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Startup 2.0: A Silicon Valley Story Sourcing, Selecting & Engineering Better Startups  via Incubators, Metrics & Iterative...
Silicon Valley  Startup Funding Ecosystem Union Square Ventures First Round Capital Benchmark Sequoia FF II FF I Angels & ...
Topics <ul><li>Venture Capital 1.0  = * Broken Model*  (for Internet Startups) </li></ul><ul><li>M&A Trends : More, but Sm...
[Pardon The Blatant Commercial]
Dave McClure <ul><ul><li>2001-2009: </li></ul></ul><ul><ul><li>Startup Investor:  500 Hats LLC, Founders Fund </li></ul></...
Personal Investments  (13 deals, 2004-2008, ~$25K avg)
Professional Investments  (37 deals, Dec 2008 - Nov 2009, ~$75K avg) fbFund Incubator 22 deals ($850K)  ~$15-75K FF Angel ...
Founders Fund  (Selected Investments, 2005-2009, range $1M-20M)
Venture Capital 1.0 =  Too Big To  FAIL   WIN ? (at least for *Internet* Startups)
Startup Funding Ecosystem Union Square Ventures First Round Capital Benchmark Sequoia FF II FF I Angels &  Incubators ($0-...
Venture Capital: Still Relevant? <ul><li>Good 4 big CAPex: </li></ul><ul><li>Hardware </li></ul><ul><li>Enterprise SW </li...
More & Smaller Acquisitions <ul><li>Big, Mature Internet Platform Co’s: </li></ul><ul><ul><li>Google, MSFT, Yahoo, Ebay, A...
Startup Incubators  Lots of Hot, Cool, Web 2.0! (+ lots of FAIL, too.)
Incubator 2.0 Model <ul><li>Method : Invest in startups using incremental investment, iterative development.  Start with l...
Incubator 2.0: Fast, Cheap, FAIL <ul><li>Incubators growing in popularity, acceptance </li></ul><ul><li>Supportive ecosyst...
Incubator 2.0:  Education, Collaboration <ul><li>Emphasis on education, access to shared resources </li></ul><ul><li>Succe...
fbFund REV <ul><li>fbFund REV : Facebook “Social” Incubator: invest in startups, apps, websites based on Facebook platform...
fbFund REV <ul><li>fbFund REV : Facebook “Social” Incubator: invest in startups, apps, websites based on Facebook platform...
Investment #1: Micro-Seed (“Incubator”) <ul><li>Structure </li></ul><ul><ul><li>1-3 founders </li></ul></ul><ul><ul><li>$2...
Investment #2: Seed (“Angel”) <ul><li>Structure </li></ul><ul><ul><li>2-5 person team </li></ul></ul><ul><ul><li>$100-$1M ...
Investment #3: Series A (“Venture”) <ul><li>Structure </li></ul><ul><ul><li>5-10 person team </li></ul></ul><ul><ul><li>$1...
Startup Metrics  & The Lean Startup Measure Stuff. Iterate.  Rinse & Repeat.
The Startup Metrics Religion <ul><li>Progress ≠ Features ( Less   =  More ) </li></ul><ul><li>Focus on  User Experience  (...
Minimize  TOTAL  time through the loop LEARN BUILD MEASURE IDEAS CODE DATA Source: Eric Ries, The Lean Startup
The Startup Pyramid (Sean Ellis, Startup-Marketing.com) [email_address] Blog: startup-marketing.com
Startup Metrics for Pirates <ul><li>A cquisition:   users come to site from various  channels </li></ul><ul><li>A ctivatio...
AARRR!: 5-Step Startup Metrics Model Website.com R evenue $$$ Biz Dev Ads, Lead Gen, Subscriptions, ECommerce A cquisition...
Startup Challenges <ul><li>Startups have problems in 3 key areas: </li></ul><ul><ul><li>Management : Setting Priorities, D...
Role: Founder/CEO <ul><li>Q: Which Metrics? Why? </li></ul><ul><li>A: Focus on  Critical Few Actionable  Metrics </li></ul...
Role: Product / Engineering <ul><li>Q: What Features to Build?  Why?  When are you “Done”? </li></ul><ul><li>A:  Easy-to-F...
Role: Marketing / Sales <ul><li>Q: What channels?  Which users?  Why? </li></ul><ul><li>A: High  Volume  (#), Low  Cost  (...
