12. 500 Strategy: Lots of Little Bets*
1) make lots of little
bets on pre-traction,
early-stage startups
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
100-200 co’s @ $200-500K
2nd/3rd checks
(target 25-50 exits @ $100M+)
(assume high failure rate ~50-80%)
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. 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
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. Corp Innovation Tools
• Research & Development
• Invest / Co-Invest (Startups, Funds)
• Partnerships / Biz Dev (*DISTRIBUTION*)
• Acquisition (Talent, Product, Business)
• Post-Acquisition Integration
18
19. • Invest internally to build new IP
• Research externally to find new IP
• Labs & Universities ($$$)
• Other Large Corporates ($$$)
• Smart Individuals ($)
• Smart Startups ($$)
• *ProTip: Invest in Funds for Cheap, Passive Research
• Challenges: Finding Talent, Buying IP, Long Cycle
Time / Slow ROI
19
Corp Innovation Tools
Research & Development
20. • Invest in startups (early)
• Invest in funds (indirect in startups, early)
• Co-invest in startups (early & late)
• *ProTip: Invest in Funds early, Invest in Startups later
• Challenges: Dealflow, Slow Decisions, Losses / Bad
Deals, Investing Experience
20
Corp Innovation Tools
Invest & Co-Invest
21. • Partner to Drive New Products, New Biz
• Startup Benefit: Customers, Revenue
• Corp Benefit: Products, Speed to Market
• *ProTip: CUSTOMERS & DISTRIBUTION, SPEED of
DEAL are key advantages for corporates
• Challenges: Matchmaking, Bureaucracy,
Misaligned Goals / Expectations
21
Corp Innovation Tools
Partnerships & Biz Dev
22. • Acquire Companies to Drive Innovation
• Talent ($): Acqui-hires ($1-10M)
• Product ($$): Innovation ($10-100M)
• Business ($$$): Revenue ($50-500M+)
• Portfolio Approach: “Lots of Little Bets” (most
things fail, so fail cheap)
• Challenges: Doing Deals, Keeping Talent, Post-
Deal Integration, Bottomline Impact
22
Corp Innovation Tools
Acquisition (small, large)
23. • Improve Post-Deal Integration Process
• Increase Speed, Impact of New Products
• Engage, Retain New Employees
• Incentivize Post-Deal Goals & Outcomes
• Win the War, Not Just the Battle
• *ProTip: Make People RICH, HAPPY, PRODUCTIVE*
• Challenges: Incentives, Retention, Bureaucracy, Politics,
Inertia, Penny-Wise vs Pound-Foolish
23
Corp Innovation Tools
Post-Deal Integration & ROI
24. Local vs Global?
• Emerging / Developing Markets
• Global Languages: English, Chinese, Spanish, Arabic
• Critical Factors: Education, Mentorship, Capital
• Capital Availability: Incubation, Seed, Series A
• Positive Macro: SmartPhones, Tablets, Payments,
Logistics, Growing Middle Class, Distribution Platforms
• Wealthy Global Users, Shoppers, Travelers