Published on May 31, 2013
Silicon Valley 2.0Lots of Little Bets +Moneyball for StartupsDave McClurehttp://500.co(@DaveMcClure)Hong Kong, May 2013http://slideshare.net/dmc500hats
Dave McClureFounding Partner & Chief Troublemaker, 500 Startups00’s & 10’s:• VC: Founders Fund, Facebook fbFund, 500 Startups• Angel: Mashery, Mint.com, SlideShare, Twilio, WildFire, SendGrid• Marketing: PayPal, Simply Hired, Mint.com, oDesk, O’Reilly80’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 StartupsGlobal Seed Fund & Startup Accelerator• What is 500?– ~$70M under management– 25 people / 12 investing partners– Locations: SV, NYC, MEX, BRZ, IND, CHN, SEasia– 1000+ Founders / 200+ Mentors• 500+ Portfolio Co’s / 30+ Countries– Wildfire (acq GOOG, $350M)– Twilio– SendGrid– TaskRabbit– MakerBot– Doodle Mobile (BJ)– ChinaNetCloud (SH)– 9GAG (HK)– Viki (SG)– PicCollage (TWN)– Cubie (TWN)
500 Startups: Global Seed FundOver 100+ startups outside US, in 35+ 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
Venture Capital 2.0:Lots of Little Betsaka “MoneyBall for Startups”• VC Evolution: Physician, Scale Thyself (Aug 2012)• MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
Changes in Tech Startups• LESS Capital required to build product, get to market– Dramatically reduced $$$ on servers, software, bandwidth– Crowdfunding, KickStarter, Angel List, Funders Club, etc– Cheap access to online platforms for 100M+ consumers, smallbiz, etc– A few big IPOs @ $1B+, but LOTS of small acquisitions (<$100M)• MORE Customers via ONLINE platforms (100M+ users)– Search (Google)– Social (Facebook, Twitter, LinkedIn)– Mobile (Apple, Android)– Local (Yelp, Groupon, Living Social)– Media (YouTube, Pinterest, Instagram, Tumblr)– Comm (Email, IM/Chat, Voice, SMS, etc)• LOTS of little bets: Accelerators, Angels, Angel List, Small Exits– Y Combinator, TechStars, 500 Startups– Funding + Co-working + Mentoring -> Design, Data, Distribution– “Fast, Cheap Fail”, network effects, quantitative + iterative investments
Web 2.0 + Lean Startup1. Startup Costs = Lower.2. # Users, Bandwidth = Bigger.3. Transaction $$$ = Better. Building Product => Cheaper, Faster, Better Getting Customers => Easier, More MeasurableIterative Product & Marketing Decisionsbased on Measured User Behavior
MoneyBall 4 Startupshttp://slideshare.net/paulsingh/moneyball-a-quantitative-approach-to-angel-investing-austin-tx-aug-20121. Make Lots Of Little Bets2. Count Cards (Monitor Progress &Stats)3. Double Down on Winners
70%Capital10500 Strategy: “Lots of Little Bets”*1) Make lots of littlebets pre-traction,early-stage startups30%Capital2) after 6-12 months, identifytop 20% performers anddouble-down higher $$$3) conservative model assumes-5-10% large exits @20X ($50-100M+)-10-20% small exits @5X ($5-50M)*See Peter Sims book: “Little Bets”
Startup Investor EcosystemAngels &Incubators($0-10M)“Micro-VC” Funds($10-100M)Smaller VC Funds($100-500M)Larger VC Funds(>$500M)TrueFirst RoundAndreessenAtomicoY-CombinatorTechStarsSoftTech (Clavier)Felicis (Senkut)SV Angel (Conway)SequoiaGreylockUnion SquareFloodgate (Maples)Foundry GroupBootstrap, KickStarter,Crowdfunding
Angel* List: It Rocks.• Startups & Investors• Activity & Metrics• Platform & APIs• *ps – not just for Angels, or USA
Early-Stage Risk Reduction• 1stMtg: Crazy, Idiots, Liars or Crooks?• Product: does it work? (crappy, not perfect)• Market: are people using it? (not their mom)• Revenue: will people pay for it? (just a few)• Growth: how will it/they scale? (online? offline?)• Finance: what will it cost?– Q1: cost to get a customer?– Q2: how & when do you make money?
Early-Stage Startups:Your “Due Diligence” Is An Illusion(Better approach = write a quick, small check then wait ~6 mo’s)• Problems in Early-Stage Due Diligence:– You Might Be Able to Detect Idiots & Liars, but…– Not much history, product, customers, or revenue (yet), so…– You probably can’t figure out Winners (yet).• The New Due Diligence = Incremental Achievements– “Due Diligence” Trusted Referrals + History– “Great Team” Functional Prototype + Usage– “Size of Market” Evidence = Customers, Revenue• The Odds Are: They Suck, You’re Wrong– You’ll Be Wrong 4x out of 5x. (If U Don’t Suck).– In 6 Months, You’ll Know If They Don’t Suck.– In 1-2 Years, You’ll Know If They’re Awesome.