Platforms 2.0 Social, Mobile, Micro, Inbox, SEO
Web 2.0 = Good Business <ul><li>1) Take Existing Good Business Ideas </li></ul><ul><li>2) Add [a little] Technology </li><...
Platform Viability Successful Platforms have 3 Things: 1) Features 2) Users 3) Money Users   . .  Money Features Growth Pr...
Platforms:  HOT  or  NOT ? <ul><li>Social : Facebook, Twitter, LinkedIn, MySpace? </li></ul><ul><li>Mobile : iPhone, Andro...
Summary <ul><li>VC 2.0  = Fewer, Smaller Funds (<$100M) </li></ul><ul><li>Liquidity  = More, Smaller Acquisitions (<$100M)...
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Startup 2.0: From Silicon Valley to Hong Kong

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Slides from my talk at the Cyberport Venture Capital Forum, Hong Kong (November 2009).

Veröffentlicht in: Wirtschaft & Finanzen, Business
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Startup 2.0: From Silicon Valley to Hong Kong

  1. Startup 2.0: A Silicon Valley Story Sourcing, Selecting & Engineering Better Startups via Incubators, Metrics & Iterative Development Dave McClure, Founders Fund (twitter: @DaveMcClure ) Hong Kong Cyberport VC Forum November 2009
  2. Silicon Valley Startup Funding Ecosystem Union Square Ventures First Round Capital Benchmark Sequoia FF II FF I Angels & Incubators ($0-10M) “ Seed” Funds ($10-50M) “ Small” VC Funds ($50-250M) “ Large” VC Funds (>$250M) Y-Combinator TechStars FF Angel fbFund REV SoftTech (Clavier) Maples Investments Felicis (Senkut) SV Angel (Conway)
  3. Topics <ul><li>Venture Capital 1.0 = * Broken Model* (for Internet Startups) </li></ul><ul><li>M&A Trends : More, but Smaller Acquisitions, Very Few IPOs </li></ul><ul><li>Incubators : Many Experiments (most FAIL , a few winners) </li></ul><ul><li>Metrics : Define “Success”, Measure & Iterate (Fast + Feedback) </li></ul><ul><li>Platforms 2.0 : Social, Mobile, Micro, Inbox, SEO </li></ul>
  4. [Pardon The Blatant Commercial]
  5. Dave McClure <ul><ul><li>2001-2009: </li></ul></ul><ul><ul><li>Startup Investor: 500 Hats LLC, Founders Fund </li></ul></ul><ul><ul><li>Tech Marketing : PayPal, Simply Hired, Mint </li></ul></ul><ul><ul><li>Advisor, Angel Investor : 40+ Startups </li></ul></ul><ul><ul><li>Conf. Organizer : Web 2.0, O’Reilly, Startonomics </li></ul></ul><ul><ul><li>Stanford Visiting Lecturer : Facebook, Startup Metrics </li></ul></ul><ul><ul><li>80’s & 90’s: </li></ul></ul><ul><ul><li>Entrepreneur : Founder/CEO Aslan Computing (acq.) </li></ul></ul><ul><ul><li>Developer : Windows Apps / SQL DB Admin </li></ul></ul><ul><ul><li>User Groups : E-Commerce, Internet, Client-Server </li></ul></ul><ul><ul><li>Engineer : Johns Hopkins ‘88, BS Eng / Applied Math </li></ul></ul>GEEK, CODER, ENTREPRENEUR Blogger, Startup Advisor Internet Marketing, Angel/VC Investor
  6. Personal Investments (13 deals, 2004-2008, ~$25K avg)
  7. Professional Investments (37 deals, Dec 2008 - Nov 2009, ~$75K avg) fbFund Incubator 22 deals ($850K) ~$15-75K FF Angel LLC 15 deals ($1.5M) ~$50-250K
  8. Founders Fund (Selected Investments, 2005-2009, range $1M-20M)
  9. Venture Capital 1.0 = Too Big To FAIL WIN ? (at least for *Internet* Startups)
  10. Startup Funding Ecosystem Union Square Ventures First Round Capital Benchmark Sequoia FF II FF I Angels & Incubators ($0-10M) “ Seed” Funds ($10-50M) “ Small” VC Funds ($50-250M) “ Large” VC Funds (>$250M) Y-Combinator TechStars FF Angel fbFund REV SoftTech (Clavier) Maples Investments Felicis (Senkut) SV Angel (Conway)
  11. Venture Capital: Still Relevant? <ul><li>Good 4 big CAPex: </li></ul><ul><li>Hardware </li></ul><ul><li>Enterprise SW </li></ul><ul><li>Clean Tech </li></ul><ul><li>BioScience </li></ul><ul><li>Wineries (?) </li></ul><ul><li>Not So Great 4: </li></ul><ul><li>Internet Startups </li></ul><ul><li>Consulting Shops </li></ul><ul><li>Lifestyle Biz </li></ul><ul><li>Porn, Gambling </li></ul>
  12. More & Smaller Acquisitions <ul><li>Big, Mature Internet Platform Co’s: </li></ul><ul><ul><li>Google, MSFT, Yahoo, Ebay, Amazon, AOL, IAC, Facebook, NewsCorp, Apple, etc </li></ul></ul><ul><li>Lots of Users, $$$ </li></ul><ul><li>Outsourcing Innovation </li></ul><ul><li>Lots of M&A (but small) </li></ul><ul><li>Great for Angels & Entrepreneurs </li></ul><ul><li>… Not so Great for VCs </li></ul>
