corporate vc innovation: strategies that don't suck

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Corp VC Innovation New Strategies That Don’t Suck. Dave McClure http://500.co (@DaveMcClure) NewPort Beach, Feb 2013 http://slideshare.net/dmc500hats

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Page 1: Corporate VC Innovation: Strategies That Don't Suck

Corp VC Innovation New Strategies That Don’t Suck.

Dave McClure http://500.co (@DaveMcClure)

NewPort Beach, Feb 2013 http://slideshare.net/dmc500hats

Page 2: Corporate VC Innovation: Strategies That Don't Suck

Why This Talk Will Blow Your Corp VC Mind

Teaser + Intros •  Funny Videos ‘n Stuff J •  Shameless, Blatant 500 Startups Plug (<3m) •  What’s New in Tech & Startups •  What’s New in Investing •  Lean Startup, Lean VC –> ”Moneyball” Strategy for Corp VC

Corp VC: Strategies 4 Innovation •  *STOP* Doing Same Old Crap & Expecting Diff Results. •  Run Vertically-Focused Conferences, Contests, & “Hack”-athons •  Your Relevance to Startups: Customers + Distribution •  How to Disrupt & Disintermediate Big VC (pro tip: BUY EARLY.) •  Turning Your [Company + Tech + Customers] into APIs & Platforms

Page 3: Corporate VC Innovation: Strategies That Don't Suck

Blatant Plug.

(<3 min, promise)

Page 4: Corporate VC Innovation: Strategies That Don't Suck

Dave McClure Founding Partner & Troublemaker, 500 Startups

00’s & 10’s: •  Investor: Founders Fund, Facebook fbFund, 500 Startups •  Companies: Mint.com, SlideShare, Twilio, WildFire, SendGrid •  Marketing: PayPal, Simply Hired, Mint.com, O’Reilly

80’s & 90’s: •  Entrepreneur: Founder/CEO Aslan Computing (acq’d) •  Developer: Windows / SQL DB consultant (Intel, MSFT) •  Engineer: Johns Hopkins‘88, BS Eng / Applied Math

Page 5: Corporate VC Innovation: Strategies That Don't Suck

500 Startups Global Seed Fund & Startup Accelerator

•  What is 500? –  $60M+ under management –  20 people / 10 investing partners –  US: SF + NY | INTL: MEX, BRZ, IND, CHN, SEasia –  1000+ Founders / 200+ Mentors –  20+ confs/events per year –  10+ Corp VCs Partners + LPs –  20 exits to 10+ Public Co’s

•  450+ Portfolio Co’s / 30+ Countries –  Wildfire (acq GOOG, $350M) –  Twilio –  SendGrid –  TaskRabbit –  MakerBot –  9GAG –  Viki

Page 6: Corporate VC Innovation: Strategies That Don't Suck

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500  Corporate  Sponsors,  Tech  Partners,  &  Investors    

Page 7: Corporate VC Innovation: Strategies That Don't Suck

500 Startups: Global Seed Fund startup investments in 30+ countries

•  Q4/12 added: Germany, Korea, Peru; + Russia & Turkey in Q1/13 •  Priorities In 2013: SE Asia, Middle East, Eastern Europe

Page 8: Corporate VC Innovation: Strategies That Don't Suck

What’s HAWT, What’s NOT.

(note: i don’t really care what ppl think is hot / sexy, but since many folks do here’s a quick roundup)

Page 9: Corporate VC Innovation: Strategies That Don't Suck

Angel* List: It Rocks.

•  Startups & Investors •  Activity & Metrics •  Platform & APIs •  Customers & Corporates

•  *ps – not just for Angels, or USA

Page 10: Corporate VC Innovation: Strategies That Don't Suck

Trends in Tech What’s HOT •  Mobile, Mobile, Mobile… and Tablets •  Wearables & Sensors •  Hardware + Software combo •  Crowdfunding (if SEC approves) •  Video Content (+ commerce) •  Big Data •  Enterprise Startups / Consumerization of Enterprise •  Photos (still!)

