redesign of 500 startups' deck - "building startup ecosystems"

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Changes in Venture Capital +Building Startup Ecosystems @ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

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We're big fans of Dave and his team at 500 Startups, so we decided to clean up and redesign Dave's annual presentation at the 2014 MENA Angel Investors Summit, "Changes in Venture Capital + Building Startup Ecosystems". Hope you and they appreciate it! P.S. Hey, 500 crew, shoot us a note if you'd like us to send over the source files + artwork.

TRANSCRIPT

Page 1: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

Changes in Venture Capital +Building Startup Ecosystems

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Page 2: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

What is 500 Startups?

Changes in Tech & VC

“Lean VC” = Quantitative Venture Capital

Building Startup Ecosystems

Global Entrepreneurship

Q & A

This Talk..

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Page 3: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

Dave McClureFounding Partner & Chief Troublemaker, 500 Startups

00’s & 10’s

VC Founders fund Facebook fbFund 500 Startups

Mashery mint.com SlideShare Twilio Wildfire SendGrid

PayPal Simply Hired mint.com O’Reilly

Angel

Marketing

80’s & 90’s

Entrepreneur

Developer

Engineer

Aslan Computing (acq’d by Servinet / Panurgy)

Windows / SQL DB consultant (Intel, MSFT)

John Hopkins’88 BS Eng / Applied Math

Page 4: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

500 StartupsGlobal Seed Fund & Startup Accelerators

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

• $100M silicon valley VC fund + startup accelerator • 30+ people / 10 investing partners • Locations: SV, NYC, MEX, BRZ, IND, CHN, SE Asia • 1500+ Founders / 200+ mentors • Community + Content + Conferences

Wildfire acq GOOG $350M

MakerBot acq SSYS $400M

Viki acq Rakuten $200M

Simple acq BBVA $117M

Twilio SendGrid CreditKarma Udemy

What is 500?

750+ Portfolio Co’s 40+ Countries

Page 5: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

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

Regional Coverage areas

Countries where we’ve invested

People on the ground

San Francisco

Silicon Valley

Mexico City

Brazil

New York

India

China

Southeast Asia

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Page 6: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

What is 500 Startups?

Changes in Tech & VC

“Lean VC” = Quantitative Venture Capital

Building Startup Ecosystems

Global Entrepreneurship

Q & A

This Talk..

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Page 7: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

Industry Changes

Startup Efficiency, Reduced Capital Costs

Growing Market, Distribution Platforms

Financial Market Crises (2000, 2008)

Lean Startups

Micro VC: Seed Funds (ex: First Round Capital)

Incubators & Accelerators (ex: Y Combinator, 500)

Funding Platforms (ex: Angel List, Kickstarter)

Growing Global Market of Angel Investors

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

more info: http://PreMoney.co (June 27th, San Francisco)

Page 8: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

LESS Capital required to build product,

get to market

MORE Customers via Online platforms

(100M+ users)

LOTS of little bets: Accelerators, Angels, Angel List,Small Exits

Access to Online Platforms

Dramatically Reduced Cost

Funding Platforms

Accelerators

Social

“Fast, Cheap Fail”, network effects, quantitative + iterative investments

Y Combinator, TechStars, 500 Startups

Capital + Co-working + Mentoring

Mobile

Media Design Data Distribution

servers software bandwidth

KickStarter Angel List Funders Club, etc

100M-1B+ consumers, smallbiz, etc

Google

Facebook Twitter

Apple Android

YouTube Pinterest Instagram Tumblr

Search

Angels?

Small Exits?

Changes in Tech Startups

Page 9: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

Daft Punk Startup: Simpler, Faster, Cheaper, Smarter

After 2008

Before & After 2 Dot-Com Crashes

Big, Fat, Dinosaur Startup Lean, Little, Cockroach Startup

• Sun Servers • Oracle DB • Exodus Hosting • 12 - 24 mo dev cycle • 6- 18mo sales cycle • <100M people online • $1-2M seed round • $3-5M Series A • Sand Hill Road crawl

• 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

Before 2000

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Page 10: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

Lean Startup

A Product that’s cheaper, faster and better.

More Customers that are easier to obtain and measure.

Iterative Product & Marketing Decisions based on Measured User Behaviour

Learn Build

CodeData

Ideas

Measure

Lower Startup Costs

Bigger Number of Users & Bandwith

Better Transaction Dollars

1

2

3

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Page 11: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

Platforms 2.0

Search

Social

Mobile

Media

Messaging

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Page 12: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

Angel List: Platform for Investors & Startups

Startups & Metrics

Founders & Bios

Investors & Syndicates

Accelerators & Online Applications

Jobs & Talent

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Page 13: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

What is 500 Startups?

Changes in Tech & VC

“Lean VC” = Quantitative Venture Capital

Building Startup Ecosystems

Global Entrepreneurship

Q & A

This Talk..