  13. Startup Incubators Lots of Hot, Cool, Web 2.0! (+ lots of FAIL, too.)
  14. Incubator 2.0 Model <ul><li>Method : Invest in startups using incremental investment, iterative development. Start with lots of small experiments, filter out failure, and expand investment upon success. </li></ul><ul><li>Incubator : $0-100K (“Micro-Seed”) </li></ul><ul><li>Angel : $100-$1M (“Seed”) </li></ul><ul><li>VC : $1M-$5M (“Series A, B”) </li></ul>
  15. Incubator 2.0: Fast, Cheap, FAIL <ul><li>Incubators growing in popularity, acceptance </li></ul><ul><li>Supportive ecosystem for startups (angels, VCs) </li></ul><ul><li>Efficient use of investment capital ($0-100K) </li></ul><ul><li>High fail rate (60-80%) => large initial sample size </li></ul>
  16. Incubator 2.0: Education, Collaboration <ul><li>Emphasis on education, access to shared resources </li></ul><ul><li>Success based on common platforms, physical proximity, open & collaborative environment </li></ul><ul><li>Success based on fast fail, iteration & feedback </li></ul><ul><li>Incremental investment; high-risk, but high-reward </li></ul>
  17. fbFund REV <ul><li>fbFund REV : Facebook “Social” Incubator: invest in startups, apps, websites based on Facebook platform, Facebook Connect. </li></ul><ul><li>25 startups (2 non-profits) </li></ul><ul><li>$850K total investment (~$35K each) </li></ul><ul><li>12-week mentorship program in Palo Alto, CA </li></ul><ul><li>~25 Advisors / Speakers (Entrepreneurs, Geeks, Investors) </li></ul>
  18. fbFund REV <ul><li>fbFund REV : Facebook “Social” Incubator: invest in startups, apps, websites based on Facebook platform, Facebook Connect. </li></ul><ul><li>Education on Tech, Design, Marketing, Business topics </li></ul><ul><li>Demo Day with >200 VC, Angel Investors </li></ul><ul><li>Target: ~7-10 seed round investments ($250K-$1M) </li></ul><ul><li>Success: ~6 startups already funded, ~5 @ break-even </li></ul>
  19. Investment #1: Micro-Seed (“Incubator”) <ul><li>Structure </li></ul><ul><ul><li>1-3 founders </li></ul></ul><ul><ul><li>$25-100K investment </li></ul></ul><ul><ul><li>Incubator environment: multiple peers, mentors/advisors </li></ul></ul><ul><li>Build Functional Prototype / “ Minimum Viable Product ” ( MVP ): </li></ul><ul><ul><li>Concept->Alpha , ~3-6 months </li></ul></ul><ul><ul><li>Develop Minimal Critical Feature Set => Get to “ It Works ” </li></ul></ul><ul><ul><li>Instrument Basic Dashboard, Conversion Metrics </li></ul></ul><ul><ul><li>Test Cust. Adoption (10-1000 users) / Cust. Satisfaction (Scale: 1-10) </li></ul></ul><ul><ul><li>Connect with Advisors & Mentors, Angels/VCs </li></ul></ul><ul><li>Demonstrate Concept , Reduce Product Risk, Test Functional Use </li></ul><ul><li>Develop Metrics & Filter for Follow-on Investment </li></ul>