What’s NOT •  Daily Deals •  Social Games •  Photos (except see above) •  Social Media w/ no business model

Page 11: Corporate VC Innovation: Strategies That Don't Suck

Trends in Investing What’s HOT •  Big-Ass Funds: A16Z, Accel, Greylock, Battery, NEA •  Micro-VC: Felicis, SoftTech, IA Ventures •  Incubators: Y Combinator, TechStars, AngelPad, 500 J) •  Full-Service VC: A16Z, First Round Capital, Lightbank •  Angel List, Angel List, Angel List! •  Moneyball Investing

What’s NOT •  Big Funds w/ no Branding or Results •  Regional Incubators outside SV/NYC •  Incubators w/ no Experience, Smart $ or Mentorship •  Mobile 1st? 2nd? 3rd? (How about Enterprise SW?)

Page 12: Corporate VC Innovation: Strategies That Don't Suck

Changes in Startup & VC Ecosystem

•  LESS Capital required to build product, get to market –  Dramatically reduced $$$ on servers, software, bandwidth –  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)

•  LOTS of little bets: Accelerators, Angels, Angel List, Small Exits –  Y Combinator, TechStars, 500 Startups, AngelPad, Betaworks –  Funding + Co-working + Mentoring -> Design, Data, Distribution –  “Fast, Cheap Fail”, network effects, quantitative + iterative investments

Page 13: Corporate VC Innovation: Strategies That Don't Suck

Startup Investor Ecosystem

Angels & Incubators ($0-10M)

“Micro-VC” Funds

($10-100M)

Smaller VC Funds ($100-300M)

Larger VC Funds (>$300M)

True First Round

Andreessen Atomico

Y-Combinator

TechStars

SoftTech (Clavier)

Felicis (Senkut)

SV Angel (Conway)

Sequoia Greylock

Union Square

Floodgate (Maples)

Foundry Group

Incubation

Seed

Series A

Series B

Series C+

Bootstrap, KickStarter, Crowdfunding

Page 14: Corporate VC Innovation: Strategies That Don't Suck

Venture Capital 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)

Page 15: Corporate VC Innovation: Strategies That Don't Suck

Think Different.

Page 16: Corporate VC Innovation: Strategies That Don't Suck

MoneyBall 4 Startups

http://slideshare.net/paulsingh/ moneyball-a-quantitative-approach-to-angel-investing-austin-tx-aug-2012

1. Make Lots Of Little Bets 2. Count Cards (Monitor Progress & Stats) 3. Double Down on Winners

Page 17: Corporate VC Innovation: Strategies That Don't Suck

70%    Capital  

17  

Quan<ta<ve  Inves<ng  before  Trac<on  

250+  companies  @  $50K  avg.  (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+  

 

   

“Lots  of  Li-le  Bets”*  

1)  Make  lots  of  li@le  bets  pre-­‐tracCon,  early-­‐stage  startups  

30%    Capital  

2)  aHer  6-­‐12  months,  idenCfy  top  20%  performers  and  double-­‐down  higher  $$$  

3)  conservaCve  model  assumes  -­‐  5-­‐10%  large  exits  @20X  ($50-­‐100M+)  -­‐  10-­‐20%  small  exits  @5X    ($5-­‐50M)  

*See Peter Sims book: “Little Bets”

Page 18: Corporate VC Innovation: Strategies That Don't Suck

Bet on Singles, Not HomeRuns. (Look for Ichiros, Not Barry Bonds)

Page 19: Corporate VC Innovation: Strategies That Don't Suck

Lean Startup, Lean VC •  “Moneyball for Startups” = Lots of Little Checks •  Filter out Fail, Invest Incrementally in Success •  Apply to Venture, as well as Startups

•  … and, can we apply this to Corp VC as well?

Page 20: Corporate VC Innovation: Strategies That Don't Suck

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”)

Page 21: Corporate VC Innovation: Strategies That Don't Suck

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

Page 22: Corporate VC Innovation: Strategies That Don't Suck

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

Page 23: Corporate VC Innovation: Strategies That Don't Suck

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

Page 24: Corporate VC Innovation: Strategies That Don't Suck

Startup Incubators Lots of Little Bets. Most FAIL.

