hack osaka: innovation strategies for regional startup ecosystems

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HACK! Osaka Innovation Strategies for Regional Startup Ecosystems Dave McClure 500 Startups Osaka, Feb 2013 http://slideshare.net/dmc500hats

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Page 1: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

HACK! OsakaInnovation Strategies for

Regional Startup Ecosystems

Dave McClure500 Startups Osaka, Feb 2013

http://slideshare.net/dmc500hats

Page 2: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

1. BE THE NAIL THAT STICKS OUT.

1. MOVE FAST, BREAK THINGS.

1. DON’T BE AFRAID TO FAIL! (and, tell everyone you know about it,

Including your parents and your boss)

BE. THE. NAIL!

Page 3: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

This Talk Will Confuse You.

• Innovation Recipes = Creativity + FAILURE + Iteration• Innovation Examples: Tech, Product, Process, etc• Silicon Valley Magic: Geeks + Entrepreneurs + VCs• Kaizen for Entrepreneurs: Little Bets + “Lean Startup”• Kaizen for VCs: Incubators + Accelerators• Innovation for Regional Ecosystems• Innovation for Government & Legal Systems

Page 4: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

“We Are 500.”

#500STRONG

Page 5: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Dave McClureFounding Partner & Chief Troublemaker, 500 Startups

00’s & 10’s:• VC: Founders Fund, Facebook fbFund, 500 Startups• Angel: Mint.com, SlideShare, Twilio, WildFire, SendGrid• 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

Page 6: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

500 StartupsGlobal Seed Fund & Startup Accelerator

• What is 500?– $60M+ under management– 20 people / 10 investing partners– Locations: SV, NYC, MEX, BRZ, IND, CHN, SEasia– 1000+ Founders / 200+ Mentors– 20+ confs/events per year

• 450+ Portfolio Co’s / 30+ Countries– Wildfire (acq GOOG, $350M)

– Twilio

– SendGrid

– TaskRabbit

– MakerBot

– 9GAG

– Viki

– Gengo (JPN)

– PeaTix (JPN)

Page 7: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

500 Startups: Global Seed Fundstartup 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: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

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500 Corporate Sponsors, Tech Partners, & Investors

Page 9: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Innovation

Think Different.

Page 10: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Creativity, Failure, Iteration

• Brainstorm new ideas & approaches (crazy!)

• Try many experiments (be *fearless*)

• MOST OF THEM WILL FAIL

• But, a few will succeed

• Iteration will improve success rates

• Critical Mass, Network effects help

• “Dance Like No One Is Watching”

Page 11: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

FAILURE IS NECESSARY. IT’S A PROCESS, NOT A PROBLEM

Page 12: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Failure = CRITICAL to Innovation• Failure not only tolerated, but ENCOURAGED

• Success = Continued Iteration of Failure

• Japan: Failure = Shame, Silence, Death

• US/SV: Failure = Growth, Education, Shared

• Celebrity Role Models for Failure

• “Fall Down 7 Times, Get Up 8” = Fail Warrior!

Page 13: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Types of Innovation + Examples

• Tech Innovation: Electricity, Semiconductors, The Internet• Product Innovation: Cars, Planes, The iPad• Process Innovation: Assembly Line, Kaizen, Lean Startup

• Finance Innovation: Mortgages, Derivatives, Venture Capital

• Cultural Innovation: Civil Rights, Entrepreneurship, K-Pop• Legal Innovation: Corporations, Class Action Lawsuits, Startup Visa• Ecosystem Innovation: Rome, London, NYC, Silicon Valley

Page 14: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Silicon Valley Innovation

Technology & The Internet

Entrepreneurs & Failure

Venture Capital & Incubators

Page 15: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Silicon Valley (R)Evolution

• 40’s: Secret History of Silicon Valley (Steve Blank)

• 50’s: Shockley / Semiconductors

• 60’s: Fairchild / Traitorous Eight

• 70’s/80’s: Intel, Apple, Microsoft

• 90’s: Netscape, Yahoo, eBay, Amazon, Cisco

• 00’s+: Google, PayPal, LinkedIn, Facebook, Twitter, YouTube, Pinterest… what’s next?