  20. Investment #2: Seed (“Angel”) <ul><li>Structure </li></ul><ul><ul><li>2-5 person team </li></ul></ul><ul><ul><li>$100-$1M investment </li></ul></ul><ul><ul><li>Syndicate of Angel Investors / Small VC Funds </li></ul></ul><ul><li>Improve Product, Expand Market, Test Revenue: </li></ul><ul><ul><li>Alpha->Beta , ~6-12 months </li></ul></ul><ul><ul><li>Customer Sat ≥ 6 => Get to “ Doesn’t Suck ” </li></ul></ul><ul><ul><li>Setup A/B Testing Framework, Optimize Conversion </li></ul></ul><ul><ul><li>Test Marketing Campaigns, Customer Acquisition Channels </li></ul></ul><ul><ul><li>Connect with Advisors, Investors, Key Hires </li></ul></ul><ul><li>Prove Solution/Benefit, Assess Market Size </li></ul><ul><li>Test Channel Cost, Revenue Opportunity </li></ul><ul><li>Determine Org Structure, Key Hires </li></ul>
  21. Investment #3: Series A (“Venture”) <ul><li>Structure </li></ul><ul><ul><li>5-10 person team </li></ul></ul><ul><ul><li>$1M-$5M investment </li></ul></ul><ul><ul><li>VC Investors </li></ul></ul><ul><li>Scale Business, Get to Sustainability: </li></ul><ul><ul><li>Beta->Production , 12-18 months </li></ul></ul><ul><ul><li>Rigorous A/B Testing, Optimize Conversion </li></ul></ul><ul><ul><li>Customer Sat ≥ 8 => “ It Rocks, I’ll Tell My Friends ” </li></ul></ul><ul><ul><li>MktgPlan => Predictable Channels / Campaigns + Budget </li></ul></ul><ul><ul><li>Scalability & Infrastructure, Customer Service & Operations </li></ul></ul><ul><ul><li>Connect with Marketing / Distribution Partners </li></ul></ul><ul><li>Prove/Expand Market, Operationalize Business </li></ul><ul><li>Future Milestones: Profitable/Sustainable, Exit Options </li></ul>
  22. Startup Metrics & The Lean Startup Measure Stuff. Iterate. Rinse & Repeat.
  23. The Startup Metrics Religion <ul><li>Progress ≠ Features ( Less = More ) </li></ul><ul><li>Focus on User Experience (& Distribution ) </li></ul><ul><li>Measure Conversion ; Compare 2+ Options </li></ul><ul><li>Fast, Frequent Iteration (+ Feedback Loop ) </li></ul><ul><li>Keep it Simple & Actionable </li></ul>
  24. Minimize TOTAL time through the loop LEARN BUILD MEASURE IDEAS CODE DATA Source: Eric Ries, The Lean Startup
  25. The Startup Pyramid (Sean Ellis, Startup-Marketing.com) [email_address] Blog: startup-marketing.com
  26. Startup Metrics for Pirates <ul><li>A cquisition: users come to site from various channels </li></ul><ul><li>A ctivation: users enjoy 1 st visit: &quot; happy ” experience </li></ul><ul><li>R etention: users come back , visit site multiple times </li></ul><ul><li>R eferral: users like product enough to refer others </li></ul><ul><li>R evenue: users conduct some monetization behavior </li></ul>(note: If you’re in a hurry, Google “Startup Metrics” & watch 5m video) AARRR !