(but a few succeed :)

Page 25: Corporate VC Innovation: Strategies That Don't Suck

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

Page 26: Corporate VC Innovation: Strategies That Don't Suck

Incubator Community & Resources

•  Mentors, Investors •  Design, Data, Distribution •  Platform Partners (Google, Facebook, Twitter) •  Corp Strategics (GE, BBVA, Docomo, Qualcomm) •  Marketing & Visibility •  Downstream Investors / Acquirers

Page 27: Corporate VC Innovation: Strategies That Don't Suck

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

Page 28: Corporate VC Innovation: Strategies That Don't Suck

fbFund REV fbFund 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)

Page 29: Corporate VC Innovation: Strategies That Don't Suck

Innovation Strategies for Corporate VC

Partner with Startup Community + Incubators Use Customers & Distribution, Early Acquisition as Leverage

Turn Your Company + Tech into an API + Platform

Page 30: Corporate VC Innovation: Strategies That Don't Suck

Not Your GrandDaddy’s Corp VC

•  Vertically-Focused Incubators: –  Facebook fbFund –  Nike / Sensors / Wearables –  Digital Health: Rock Health –  Digital Media: Turner Media, NY Times

•  Investing & Partnering with Incubators & Micro-VCs –  Startup Community Development & Outreach –  Vertically-focused conferences & events –  Hackathons, Contests using your Company as a Platform / API –  Portfolio Review, Custom Demo Days, Co-investment –  Research & Support for targeted M&A

Page 31: Corporate VC Innovation: Strategies That Don't Suck

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Services  Early-­‐Stage  VCs  &  accelerators    Can  Provide  to  Corp  VCs  

Access  to  global  networks,  mentors  and  staff  

Training  and  space  for  Corp  VC  team  

Introduc@ons  to  porAolio  companies,  including  Mini  

Demo  Days  

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Ver<cally-­‐Focused  Conferences  &  Events  

Par@cipa@on  at  demo  days,  conferences,  and  events  

send  Mentors  to  work  with  the  Corp  teams  

Customized  repor@ng  and  sharing  of  informa@on;  mee@ng  on  a  regular  basis  to  discuss  latest  trends  and  innova@ons    

Page 33: Corporate VC Innovation: Strategies That Don't Suck

More Acquirers (tech + non-tech); More & Smaller Acquisitions

1.  Mature Internet Platform Co’s: –  GOOG, MSFT, YHOO, EBAY, AOL, AMZN,

AAPL, INTU, ADBE, FB, TW, LNKD, GRPN

2.  Non-Tech “BigCo” / Consumer Verticals buying 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 J

* Mint acquired by INTU in 2009 for $170M

* SlideShare acquired by LNKD in 2012 for $110M

Page 34: Corporate VC Innovation: Strategies That Don't Suck

Corp VC + Startups: Customers & Distribution, Little Checks, Early Acquisitions

•  Your Customers = HUGE Strategic Advantage •  Big Companies need Innovation + Products •  Small Startups need Customers + Distribution

•  Designing Strategy 4 Early, Targeted Acquisitions

–  “RFP for Acquisition” with a price-tag / unit economics –  “We’ll buy your startup for $5-10M or $X per customer”

Page 35: Corporate VC Innovation: Strategies That Don't Suck

Corp VC as Platform + API

Turn your Customers & Technology into an API, and let Startups use your Company

as a Business Platform

Page 36: Corporate VC Innovation: Strategies That Don't Suck

Platforms 2.0 Search, Social, Mobile

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Platform Viability

Users                                                .  .                                                            

Money  

Features                

Growth   Profit  

Profitable  Growth  

Nirvana  

Successful  PlaSorms    have  3  Things:  1)  Features  2)  Users  3)  Money  

Page 38: Corporate VC Innovation: Strategies That Don't Suck

Distribution Platforms Customer 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, Skype, Phone/Voice, etc

Page 39: Corporate VC Innovation: Strategies That Don't Suck

The Future: Corp VC as Platform + API

•  Identify Key Domain Expertise + Vertical Processes •  Identify Customer Attributes / Values / Needs •  Identify Customer & Business Unit Economics

•  Give Startups Access to Your Company via APIs •  Let Startups Offer Products, Svcs to Your Customers •  Provide Distribution to Leverage Investment

•  Lastly: Buy Early, Fast, & Often

Page 40: Corporate VC Innovation: Strategies That Don't Suck

Thanks

•  Want more info? Go visit: – http://500startups.com (our company) – http://500hats.com (my blog) – https://angel.co/500-startups-fund-ii (our fund)