Bet on Singles, Not HomeRuns.(Look for Ichiros, Not Barry Bonds)
Platforms 2.0Search, Social, Mobile
Platform ViabilityUsers .Users ..Money.MoneyFeaturesFeaturesGrowth ProfitProfitableGrowthNirvanaSuccessful Platformshave 3 Things:1) Features2) Users3) Money
Distribution PlatformsCustomer 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 (WeChat, Line, WhatsApp, Kakao), Skype,Phone/Voice, etc
Web 2.0 Business Model:KISS (“Keep It Simple, Stupid”)• 1) Re-invent Web 1.0 Businesses– Make a Website, a Widget, an App– Sell Stuff (Transactions, Subscriptions, Affiliate)• 2) add Web 2.0 Technology– Search, Social, Mobile, Local, Media, Comm– Google, Facebook/Twitter, Apple/Android, YouTube– Email, SMS, Ecommerce / Payments• 3) Get Customers, Make Money– Distribution, Distribution, Distribution– (Customer Acq’stn Cost) vs. ($Rev. Per Customer)– Low CapX + Profitable Web Businesses
More Acquirers (tech + non-tech);More & Smaller Acquisitions1. Mature Internet Platform Co’s:– GOOG, MSFT, YHOO, EBAY, AOL, AMZN,AAPL, INTU, ADBE, FB, TW, LNKD, GRPN1. Non-Tech “BigCo” / Consumer Verticalsbuying tech startups (for distribution)• BigCo = Lots of Customers, $$$• BigCo = Bureaucracy, Innovator Dilemma• Outsource Innovation; Buy Talent / Products• Acquiring LOTS (Small) Startups• Great for Founders, Investors * Mint acquired by Intuit inSept 2009 for $170M
Lean Startup, Lean VCCustomers, Metrics, Iteration.Invest BEFORE Traction;Double Down AFTER.
The Lean Startup• Progress ≠ Features; Measure Conversion• Talk to Customers; Discover Problems• Focus on “Product/Market Fit” (good solution)• Fast, Frequent Iteration (+ Feedback Loop)• Keep it Simple & Actionable
Startup Incubators & MetricsLots of Little Bets. Most FAIL.(but a few succeed :)
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
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
Education & Community• Mentors, Investors• Design, Data, Distribution• Platform Partners• Sponsors & Strategics• Marketing & Visibility
Product, Market, Revenue• Product: assess functional use, improve design/UX• Market: test usage, distribution channels• Revenue: test cust acq cost, revenue, *timing*• Work on Pitch, Help Find Co-Investors, etc
Hacker, Hustler, Hipster• Hacker: engineers & developers• Hipster: design & UX• Hustler: marketing & business1.Build functional prototypes2.Improve UX so people convert3.Scale customer acq & distribution
Outlier Competition +Modeling Success Behaviors• You want min 3-5 “rockstars” to compete• Rockstars to model success for others• You can’t assume >20% rockstars• Therefore, pick 5x5 = 25 teams• 3-5 rockstar teams emerge, compete, win• 5-10 *other* non-rockstars learn• Identify losers quickly (but don’t be an ass)
Winners, Losers, Tweeners• Winners #WIN (with or without you)• Losers #LOSE (with or without you)• Tweeners #TWEEN– They might win with your help– They might lose with your help– Be helpful, but don’t dally– Note: you might be wrong about the losers &tweeners, so don’t be an arrogant a-hole.
fbFund REVfbFund 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)
The Lean VC:Lots of Little Bets, Incremental InvestmentMethod: Invest in lots of startups using incrementalinvestment, iterative development. Start with manysmall experiments, filter out failures, and expandinvestment 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
Going Local, Going Globalweb gets bigger -> world gets smaller
Global Trends• Growth of Global Languages (see MyGengo.com)– 1B+ speakers: Mandarin, English– 300-500M+ spkrs: Spanish, Arabic• Smart Device Proliferation– mobile, tablet, TV, console, 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• Dramatically Reduced Cost: Product Dev, Customer Acqstn• Global Distribution Platforms– US/EU: Apple, Facebook, AMZN, GOOG (Search, YouTube, Gmail, Android), Twitter– Asia: Baidu, Tencent, Alibaba, Sina, NHN, Yahoo-J, Softbank, Rakuten, DeNA, Gree
Thanks • Questions / More Info?– http://500.co (our company)– http://500hats.com (my blog)– https://angel.co/500startups (our fund)– Rui Ma, 500 Startups China (@MissRuiMa)– Khailee Ng, 500 Startups SE Asia (@Khailee)– Dave McClure, 500 Startups USA (@DaveMcClure)
Share Silicon Valley 2.0: ... (YouTube, Pinterest, Tumblr) – Communications (Email, IM/Chat, Voice, SMS, etc)• LOTS of little bets ... Hong Kong 2.0 ...
... is in large part a vehicle for making life just a little better ... Silicon Valley investor backs boy ... The material on this site may not be ...
afternoon trading getting underway in hong kong and china. it is ... he praised silicon valley for all ... he has lots of very good ...
Hong Kong; United Kingdom; India; Toggle navigation. Visual Arts . Visual Arts Home; Art Market News; REVIEWS; Fairs; Auctions; Galleries; Museums ...
Silicon Valley Archives ... Poland Day In Silicon Valley - May 15 Stanford University. ... Best 2.0 Technology: Disconnect ...
... francs, and dollars from Hong Kong and New ... The value of fiat currencies may erode over time due to inflation ... London & Silicon Valley: ...
Darrell Etherington is a Writer at TechCrunch, focused on covering early-stage startups, especially those with a technology focus. Darrell used to work for ...
... 2015 Read News at Silicon Valley Business Journal ... 2013 Read News at Cloud Pro Enterprise 2.0 Reaches Further With ... May 31, 2013 Read News at ...