MarkeJng   Distribu=on:  Search,  Social,  Mobile,  Video,  Local   Global:  LatAm,  Asia,  India,  EU,  ME,  Africa   Social:  LinkedIn,  Quora,  Angel  List   Angel  List,  Second  Market,  Trusted  Insight   Dashboard.io,  MamerMark,  Funders  Club  
  19. Platforms 2.0 Search, Social, Mobile, Video, Messaging
  20. 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
  21. Going Local, Going Global web gets bigger -> world gets smaller
  22. Local  vs  Global?   •  •  •  •  •  Emerging  /  Developing  Markets   Global  Languages:  English,  Chinese,  Spanish,  Arabic   CriJcal  Factors:  Educa=on,  Mentorship,  Capital   Capital  Availability:  Incuba=on,  Seed,  Series  A   PosiJve  Macro:  Payments,  LogisJcs,  Mobile/Web   PenetraJon,  Growing  Middle  Class,  Distribu=on  
  23. Global Trends •  Growth of Global Languages (see Gengo.com) –  1B+ speakers: Mandarin, English –  300-500M+ spkrs: Spanish, Arabic •  Smart Device Proliferation –  mobile, tablet, TV, console, auto, home, 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, Logistics Dramatically Reduced Cost: Product Dev, Customer Acqstn Global Distribution Platforms –  US/EU: AAPL, FB, AMZN, GOOG (Search, YouTube, Gmail, Android), TWTR –  Asia: Baidu, Tencent/WeChat, Alibaba, Sina, NHN, Yahoo-J, Softbank, Rakuten
  24. QuesJons?  Comments?   •  Thanks  for  Listening   •  Feedback  Appreciated     G KLIN HEC •  More Info? –  –  –  –  http://500.co (our company) http://500hats.com (my blog) https://angel.co/500startups (our fund) Dave McClure, @DaveMcClure  

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