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@DaveMcClure
@500Startups http://500.co
New Delhi - Feb 2016
Venture Capital 2.0
Make Lots of Little Bets.
Expect Most to ...
Dave McClure

Founding Partner, 500 Startups
00’s & 10’s:
• VC: Founders Fund, Facebook fbFund, 500 Startups
• Angel: Mash...
How to Become a VC
• Option 1: Go to Harvard/Stanford/Wharton, Get MBA, Become
VC Associate, Work at McKinsey / Google / F...
• What is 500?
– $240M silicon valley VC fund + startup accelerator
– 110 people / 30 partners / 25 languages / 20 countri...
Re-inventing a
50 year old sport:
Venture Capital 2.0
Football
West Coast
Offense
Baseball
MoneyBall
Basketball
3 point
revolution
Venture Capital
500 Startups
“Lots of little ...
500 Startups
500 Startups Mission
1. Find Smart People.
2. Give Them Money.
3. Wait for Good Sh*t to Happen.
Building Startup Ecosystems
500 Startups Mission
• Provide capital, community, education
to smart people (founders, investors)
• Build functional star...
500 Startups History:
What a Long Strange Trip It’s Been
Year People Locations AUM $ Companies
2010 5 MV 10 75
2011 10 BRZ 30 250
2012 15 MX, IND 50 450
2013 30 CHN, SEA 75 650
20...
500 Startups: a Platform made of People
#500STRONG #500LOVE #HFGSD
100 People, 20 Countries, 25 Languages
500 Startups: “Full-Stack” VC
Legal review Partner approval
Angel Pre-Seed Seed Post-Seed Series A/B Growth
Accelerator
Seed
“Distro"
Follow-On
Selectio...
http://bit.ly/99VCProblems
Portfolio Diversification
“Spray, not Pray”
Q: Chances of spotting
unicorn?/
a) 1%
b) 2%
c) 5%
d) 10%
e) ZERO
Chances of spotting
unicorn = ~1%/
If portfolio size = 15
companies/
/
If portfolio size = 30
companies
/
If portfolio size = 100
companies
500 Strategy: Lots of Little Bets*
1) make lots of little
bets on pre-traction,
early-stage startups
3) wait 5-10 years fo...
Startup Risk Reduction
Concept
Early
Customer
Usage
Scalable
Customer
Acquisition
[about to be]
Profitable
Unit
Economics
...
Investor Ecosystem
Angels &
Incubators
($0-10M)
“Micro-VC” Funds
($10-100M)
“Big” VC Funds
($100-500M)
“Mega” VC Funds
(>$...
[ This Talk ]
• Changes in Building Technology Startups
• Changes in Venture Capital Investing
• The “Lean” Investor + Por...
Changes in Tech Startups
• LESS Capital required to build product, get to market
– Dramatically reduced cost for servers, ...
Platforms 2.0

Search, Social, Mobile,
Video, Messaging
Before & After 2 Dot-Com Crashes

LEAN Startup: Simpler, Faster, Cheaper, Smarter
Before 2000
”Big, Fat, Dinosaur Startup”...
Startup Education
• Business Plans / Revenue Projections
• Software + Design/UX
• Lean Startups + Continuous Deploy (Itera...
[ This Talk ]
• Changes in Building Technology Startups
• Changes in Venture Capital Investing
• The “Lean” Investor + Por...
Industry Changes
• Financial Market Crises (2000, 2008)
• Startup Efficiency, Lean Startup Movement, Reduced Capital Costs...
SV Investor Ecosystem
Angels &
Incubators
($0-10M)
“Micro-VC” Funds
($10-100M)
“Big” VC Funds
($100-500M)
“Mega” VC Funds
...
Angel List:
Platform for Investors + Startups
• Startups + Metrics
• Founders + Bios
• Investors + Syndicates
• Accelerato...
Investor Education
• Startups are NOT Real Estate
• Most Startups Fail / Power Law Returns
• Portfolio Approach (20-100+ i...
Critical Ecosystem Factors
• Optimism & Belief (“Silicon Valley”)
• Mentorship + Education (Knowledge)
• Universities + Co...
[ This Talk ]
• Changes in Building Technology Startups
• Changes in Venture Capital Investing
• The “Lean” Investor + Por...
Building Startup Ecosystems
500 Strategy: Lots of Little Bets*
1) make lots of little
bets on pre-traction,
early-stage startups
3) wait 5-10 years fo...
The Lean Investor
Make lots of little bets:
• Start with many small “experiments”
• Filter out failures + small wins
• Dou...
Investment Stage #1: 