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Page 14: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

Silicon Valley 2.0: Lots of Little Betsaka “MoneyBall for Startups”

Invest BEFORE product market fit, Double down AFTER

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

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Silicon Valley

Page 15: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

500 Strategy: “Lots of Little Bets”

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

1

2

3

After 6-12 months, identify top 20% performers and double-down higher $$$

Conservative model assumes: - 5-10% large exits @20X ($50-100M+) - 10-20% small exits @5X ($5-50M) $

Double-Down after Traction

Quantitative Investing before Traction

50+ ‘winners’ @ $100k - $1M2nd & 3rd check

Target 10+ exits @ $100M

250+ companies @ $25-100k1st check

Assume failure rate up to 80%

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Page 16: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Method

Venture

Incubator

Seed

Make little bets in lots of startups using incremental investment, iterative development. Start with many small experiments, filter out failures, and expand investment in successes. !

$0-100K “Build & Validate Product”

$100K-$1M “Test & Grow Marketing Channels”

$1M-$10M “Maximize Growth & Revenue”

The Lean VC:Lots of Little Bets, Incremental Investment

Page 17: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Structure

Test Functional Prototype / “Minimum Viable Product” (MVP)

Develop Metrics, Filter for Possible Future Investment

Demonstrate Concept, Reduce Product Risk, Test Functional Use

Investment Stage #1:Product Validation + Customer Usage

• 1-3 Founders • $25 - $100K Investment • Incubator environment: Multiple Peers, Mentors / Advisors

• 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)

Page 18: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Structure

Improve Product, Expand Customers, Test Revenue

Test Channel Cost, Revenue Opportunity

Prove Solution / Benefit, Asses Market Size

Investment Stage #2:Market Validation + Revenue Testing

• 2-10 person team • $100K - $1M Investment • Syndicate of Angel Investors / Small VC Funds

• Alpha —> Beta (~6-12 months) • Scale Customer Adoption —> “Many people use it and they pay.” • Test Marketing Campaigns, Customer Acquisition, Channels + Cost • Improve Design & Usability, Setup Conversion Metrics

Determine Org Structure, Key Hires

Page 19: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Structure

Make Money (or Go Big), Get to Sustainability

Future Milestones: Profitable / Sustainable, Exit Options

Prove / Expand Market, Operationalize Business

Investment Stage #3:Revenue Validation + Growth

• 5 - 25 person team • $1M - $10M Investment • Seed & Venture Investors

• Beta —> Production (~12-24 months) • Revenue / Growth —> “We can Make (a lot of) Money!” • Scalability & Infrastructure, Customer Service & Operations • Connect with Distribution Partners, Expand Growth

Page 20: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

What is 500 Startups?

Changes in Tech & VC

“Lean VC” = Quantitative Venture Capital

Building Startup Ecosystems

Global Entrepreneurship

Q & A

This Talk..

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Page 21: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Critical Ecosystem Factors

“Silicon Valley” Knowledge People Infrastructure Product Customers Monetization Exits

Optimism & Belief Mentorship + Education

Universities + Companies Capital, Legal, Finance

Engineering + Design / UX Platforms + Distribution

Online Payment IPO / M&A Market

Page 22: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

Startup Investor Ecosystem

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Bootstrap, KickStarter, Crowdfunding

Y-CombinatorTech Stars

SV Angel (Conway)Floodgate (Maples)

First RoundUnion Square

AtomicoGreylock

True

A16ZSequoia

Foundry

Angels & Incubators ($0-10M)

“Micro-VC” Funds

($10-100M)

“Big” VC Funds

($100-500M)

“Mega” VC Funds (>$500M)

SoftTech (Clavier)Felicis (Senkut)

Page 23: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Example Startup Ecosystem

1,000 Bootstrap Startups

300 Accelerator Startups

100 Seed-Stage Startups

30 Series A / B Startups

10 Later-Stage Companies

1-3 Mature Company IPOs

- $0-10K

- $10-100K

- $100K- $1M

- $1-10M

- $10-100M

- $100M+

Page 24: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Entrepreneur Education

Business Plans

Functional Prototypes

Lean Startup

Software Engineering / Design & UX

Online Marketing / Unit Economics

Monetization & Payments

Online Payment

IPO / M&A Market

Page 25: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Investor Education

Startups are NOT Real Estate

Most Startups Fail/ Power Law Returns

Portfolio Approach (10 - 20+ investments)

Exits & Liquidity

Legal Structure, Financial Structure

Syndication + Co-Investment

Access to Downstream Capital

Page 26: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

What is 500 Startups?

Changes in Tech & VC

“Lean VC” = Quantitative Venture Capital

Building Startup Ecosystems

Global Entrepreneurship

Q & A

This Talk..

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Page 27: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

Local vs Global?

Wealthy Global Users Shoppers Travelers

Emerging / Developing Markets

Global Languages English Chinese Spanish Arabic

Critical Factors

Education Mentorship Capital

Capital AvailabilityIncubation Seed Series A

Positive Macro SmartPhones Tablets Payments Logistics Growing Middle Class Distribution Platforms

Users

Page 28: Redesign of 500 Startups' Deck - "Building Startup Ecosystems"

@ Dave McClure - Founding Partner @ 500 Startups http://500.co #MENAsummit Bahrain - May 2014

500.co (our company)

500hats.com (my blog)

angel.co/500startups (our fund)

Dave McClure, @DaveMcClure

More Info?

Questions? Comments?