Changes in Venture Capital + Building Startup Ecosystems @DaveMcClure - 500 Startups Seoul, Korea - March 2014

This Talk What is 500 Startups? Changes in Tech + VC Lean VC: Quantitative Venture Capital Building Startup Ecosystems Global Entrepreneurship Q&A !2

Dave McClure Founding Partner & Chief Troublemaker, 500 Startups 00s & 10s: VC: Founders Fund, Facebook fbFund, 500 Startups Angel: Mashery, Mint.com, SlideShare, Twilio, Wildfire, SendGrid Marketing: PayPal, Simply Hired, Mint.com, oDesk, OReilly ! 80s & 90s: Entrepreneur: Aslan Computing (acqd by Servinet/Panurgy) Developer: Windows / SQL DB consultant (Intel, MSFT) Engineer: Johns Hopkins88, BS Eng / Applied Math

500 Startups Global Seed Fund & Startup Accelerator What is 500 Startups? $100M silicon valley venture capital fund internet seed fund + startup accelerator program 30 team members (13 investing partners) SV, SF, NYC, MEX, BRZ, IND, CHN, SE Asia 1000+ Founders / 200+ Mentors Community + Content + Conferences ! 700+ Portfolio Cos / 40+ Countries Wildfire (acq GOOG, $350M) MakerBot (acq SSYS, $400M) Viki (acq Rakuten, $200M) Simple (acq BBVA, $117M) Twilio SendGrid Credit Karma Udemy Zozi ElaCarte Virool

500 Startups: Global Seed Fund Over 200+ startups outside US, in 40+ countries

This Talk What is 500 Startups? Changes in Tech + Venture Capital !6

Lean Startup: Simpler, Faster, Cheaper, Smarter ! 1. 2. # Users, Bandwidth = Bigger. 3. ! ! Startup Costs = Lower. Transaction $$$ = Better. ! Building Product => Cheaper, Faster, Better Getting Customers => Easier, More Measurable ! Iterative Product & Marketing Decisions based on Measured User Behavior

Changes in Tech + VC LESS Capital required to build product, get to market Dramatically reduced $$$ on servers, software, bandwidth Funding Platforms: KickStarter, Angel List, Funders Club, etc Cheap access to online platforms for 100M+ consumers, smallbiz, etc ! MORE Customers via ONLINE platforms (100M-1B+ users) Search (Google) Social (Facebook, Twitter) Mobile (Apple, Android) Media (YouTube, Pinterest, Instagram, Tumblr) Comm (Email, WeChat/WhatsApp/Line/Kakao, IM/Chat, Voice, SMS, etc) ! LOTS of little bets: Accelerators, Angels, Angel List, Small Exits Y Combinator, TechStars, 500 Startups Capital + Co-working + Mentoring -> Design, Data, Distribution Fast, Cheap Fail, network effects, quantitative + iterative investments

Platforms 2.0 Search, Social, Mobile, Video, Messaging

Before & After 2 Dot-Com Crashes Simpler, Faster, Cheaper, Smarter Before 2000 Sun Servers Oracle DB Exodus Hosting 12-24mo dev cycle 6-18mo sales cycle 3B people online 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

Lots of Little Bets aka MoneyBall for Startups VC Evolution: Physician, Scale Thyself (Aug 2012) MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)

This Talk What is 500 Startups? Changes in Tech + VC Lean VC: Quantitative Venture Capital Building Startup Ecosystems !23

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Example Startup Ecosystem 1,000 Bootstrap Startups ($0) 300 Accelerator Startups ($10-50K) 100 Seed-Funded Startups ($250K-$1M) 30 Series A Startups ($2-5M) 10 Series B Startups ($5-20M) 5 Series C Startups ($20-50M) 1-3 IPOs ($50-250M) !25

Investment Strategy Lots of Little Bets / Early Bets Solve Customer Problems -> Tech + Mktg Online Distribution / Growth Hacking Focus on Revenue over Usage Hacker, Hipster, Hustler Global Network + Silicon Valley HQ

Network Benefits Silicon Valley HQ + founder network Mentorship & Education Platforms & Distribution Downstream Investors M&A / Exit Environment

Follow-On Strategy Should we follow-on? Why or Why Not? Signaling Risk vs Portfolio Returns Downstream Investor Syndicate is critical Using Angel List to drive visibility Global Strategies (more capital, connections)

Feedback Loop & Metrics Bad decisions = obvious quickly Good decisions = not obvious for years Short-term metrics: revenue, users, next round ! Sharing best practices for decisions Lots of Little Bets helps speed up learning Billion Dollar Unicorns vs 10-20X ROI

Scaling VC Lots of Little Bets? Or a Few Big Bets? Power Laws, Singles vs Home Runs Focus on Network Effects Communication Platforms Portfolio Size vs Investment Stage Recruiting Thousands of VCs

How Big is Seed Stage Startup Market? 5,000 microVCs can fund 100,000 startups/yr @ $500K/startup = $50B/yr Q: How many people are entrepreneurs? How many startups get started every year? ~1% of Humanity is Entrepreneurial (defn: can create a $10M rev/yr business) 1% x 7B ppl = 70M entrepreneurs, who create 1-5 businesses lifetime (75 yrs) entrepreneurs could create ~1-5M new startup businesses every year ! Q: How much capital is needed globally to fund seed stage startups? Assume 1M-5M startups/yr x $50K-$1M funding/each Low: 1M x $50K = $50B/yr High: 5M x $1M = $5T/yr ! Q: How many metros? How many investors? How many investors / startups / metro? 1 micro-VC can fund 10-20 startups/yr * $50K-$1M = ~$1-10M annual budget 500+ global metros with population >1M+ people can generate ~100-1,000 startups / yr guesstimate = min 100K+ startups/yr total across top 100-200 global metros 5-50 VCs / metro * 200 metros = 1,000-10,000 VCs globally FUTURE: 5,000 VCs can deploy $10M/yr each, or $50B/yr in ~100,000 startups !31

This Talk What is 500 Startups? Changes in Tech + Venture Capital Growing 500 + The Lean VC GLOBAL Entrepreneurship !32

Going Local, Going Global web gets bigger -> world gets smaller

Local vs Global? Silicon Valley is Unique NOT TRUE. *we had a 50-70 year head start ROW will catch up. Emerging / Developing Markets: 3-5B+ English, Chinese, Spanish, Arabic ! Challenges: Payments, Mobile/Web, Logistics Challenges: Capital, Mentorship, Exits ! Investor Ecosystems, Mentorship & Community Does the Future look different? (yes, we hope)

Global Trends Growth of Global Languages (see Gengo.com) 1B+ speakers: Mandarin, English 300-500M+ spkrs: Spanish, Arabic, Hindi, Malay Smart Device Proliferation mobile, tablet, TV, console, etc More Young, More Old Users Online More Bandwidth, More Video, More Social, More Mobile Wealthy International Travelers Acceleration of Global Payment, E-Commerce Dramatically Reduced Cost: Product Dev, Customer Acqstn Global Distribution Platforms (Search, Social, Mobile, Video, Comm)

Questions? Comments? Heckles? Thanks for Listening Feedback Appreciated We are Hiring + Internships ! More Info? http://500.co (our company) http://500hats.com (my blog) https://angel.co/500startups (our fund) Dave McClure, @DaveMcClure