Page 16: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Changes in Startup & VC Ecosystem

• LESS Capital required to build product, get to market– Low cost servers, software, bandwidth -- <$100K to build product– 20 years Internet infrastructure (Email, Web Services, Payments, etc)– Few big IPOs, 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, Startups, Small Investment– Y Combinator, TechStars, 500 Startups– Funding + Co-working + Mentoring -> Design, Data, Distribution– “Little Bets” = quantitative, scalable, iterative investment

Page 17: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Platform InnovationSearch, Social, Mobile

Page 18: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Platform Viability

Users .Users ..

Money.

Money

FeaturesFeatures

Growth Profit

ProfitableGrowth

Nirvana

Successful Platforms have 3 Things:1) Features2) Users3) Money

Page 19: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

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, Skype, Phone/Voice, etc

Page 20: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Startup Investor Ecosystem

Angels & Incubators($0-10M)

“Micro-VC” Funds ($10-100M)

Smaller VC Funds ($100-300M)

Larger VC Funds (>$300M)

TrueFirst Round

AndreessenAtomico

Y-Combinator

TechStars

SoftTech (Clavier)

Felicis (Senkut)

SV Angel (Conway)

SequoiaGreylock

Union Square

Floodgate (Maples)

Foundry Group

Bootstrap, KickStarter, Crowdfunding

Page 21: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Angel* List: It Rocks.

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

• *ps – not just for Angels, or USA

Page 22: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Little Bets + Lean Startup

Kaizen for Tech Entrepreneurship

Page 23: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Big Data. Little Bets.

Page 24: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Entrepreneurship Innovation

• The Lean Startup (Kaizen!)

• Customer Development

• “MVP” = Minimum Viable Product

• Little Bets + Continuous Iteration

• Internet Marketing & Distribution Platforms

• Revenue-focused Businesses

• Incubators & Accelerators

• Angel List = http://Angel.co

Page 25: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

The Lean StartupCustomers, Metrics, Iteration.

Page 26: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

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

Page 27: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

MoneyBall 4 Startups

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

1. Make Lots Of Little Bets2. Count Cards (Metrics)3. Double Down on Winners

Page 28: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

70% Capital

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“Lots of Little Bets”*

1) Make lots of little bets pre-traction, early-stage startups

30% Capital

2) after 6-12 months, identify top 20% performers and double-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”

Page 29: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

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

Page 30: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

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”)

• VC Evolution: Physician, Scale Thyself (Aug 2012)• MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)

Page 31: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

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 32: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

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 33: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

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 34: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Startup Incubators Lots of Little Bets. Most FAIL.

(but a few succeed :)

Page 35: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

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 36: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

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 37: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

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Resources Accelerators Can Provide

global networks, mentors and staff

training and space

portfolio companies

conferences & events

Page 38: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Incubator Innovation

• Vertically-Focused Incubators: – Facebook: fbFund– Nike: Sensors / Wearables– Rock Health: Digital Healthcare

– Digital Media: Turner Media, NY Times

• Investing & Partnering with Incubators– Startup Communities, Conferences, Events

– Entrepreneurs, Hackers, Mentors

– Hackathons, Contests, Demo Days

Page 39: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

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 40: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Regional Innovation

Rome

London

Silicon Valley

Page 41: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Regional Innovation

• Silicon Valley in 50s: The Secret History• NYC (after 2008 Financial Crisis)• Boulder, CO• Startup Chile• Singapore• …• Osaka?

Page 42: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Government & Legal Innovation

Break DOWN Legal Barriers!

Break THRU Bureacracy!

Open UP Immigration!

Breakthrough Innovation!

Page 43: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Govt / Legal Innovation

• Government Incentives for Innovation

• Immigration Incentives

• Personal Bankruptcy / Public Guarantors?

• Startup Visa for Japan?

• Tax & Research Credits

• Ecosystems & Infrastructure

Page 44: Hack Osaka: Innovation Strategies for Regional Startup Ecosystems

Thanks

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