2. Dave McClureâ¨
Founding Partner, 500 Startups
00âs & 10âs:
⢠VC: Founders Fund, Facebook fbFund, 500 Startups
⢠Angel: Mashery, Mint.com, SlideShare, Twilio, Wildfire, SendGrid
⢠Marketing: PayPal, Simply Hired, Mint.com, OâReilly
80âs & 90âs:
⢠Entrepreneur: Aslan Computing (acqâd by Servinet/Panurgy)
⢠Developer: Windows / SQL DB consultant (Intel, MSFT)
⢠Engineer: Johns Hopkinsâ88, BS Eng / Applied Math
3. [ This Talk ]
⢠What is 500 Startups?
⢠Changes in Building Tech Startups
⢠Changes in Venture Capital Investing
⢠The âLeanâ Investor + Portfolio Approach
⢠Building Investor Ecosystems
⢠Q&A
4. ⢠What is 500?
â $250M silicon valley VC fund + startup accelerator
â 125 people / 30 partners / 25 languages / 20 countries
â 1500+ Companies / 3000+ Founders / 200+ Mentors
â Investment, Accelerator, Distro, Marketing, Events, Education
â Community + Content + Conferences
⢠1500+ Coâs / 50+ Countries
â Credit Karma ($3.5B)
â Twilio ($1B+)
â Grab ($1B+)
â Wildfire (acq GOOG, $350M)
â MakerBot (acq SSYS, $400M)
â Viki (acq Rakuten, $200M)
â Behance (acq Adobe, $150M)
â Simple (acq BBVA, $117M)
â Sunrise (acq MSFT, $100M)
â Udemy
â Ipsy
â TalkDesk
â Intercom
500 Startupsâ¨
Global Seed Fund & Startup Accelerator
10. 500 Startups Mission
⢠Provide capital, community, education
to smart people (founders, investors)
⢠Build functional startup ecosystems
(founders, team, angels, accelerators, VC
funds, capital, exits, liquidity, etc)
⢠#HFGSD: Have Fun, Get Shit Done.
11. 500 Startups
⢠âLots of little betsâ: very large portfolio (>100 coâs per fund)
⢠Founding Partners: PayPal/Google alumni, engineering + marketing
⢠Global Approach: Silicon Valley HQ + Multi-Country Team/Reach
⢠Focus on seed-stage investing in internet startups
⢠Accelerator: 30-50 coâs, structured curriculum, ofďŹce, support staff,
founder/mentor community, investor intros, pitch prep, demo days
⢠Dedicated consulting svcs for customer acq (âGrowth Hackingâ)
⢠Events, Education, Community, FAMILY.
12. [ This Talk ]
⢠What is 500 Startups?
⢠Changes in Building Tech Startups
⢠Changes in Venture Capital Investing
⢠The âLeanâ Investor + Portfolio Approach
⢠Building Investor Ecosystems
⢠Q&A
13. Changes in Tech Startups
⢠LESS Capital required to build product, get to market
â Dramatically reduced cost for servers, software, bandwidth
â Funding Platforms: KickStarter, Angel List, Funders Club, etc
â Access to online platforms for 100M-1B+ consumers, smallbiz, etc
⢠MORE Customers via ONLINE platforms (100M+ users)
â Search (Google, Baidu)
â Social (Facebook, Twitter, LinkedIn)
â Mobile (Apple, Android)
â E-Commerce (Amazon, PayPal, Alibaba)
â Media (YouTube, Pinterest, Instagram)
â Comm/Msgs (WeChat, WhatsApp, SnapChat, Email, Voice, SMS, etc)
⢠LOTS of little bets: Accelerators, Angels, Angel List, Small Exits
â Capital + Co-working + Mentoring -> Design, Data, Distribution
â âFast, Cheap Failâ, network effects, quantitative + iterative investments
14. Before & After 2 Dot-Com Crashesâ¨
LEAN Startup: Simpler, Faster, Cheaper, Smarter
Before 2000
âBig, Fat, Dinosaur Startupâ
⢠Sun Servers
⢠Oracle DB
⢠Exodus Hosting
⢠12-24mo dev cycle
⢠6-18mo sales cycle
⢠<100M people online
⢠$1-2M seed round
⢠$3-5M Series A
⢠Sand Hill Road crawl
After 2008
âLean, Little, Cockroach Startupâ
⢠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
18. [ This Talk ]
⢠What is 500 Startups?
⢠Changes in Building Tech Startups
⢠Changes in Venture Capital Investing
⢠The âLeanâ Investor + Portfolio Approach
⢠Building Investor Ecosystems
⢠Q&A
19. Industry Changes
⢠Financial Market Crises (2000, 2008)
⢠Startup Efficiency, Lean Startup Movement, Reduced Capital Costs
⢠Growing Market, Global Distribution Platforms, âGrowth Hackingâ
⢠Improved Monetization, Payments Infrastructure
⢠Developing Startup Ecosystems, Global M&A
⢠Micro VC: Seed Funds (ex: First Round Capital)
⢠Incubators & Accelerators (ex: 500 Startups)
⢠Funding Platforms (ex: Angel List, Kickstarter)
⢠Global Market of Angel Investors, Accelerators, Seed Funds
more info: http://PreMoney.co
21. 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: âLittle Betsâ
2) over the next five years,
double-down on top 20-30%
~500 coâs @ $100K 1st checks
100-200 coâs @ $200-500K
2nd/3rd checks
(target 25-50 exits @ $100M+)
(assume high failure rate ~50-80%)
22. Investor Education
⢠Startups are NOT Real Estate
⢠Most Startups Fail / Power Law Returns
⢠Portfolio Approach (20-100+ investments)
⢠Legal Structure, Financial Structure
⢠Syndication + Co-Investment
⢠Access to Downstream Capital
⢠Exits & Liquidity
29. [ This Talk ]
⢠What is 500 Startups?
