slides from my talk @ Startup Organizer Summit (March 2013, Rio de Janeiro) #sosummit cc @500startups

1. Starting Up Startups.
Methods, Magic, Meta of
Building Startup Ecosystems
Dave McClure
500 Startups
Rio, Mar 2013
slideshare.net/dmc500hats

2. 500 Startups
Global Seed Fund & Startup Accelerator
• What is 500?
– $60M+ under management
– 20 people / 10 investing partners
– Locations: SV, NYC, MEX, BRZ, IND, CHN, SEasia
– 1000+ Founders / 200+ Mentors
– 20+ confs/events per year
• 475+ Portfolio Co’s / 30+ Countries
– Wildfire (acq GOOG, $350M)
– Twilio
– SendGrid
– TaskRabbit
– MakerBot
– 9GAG
– Viki
– Gengo
– VivaReal

3. 500 Startups: Global Seed Fund
100+ startup investments in 30+ countries
• Q4/12 added: Germany, Korea, Peru; + Russia, Israel, Turkey in Q1/13
• Priorities in 2012: Brazil, Mexico, India
• Priorities In 2013: China, SE Asia, MENA, Eastern Europe

4. This Talk...
• Startup Weekend: WTF?
⇒ “Simulation Exercises 4 Startups”
⇒ 4 Geeks, Designers, Founders, Startup Teams
⇒ 4 Organizers, Partners, Investors, etc
 What does it do well?
 What doesn’t it do so well?
 What can be improved? How? Who? When?
• 3Ms: Metrics, Money, Mentorship

5. Startup Weekend: #WINNING
• Test Drive an Idea -> Prototype
• Test Drive a Co-Founder / Team -> Startup
• Test Drive Customers, Workflow, Design, etc
• Recruiting (for Startups, for Corps, for VCs)
• Getaway from Ur Normal Boring Fucking Life

6. Startup Weekend: #FAIL
• Not Enough Time.… • Not Enough Structure.…
– 2 Build a “Real” Product/Biz – 2 Come Up With “Good” Idea
– 2 Get 2 Know Co-Founder/Team – 2 Find Skilled Devs, Design
– 2 Find/Scale Customers – 2 Find/Scale Customers
– 2 Get Funded  – 2 Get Funded 

7. Startup Weekend: #MO.BETTAH?
• Mo’ Structure / Organizers
• Mo’ MO-nay $$$ (Sponsors, Investors)
• Mo’ Experienced Entrepreneurs (WIN, FAIL)
• Mo’ Skilled Devs, Design/UX, Marketing
• Mo’ Customers / Specific Segments?
• Mo’ Platforms for Distribution / Monetization
• Mo’ Specific Outcomes, Metrics, Results:
– Problems not Products (see: Customer Needs)
– Teams not Individuals (see: FounderDating, other?)
– Funding not “Winners” (see: Investors / Corp Sponsors)

8. The Rest of This Talk…
• Too Many Boring Fucking Slides
• Leave Now, Hit The Beach, Start Drinking
• (we’re in Fucking Rio, for Christ’s Sake)

9. 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”)
• VC Evolution: Physician, Scale Thyself (Aug 2012)
• MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)

10. 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

11. 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

12. 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

13. FAILURE IS NECESSARY.
IT’S A PROCESS, NOT A PROBLEM

14. Failure = CRITICAL to Innovation
• Failure not only tolerated, but ENCOURAGED
• Success = Continued Iteration of Failure
• US/SV: Failure = Growth, Education, Shared
• Elsewhere: Failure = Shame, Silence, Death
• Celebrity Role Models for Failure
• “Fall Down 7 Times, Get Up 8” = Fail Warrior!

15. Platform Innovation
Search, Social, Mobile

16. Platform Viability
Successful Platforms
have 3 Things: Features
Features
1) Features
2) Users
3) Money
Growth Profit
Nirvana
..
Profitable
Users
Users ..
Growth Money
Money

17. Distribution Platforms
Customer Reach: 100M+
• Search: Google, Baidu, Yahoo/Bing, Yandex
• Social/Games: Facebook, Twitter, LinkedIn, TenCent/QQ
• Mobile: Apple (iOS), Android
• Local: Yelp, Groupon, LivingSocial, FourSquare
• Media: Video (YouTube), Blogs (Tumblr), Photos (Pinterest)
• Comm: SMS, IM, Skype, Phone/Voice, etc

18. Startup Investor Ecosystem
Bootstrap, KickStarter,
Crowdfunding, Startup Wknd
Y-Combinator
Angels &
TechStars Incubators
($0-10M)
SV Angel (Conway)
SoftTech (Clavier)
“Micro-VC” Funds
Floodgate (Maples) ($10-100M)
Felicis (Senkut)
First Round True
Smaller VC Funds
Union Square ($100-300M)
Foundry Group
Atomico Andreessen
Larger VC Funds
(>$300M)
Greylock Sequoia

19. Angel* List: It Rocks.
• Startups & Investors
• Activity & Metrics
• Platform & APIs
• Customers & Corporates
• *ps – not just for Angels, or USA

20. Big Data. Little Bets.

21. MoneyBall 4 Startups
http://slideshare.net/paulsingh/
moneyball-a-quantitative-approach-to-angel-investing-austin-tx-aug-2012
1. Make Lots Of Little Bets
2. Count Cards (Metrics)
3. Double Down on Winners

22. “Lots of Little Bets”*
1) Make lots of little 30%
bets pre-traction, Capital
early-stage startups
2) after 6-12 months, identify 70%
top 20% performers and Capital
double-down higher $$$
3) conservative model assumes
-5-10% large exits @20X ($50-100M+)
-10-20% small exits @5X ($5-50M)
22
*See Peter Sims book: “Little Bets”

23. Bet on Singles, Not HomeRuns.
(Look for Ichiros, Not Barry Bonds)

24. Startup Incubators
Lots of Little Bets. Most FAIL.
(but a few succeed :)

25. Incubator 2.0: Fast, Cheap, FAIL
• Incubators = supportive startup ecosystem (+ angels, VCs)
• Efficient use of investment capital ($0-100K)
• High fail rate (60-80%) => large initial sample size

26. Incubator 2.0:
Education, Collaboration, Iteration
• Success based on:
– MANY, small experiments
– common platforms, customers, problems & solutions
– physical proximity, open/collaborative environment
– Domain-specific mentors & expertise
– fast fail, iteration, metrics & feedback loop
• Incremental investment; high-risk, but high-reward

27. Resources Accelerators Can Provide
global networks,
mentors and staff
training and space
portfolio companies
conferences & events
27

28. Incubator Innovation
• Vertically-Focused Incubators:
– Facebook: fbFund
– Nike: Sensors / Wearables
– Rock Health: Digital Healthcare
– Digital Media: Turner Media, NY Times
• Investing & Partnering with Incubators
– Startup Communities, Conferences, Events
– Entrepreneurs, Hackers, Mentors
– Hackathons, Contests, Demo Days

29. fbFund REV
fbFund REV: Facebook “Social” Incubator: invest in startups, apps,
websites based on Facebook platform & Facebook Connect.
• 22 startups @ ~$35K each (< $1M total)
• 3 month program: Technology, Design, Marketing, Business topics
• Success: 8 startups raised $500K –> 5 Series A -> 3 Series B (+ 3 small exits)
• Wildfire Interactive acquired by GOOG for $350M (>50X) 

30. Questions?
• Someone Get Me a Beer.