  27. AARRR!: 5-Step Startup Metrics Model Website.com R evenue $$$ Biz Dev Ads, Lead Gen, Subscriptions, ECommerce A cquisition SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains R etention Emails & Alerts System Events & Time-based Features Blogs, RSS, News Feeds
  28. Startup Challenges <ul><li>Startups have problems in 3 key areas: </li></ul><ul><ul><li>Management : Setting Priorities, Defining Key Metrics, Creating Dashboard, Reporting Progress </li></ul></ul><ul><ul><li>Product : Building the “Right” Features, Getting Product Out Quickly, Testing for User Conversion / Adoption </li></ul></ul><ul><ul><li>Marketing : Accessing “Web 2.0” Channels (Search, Social, Viral, New Media), Cost-Efficient Distribution </li></ul></ul>
  29. Role: Founder/CEO <ul><li>Q: Which Metrics? Why? </li></ul><ul><li>A: Focus on Critical Few Actionable Metrics </li></ul><ul><ul><li>(if you don’t use the metric to make a decision, it’s not actionable) </li></ul></ul><ul><li>Hypothesize Customer Lifecycle </li></ul><ul><li>Target ~3-5 Conversion Events (tip: Less = More) </li></ul><ul><li>Test, Measure, Iterate to Improve </li></ul>
  30. Role: Product / Engineering <ul><li>Q: What Features to Build? Why? When are you “Done”? </li></ul><ul><li>A: Easy-to-Find , Fun / Useful , Unique Features that </li></ul><ul><li> Increase Conversion (stop iterating when increase decelerates) </li></ul><ul><li>Wireframes = Conversion Steps </li></ul><ul><li>Measure, A/B Test, Iterate FAST (daily/weekly) </li></ul><ul><li>Optimize for Conversion Improvement </li></ul><ul><ul><li>80% on existing feature optimization </li></ul></ul><ul><ul><li>20% on new feature development </li></ul></ul>
  31. Role: Marketing / Sales <ul><li>Q: What channels? Which users? Why? </li></ul><ul><li>A: High Volume (#), Low Cost ($), High Conv (%) </li></ul><ul><li>Design & Test Multiple Marketing Channels + Campaigns </li></ul><ul><li>Select & Focus on Best-Performing Channels & Themes </li></ul><ul><li>Optimize for conversion to target CTAs, not just site/landing page </li></ul><ul><li>Match/Drive channel cost to/below revenue potential </li></ul><ul><li>Low-Hanging Fruit: </li></ul><ul><ul><li>Blogs </li></ul></ul><ul><ul><li>SEO/SEM </li></ul></ul><ul><ul><li>Landing Pages </li></ul></ul><ul><ul><li>Automated Emails </li></ul></ul>
  32. Platforms 2.0 Social, Mobile, Micro, Inbox, SEO
  33. Web 2.0 = Good Business <ul><li>1) Take Existing Good Business Ideas </li></ul><ul><li>2) Add [a little] Technology </li></ul><ul><ul><li>Blogs, Twitter, Facebook Connect </li></ul></ul><ul><ul><li>Email & SEO </li></ul></ul><ul><ul><li>Social Networks & Friend/Follower lists </li></ul></ul><ul><ul><li>Online Payments </li></ul></ul><ul><li>3) Increase Distribution, Lower Customer Acquisition Cost with Internet </li></ul><ul><li>PROFIT! </li></ul>
  34. Platform Viability Successful Platforms have 3 Things: 1) Features 2) Users 3) Money Users . . Money Features Growth Profit Profitable Growth Nirvana
  35. Platforms: HOT or NOT ? <ul><li>Social : Facebook, Twitter, LinkedIn, MySpace? </li></ul><ul><li>Mobile : iPhone, Android?, Palm?, </li></ul><ul><li>Micro : Twitter, IM/Chat </li></ul><ul><li>Inbox : Gmail, YahooMail, Hotmail?, AOL? </li></ul><ul><li>SEO : Google (Search), Yahoo?, Bing? </li></ul><ul><li>Social Networks : Facebook, MySpace, LinkedIn, Twitter, Orkut, hi5, Friendster </li></ul><ul><li>Email & IM : Yahoo, MSFT, Google, AOL, Skype </li></ul><ul><li>Mobile : iPhone, Palm, Android, Blackberry, etc </li></ul><ul><li>Gaming : Zynga, RockYou, Slide, Playfish, SGN </li></ul><ul><li>E-Commerce : Amazon (1-Click), eBay (PayPal), Apple (iTunes), Facebook? </li></ul><ul><li>Dev : Amazon (AWS), Google AppEngine, Ruby/Rails, Python/Django, etc </li></ul><ul><li>Other : SalesForce, Craigslist, Wikipedia, YouTube </li></ul>
  36. Summary <ul><li>VC 2.0 = Fewer, Smaller Funds (<$100M) </li></ul><ul><li>Liquidity = More, Smaller Acquisitions (<$100M) </li></ul><ul><li>Model = Singles (Ichiro), not Home Runs (Barry Bonds) </li></ul><ul><li>Diligence = Lots of Little Checks (+ Metrics + Time) </li></ul><ul><li>Incubators = Many Small Experiments (most FAIL), Education + Shared Resources, Incremental Investment </li></ul><ul><li>Startup Metrics = Define, Measure, Iterate </li></ul><ul><li>Platforms = Distribution + Monetization, not Technology </li></ul>

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