Published on November 22, 2013
Changes in Tech Startups & Venture Capital @DaveMcClure #ABAF Mumbai Nov 2013
This Talk… • • • • • • Industry Changes: Da$ Punk Lean Startup Myth BusJng: The Series A Crunch 500 Strategy: Lots of Li8le Bets Venture Metrics: The Lean VC Scalable PlaMorms: Marke=ng & Distribu=on Demography=Geography: Local vs. Global Startups
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
500 Startups Global Seed Fund & Startup Accelerator • What is 500? – – – – – • $80M 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 ZipDial TradeBriefs Tushky
500 Startups: Global Seed Fund Over 150+ startups outside US, in 40+ countries
Startup Investor Ecosystem Bootstrap, KickStarter, Crowdfunding Y-Combinator TechStars Angels & Incubators ($0-10M) SV Angel (Conway) Floodgate (Maples) “Micro-VC” Funds ($10-100M) First Round Union Square Incuba=on SoftTech (Clavier) Felicis (Senkut) Series A True “Big” VC Funds ($100-500M) Seed Foundry Series B Atomico Greylock “Mega” VC Funds (>$500M) A16Z Sequoia Series C+
Changes in Tech Startups • LESS Capital required to build product, get to market – Dramatically reduced $$$ on servers, software, bandwidth – Crowdfunding, KickStarter, Angel List, Funders Club, etc – Cheap access to online platforms for 100M+ consumers, smallbiz, etc • MORE Customers via ONLINE platforms (100M+ users) – – – – – – • Search (Google) Social (Facebook, Twitter) Mobile (Apple, Android) Local (Yelp, Groupon, FourSquare) Media (YouTube, Pinterest, Instagram, Tumblr) Comm (Email, IM/Chat, Voice, SMS, etc) LOTS of little bets: Accelerators, Angels, Angel List, Small Exits – Y Combinator, TechStars, 500 Startups – Funding + Co-working + Mentoring -> Design, Data, Distribution – “Fast, Cheap Fail”, network effects, quantitative + iterative investments
Industry Changes • • • • • • Startup Eﬃciency, Reduced Capital Costs Growing Market, Growing PlaIorms VC Industry Upheavals (2000, 2008) Super Angel -‐> Micro VC: Seed Funds (ex: First Round) Incubators & Accelerators (ex: Y Combinator) Big VC (ex: A16Z) & PlaMorms (ex: Angel List) more info see: h.p://PreMoney.co
Daft Punk Lean Startup: Simpler, Faster, Cheaper, Smarter 1. Startup Costs = Lower. 2. # Users, Bandwidth = Bigger. 3. Transaction $$$ = Better. Ø Building Product => Cheaper, Faster, Better Ø Getting Customers => Easier, More Measurable Iterative Product & Marketing Decisions based on Measured User Behavior
Before & After 2 Dot-Com Crashes Daft Punk Startup: Simpler, Faster, Cheaper, Smarter Before 2000 • Sun Servers • Oracle DB • Exodus HosJng • 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 Acer 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, Li8le, Cockroach Startup
Series A Crunch: Good or Bad? Series A rqmts: $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+).
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)
500 Strategy: “Lots of Li.le Bets”* Quan=ta=ve Inves=ng before Trac=on 1) Make lots of limle bets pre-‐tracJon, early-‐stage startups 2) acer 6-‐12 months, idenJfy top 20% performers and double-‐down higher $$$ 250+ companies @ $25-‐100K (1st check) -‐ Assume high failure rate (up to 80%) Double-‐Down a'er Trac=on 50+ ‘winners’ @ $100K-‐$1M (2nd + 3rd check) -‐ -‐ Target 10+ exits @ $100M+ 3) conservaJve model assumes -‐ 5-‐10% large exits @20X ($50-‐100M+) -‐ 10-‐20% small exits @5X ($5-‐50M) 13 *See Peter Sims book: “Little Bets”
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”)
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
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
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
EducaJon + Community + PlaMorms • • • • • • Cri=cal Skills: Engineering, Design, MarkeJng Distribu=on: 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, MamerMark, Funders Club
Platforms 2.0 Search, Social, Mobile, Video, Messaging
Distribution Platforms Customer Reach: 100M-1B+ • Search: Google, Baidu, Yahoo/Bing, Yandex • Social: Facebook, Twitter, LinkedIn, TenCent/QQ, WeChat • Mobile: Apple (iOS), Android • Media: Video (YouTube), Photos (Instagram, Pinterest), Blogs • Comm: SMS, IM (WeChat, WhatsApp), Skype, Phone/Voice
Going Local, Going Global web gets bigger -> world gets smaller
Local vs Global? • • • • • Emerging / Developing Markets Global Languages: English, Chinese, Spanish, Arabic CriJcal Factors: Educa=on, Mentorship, Capital Capital Availability: Incuba=on, Seed, Series A PosiJve Macro: Payments, LogisJcs, Mobile/Web PenetraJon, Growing Middle Class, Distribu=on
Global Trends • Growth of Global Languages (see Gengo.com) – 1B+ speakers: Mandarin, English – 300-500M+ spkrs: Spanish, Arabic • Smart Device Proliferation – mobile, tablet, TV, console, auto, home, etc • • • • • • More Young, More Old ($$$) Users Online More Bandwidth, More Video, More Social, More Mobile Wealthy Chinese + Indian, Web + IRL Globetrotters ($$$B) Acceleration of Global Payment, E-Commerce, Logistics Dramatically Reduced Cost: Product Dev, Customer Acqstn Global Distribution Platforms – US/EU: AAPL, FB, AMZN, GOOG (Search, YouTube, Gmail, Android), TWTR – Asia: Baidu, Tencent/WeChat, Alibaba, Sina, NHN, Yahoo-J, Softbank, Rakuten
QuesJons? Comments? • Thanks for Listening • Feedback Appreciated G KLIN HEC • More Info? – – – – http://500.co (our company) http://500hats.com (my blog) https://angel.co/500startups (our fund) Dave McClure, @DaveMcClure
1 / Global venture capital insights and trends 2014 Welcome 2013 was a turning point for venture capital (VC) investment. As economic conditions
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