Product Validation + Customer Usage
• Structure
– 1-3 founders
– $0-$100K investment
– Incubator en...
Investment Stage #2: 

Market Validation + Revenue Testing
• Structure
– 2-10 person team
– $100K-$1M investment
– Syndica...
Investment Stage #3: 

Revenue Validation + Growth
• Structure
– 5-25 person team
– $1M-$10M investment
– Seed & Venture I...
[ This Talk ]
• Changes in Building Technology Startups
• Changes in Venture Capital Investing
• The “Lean” Investor + Por...
Investing Workshop
• General Strategy
• Investment Thesis & Model
• Helping Companies Succeed
• Generating Dealflow
• Sele...
Startup Investment Stages
• Concept
• Product
• Functional Prototype
• Early Users/Customers
• Other Investors
• Profitabl...
Startup Risk Reduction
Concept
Early
Customer
Usage
Scalable
Customer
Acquisition
[about to be]
Profitable
Unit
Economics
...
Investment Thesis + Model
• Define Investment Thesis (geography, technology,
customer segment, investment stage, etc)
• Wh...
Helping Companies Succeed
• Advice (Product, Design, Marketing, etc)
• Recruiting
• Advisor / Mentor Intros
• Growth Consu...
Investment Allocation Strategy
• How long will companies take to exit / reach liquidity? (3-7 yrs)
• How long is your inve...
Generating Dealflow
• Writing / Speaking
• Attend (or Run!) User Groups / Conferences
• Networking / Referrals / LinkedIn ...
Writing / Speaking
54
Selecting/Evaluating
55
Deal Terms, Deal Memos
• Summarize Opportunity:
• Concept, Product, Problem, Market, Traction, Team,
Terms, IP, Users, Rev...
The Flat, The Elbow, The Wall
• Invest @ “The Flat”
when prices are low
• Double-down if/when
you detect “The Elbow”
(if v...
Investing Resources
• The Venture Capital Cycle (Gompers, Lerner)
• Venture Deals (Feld, Mendelson)
• Angel Investing (Ros...
Questions? Comments?
• More Info?
– http://500.co (our company)
– http://500hats.com (my blog)
– https://angel.co/500start...
Appendix
500 Startups
to 500 VCs
We live in a World of ABUNDANCE
• There are LOTS of talented people in the world
• There are LOTS of entrepreneurs everywh...
Who, What is an
Entrepreneur?
Who/What is an Entrepreneur?
• someone who WANTS to start a business
• someone who can RUN a business
• someone who can ru...
How Big Is The Market?
Q: How Many Entrepreneurs?
• How Many People = 7,000,000,000 on earth
• 1% of Humanity is Entrepren...
How Many VCs?
• How Many Founders? 1,000,000 founders / year
• (ok, divide by 100, let’s say 10,000 founders / year)
• 1 V...
Investment Allocation Strategy • How
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Investment Allocation Strategy • How Venture Capital 2.0 (Delhi, Feb 2016)

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Investment Allocation Strategy
• How long will companies take to exit / reach liquidity? (3-7 yrs)
• How long is your investment cycle? (ex: 3-5 yrs)
• When will capital be returned? (1X in 5-8 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
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