⢠Changes in Building Tech Startups
⢠Changes in Venture Capital Investing
⢠The âLeanâ Investor + Portfolio Approach
⢠Building Investor Ecosystems
⢠Q&A
30. Startup Investment Stages
⢠Concept
⢠Product
⢠Functional Prototype
⢠Early Users/Customers
⢠Other Investors
⢠Profitable Unit Economics?
⢠Scalable Cust Acquisition?
⢠Profitable Business
⢠Scalable Organization
⢠Exit / Liquidity?
30
32. The Lean Investor
Make lots of little bets:
⢠Start with many small âexperimentsâ
⢠Filter out failures + small wins
⢠Double-down on stuff that looks like itâs working
⢠Incubation: $0-100K (âBuild & Validate Productâ)
⢠Seed: $100K-$1M (âTest & Grow Marketing Channelsââ)
⢠Venture: $1M-$10M (âMaximize Growth & Revenueâ)
33. Investment Allocation Strategy
⢠How long will companies take to exit / reach liquidity? (3-10 yrs)
⢠How long is your investment cycle? (ex: 3-5 yrs)
⢠When will capital be returned? (1X in 5-10 yrs, 2-5X in 8-12 yrs)
⢠Simple allocation for $10M investment budget over first 5 years
⢠50% 1st checks + 50% 2nd/3rd checks
⢠~100 1st checks @ $50K each ($5M), ~20 checks / yr
⢠~10-20 2nd checks @ $250-500K each ($5M), ~3 checks / yr
1 2 3 54 7 8 109 11 12 13 15146
1 5432
50
15
.. .. ..
34. Investment Stage #1: â¨
Product Validation + Customer Usage
⢠Structure
â 1-3 founders
â $0-$100K investment
â Incubator environment: multiple peers, mentors/advisors
⢠Test Functional Prototype / âMinimum Viable Productâ (MVP):
â Prototype->Alpha, ~3-6 months
â Develop Minimal Critical Feature Set => Get to âIt Works! Someone Uses It.â
â Improve Design & Usability, Setup Conversion Metrics
â Test Small-Scale Customer Adoption (10-1000 users)
⢠Demonstrate Concept, Reduce Product Risk, Test Functional Use
⢠Develop Metrics & Filter for Possible Future Investment
35. Investment Stage #2: â¨
Market Validation + Revenue Testing
⢠Structure
â 2-10 person team
â $100K-$1M investment
â Syndicate of Angel Investors / Small VC Funds
⢠Improve Product, Expand Customers, Test Revenue:
â Alpha->Beta, ~6-12 months
â Scale Customer Adoption => âMany People Use It, & They Pay.â
â Test Marketing Campaigns, Customer Acquisition Channels + Cost
â Test Revenue Generation, Find Profitable Customer Segments
⢠Prove Solution/Benefit, Assess Market Size
⢠Test Channel Cost, Revenue Opportunity
⢠Determine Org Structure, Key Hires
36. Investment Stage #3: â¨
Revenue Validation + Growth
⢠Structure
â 5-25 person team
â $1M-$10M investment
â Seed & Venture Investors
⢠Make Money (or Go Big), Get to Sustainability:
â Beta->Production, 12-24 months
â Revenue / Growth => âWe Can Make (a lot of) Money!â
â Mktg Plan => Predictable Channels / Campaigns + Budget
â Scalability & Infrastructure, Customer Service & Operations
â Connect with Distribution Partners, Expand Growth
⢠Prove/Expand Market, Operationalize Business
⢠Future Milestones: Profitable/Sustainable, Exit Options
37. [ This Talk ]
⢠What is 500 Startups?
⢠Changes in Building Tech Startups
⢠Changes in Venture Capital Investing
⢠The âLeanâ Investor + Portfolio Approach
⢠Building Investor Ecosystems
⢠Q&A
41. Who/What is an Entrepreneur?
⢠someone who WANTS to start a business?
⢠someone who can RUN a business?
⢠someone who can run a SUSTAINABLE business
⢠someone who can run a PROFITABLE business
that employs a LARGE # people
⢠someone who can run a $10M/yr business that
employs 100+ people
42. Challenges for Investors
in New Tech Markets
⢠Smaller Markets than USA, CHN, UK/EU
⢠Limited Internet / Mobile / Smartphone
⢠Online Payments / Physical Logistics
⢠Small # of Early-Stage Capital / Firms
⢠Long Time to Exits / Liquidity (7-10 years)
⢠Small # IPOs (0?) / Small # Local Acquirers
43. Solutions for Investors
in New Tech Markets
⢠Increase #, frequency of early-stage investors
⢠Increase portfolio size, Decrease check size
⢠Increase #, frequency of acquirers
⢠Fund of Funds for Countries / Regions / Verticals
⢠Equity & Debt Matching Strategies for GPs
⢠Liquidity / Secondary for Repurchase of Series A/B
⢠Small Cap (<$100M) Public Markets
⢠Use of Real Estate as Hedge / Synthetic Liquidity
⢠Tax Incentives for Global, Local Acquirers
⢠Tax Incentives for Investing in Startups, Innovation
44. Investing Resources
⢠The Venture Capital Cycle (Gompers, Lerner)
⢠Venture Deals (Feld, Mendelson)
⢠Angel Investing (Rose)
⢠Venture Hacks (Naval, Nivi)
⢠blogs: Fred Wilson, Brad Feld, Mark Suster
⢠Quora: Jason Lemkin, David Rose, etc