500 Kobe Pre-Accelerator Demo Day >> Dave McClure of 500 Startups

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Transcript of 500 Kobe Pre-Accelerator Demo Day >> Dave McClure of 500 Startups

  • @DaveMcClure @500Startups http://500.co

    Kobe, Japan - Sept 2016

    Farming Unicorns Building Startup &

    Investor Ecosystems


  • Dave McClureFounding Partner, 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, OReilly

    80s & 90s: Entrepreneur: Aslan Computing (acqd by Servinet/Panurgy) Developer: Windows / SQL DB consultant (Intel, MSFT) Engineer: Johns Hopkins88, BS Eng / Applied Math

  • What is 500? $250M global seed fund + startup accelerator 125 people / 25 languages / 20 countries 1600+ Companies / 3000+ Founders / 200+ Mentors Investment, Accelerator, Distro, Marketing, Events, Education Community + Content + Conferences

    1600+ Cos / 60+ Countries Twilio (NYSE: TWLO) Credit Karma Grab (aka GrabTaxi) Wildfire (acq GOOG, $350M) MakerBot (acq SSYS, $400M) Viki (acq Rakuten, $200M) Behance (acq Adobe, $150M) Simple (acq BBVA, $117M) Sunrise (acq MSFT, $100M) Udemy Ipsy TalkDesk Intercom

    500 Startups Global Seed Fund & Startup Accelerator

  • Investor Ecosystem

    Angels & Accelerators


    Seed Funds ($10-100M)

    Traditional VC Funds ($100-500M)

    Unicorn VC Funds (>$500M)

    Incubation 0-$100K

    Seed $100K-$1M

    Series A/B $1-10M

    Series B/C $10-100M

    Bootstrap, KickStarter, AngelList, Crowdfunding

  • Football

    West Coast Offense




    3 point revolution

    Venture Capital

    500 Startups

    Lots of little bets

    500 Strategy: MoneyBall for Startups Re-inventing a 50-year old sport

  • 500 Startups Mission

    1.Find Smart People. 2.Give Them Money. 3.Wait for Good Stuff to Happen.

  • 500 Startups Mission

    Provide capital, community, education to smart people (founders, investors)

    Build functional startup ecosystems (founders, team, angels, accelerators, VC funds, capital, exits, liquidity, etc)

    #HFGSD: Have Fun, Get Stuff Done.

  • Dinosaurs vs. CockroachesLEAN Startup: Simpler, Faster, Cheaper, Smarter

    1996 Big, Fat, Dinosaur Startup Sun Servers Oracle DB Exodus Hosting 12-24mo dev cycle 6-18mo sales cycle 3B people online

  • Platforms:Search, Social, Mobile,

    Video, Messaging

  • How Many Startups to Get to 1 Unicorn?

  • Perils of Becoming a Unicorn (Before/After IPO)

    2009 2016

    Jeff Lawson, Founder/CEO Twilio (NYSE:TWLO)

  • The Unicorn Hedge https://500hats.com/welcome-to-the-unicorn-hedge-2fd3c6b50f89

    Q: Which is more overvalued? 100 Unicorn startups or Fortune 500? TREND: Non-tech public companies buying innovation (aka Unicorns) as a hedge against the value of their own stock.

    Examples: Dollar Shave Club -> Unilever, Cruise -> GM, Jet.com -> Walmart.


  • 99 VC Problems But a Batch Aint 1



  • Q: Chances of spotting unicorn? /

    a) 1% b) 2% c) 5% d) 10% e) ZERO

  • Chances of spotting unicorn = ~1%/

  • If portfolio size = 15 companies /

  • / If portfolio size = 30 companies

  • / If portfolio size = 100 companies

  • 500 Strategy: Lots of Little Bets*

    1) make lots of little bets on early-stage startups when theyre just getting started

    3) wait 5-10 years for returns: -10-20% small exits @1-5X ($5-25M+) -5-10% larger exits @5-20X ($25-250M+) -1-2% unicorns @20-50X+ ($250M-1B+)

    *See Peter Sims book: Little Bets

    2) over the next five years, double-down on top 20-30%

    ~500 cos @ $100K 1st checks

    100+ cos @ $200-500K 2nd/3rd checks

    (hope for a few big exits @ $100M-$1B+)

    (assume high failure rate ~50-80%)


  • Startup Risk Reduction


    Customer Usage

    Scalable Customer


    [about to be] Profitable

    Unit Economics

    Scalable Profitable Business

    Functional Prototype





    When 500 Likes to Invest

  • The Lean Investor

    Make lots of little bets: Start with many small experiments Filter out failures + small wins Double-down on stuff that looks like its working

    Incubation: $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 $0-$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

  • Building Startup Ecosystems

  • Critical Ecosystem Factors

    Optimism & Belief (Silicon Valley) Mentorship + Education (Knowledge) Universities + Companies (People) Capital, Legal, Finance (Infrastructure) Engineering + Design / UX (Product) Platforms + Distribution (Customers) Online Payments (Monetization) IPO / M&A Market (Exits)

  • Whats Most Critical? You DONT need to be in Silicon Valley, but Silicon Valley Needs to be in YOU.