1. Changes in Venture Capital
@DaveMcClure
#Pioneers2013 Vienna
October 2013
2. This Talk is About…
•
•
•
•
•
•
Industry Changes: Daft Punk Startup
Myth Busting + Deconstructing: The Series A Crunch
500 Strategy: Lots of Little Bets
Venture Metrics: The Lean VC
Scalable Distribution: Platforms & Community
Startup Geography: Local vs. Global vs. Valley
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?
–
–
–
–
–
•
$75M 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
12. Before & After 2 Dot-Com Crashes
Daft Punk Startup: Simpler, Faster, Cheaper, Smarter
Before 2000
• 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
• Big, Fat, Dinosaur Startup
After 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, Little, Cockroach Startup
13. Crunch Good? Crunch Bad?
Series A bar is now higher: $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+).
14. 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)
15. 500 Strategy: “Lots of Little Bets”*
1) Make lots of little
bets pre-traction,
early-stage startups
Quantitative Investing before Traction
250+ companies @ $25-100K
(1st check)
- Assume high failure rate (up to 80%)
2) after 6-12 months, identify
top 20% performers and
double-down higher $$$
Double-Down after
Traction
50+ ‘winners’ @ $100K-$1M
(2nd + 3rd check)
- - Target 10+ exits @ $100M+
3) conservative model assumes
- 5-10% large exits @20X ($50-100M+)
- 10-20% small exits @5X ($5-50M)
15
*See Peter Sims book: “Little Bets”
16. 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”)
17. 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
18. 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
19. 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
20. Platforms + Distribution
•
•
•
•
•
•
Mentors: Engineering, Design, Marketing
Distribution: 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, MatterMark, Funders Club
24. Local vs Global?
•
•
•
•
•
•
•
The Valley is Unique… (but it’s not just California)
Emerging / Developing Markets
Global Languages: English, Chinese, Spanish, Arabic
Startup Ecosystems: Education, Mentorship, Capital
Limited History of Exits & IPOs
Does the Future look different? (yes, we think so)
More Coming: Payments, Logistics, Mobile/Web
Penetration, Growing Middle Class, Distribution
25. Questions? Comments? Heckles?
• Thanks for Listening
• Feedback Appreciated
• Still Learning / Iterating
• More Info?
–
–
–
–
http://500.co (our company)
http://500hats.com (my blog)
https://angel.co/500startups (our fund)
Dave McClure, @DaveMcClure