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Transcript of Seriesacrunch 130711090732-phpapp01
Beating The Series A Crunch
+ Why Growth Hacking / Online Marketing Matters (a lot)
Dave McClurehttp://500.co (@DaveMcClure)
Intl Startup Festival 2013Montreal, July 2013
http://slideshare.net/dmc500hats
This Talk
• You’re a Geek (or traditional marketing flack)• You SUCK at online marketing / growth hacking• You spend WAY TOO MUCH TIME on product• You can’t scale customer acquisition (profitably)• You won’t get funding / Series A,B / break-even
Therefore: YOU WILL DIE.
• Want to Fix This? Listen Up.
Dave McClureFounding Partner & Chief Troublemaker, 500 Startups
00’s & 10’s:• VC: Founders Fund, Facebook fbFund, 500 Startups• Angel: Mashery, Mint.com, SlideShare, Twilio, WildFire, SendGrid• Marketing: PayPal, Simply Hired, Mint.com, oDesk, 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
500 StartupsGlobal Seed Fund & Startup Accelerator
• What is 500?– ~$70M under management– 26 people / 12 investing partners– Locations: SV, NYC, MEX, BRZ, IND, CHN, SE Asia– 1000+ Founders / 200+ Mentors– 22 positive exits in <3 years
• 500+ Portfolio Co’s / 30+ Countries– Wildfire (acq GOOG, $350M)– MakerBot (acq SSYS, $400M)– Twilio– SendGrid – TaskRabbit– Viki– Smule– AppStack– 9GAG– MediaLets– PicCollage
500 Startups: Global Seed FundOver 100+ startups outside US, in 35+ countries
• Q4/12 added: Germany, Korea, Peru; + Russia, Turkey, Ghana in Q2/13• Priorities in 2012: Brazil, Mexico, India• Priorities In 2013: China, SE Asia, MENA, Eastern Europe
Changes in Tech Startups• LESS Capital required to build product, get to market
– Dramatically reduced $$$ on servers, software, bandwidth– Crowdfunding, KickStarter, Angel List, Funders Club, etc– Cheap access to online platforms for 100M+ consumers, smallbiz, etc
• MORE Customers via ONLINE platforms (100M+ users)– Search (Google)– Social (Facebook, Twitter)– Mobile (Apple, Android)– Local (Yelp, Groupon, Living Social)– Media (YouTube, Pinterest, Instagram, Tumblr)– Comm (Email, IM/Chat, Voice, SMS, etc)
• LOTS of little bets: Accelerators, Angels, Angel List, Small Exits– Y Combinator, TechStars, 500 Startups– Funding + Co-working + Mentoring -> Design, Data, Distribution– “Fast, Cheap Fail”, network effects, quantitative + iterative investments
Daft Punk Lean Startup:Simpler, Faster, Cheaper, Smarter
1. Startup Costs = Lower.2. # Users, Bandwidth = Bigger.3. Transaction $$$ = Better.
Building Product => Cheaper, Faster, Better Getting Customers => Easier, More Measurable
Iterative Product & Marketing Decisions based on Measured User Behavior
Startup Investor Ecosystem
Angels & Incubators($0-10M)
“Micro-VC” Funds ($10-100M)
“Big” VC Funds ($100-500M)
“Mega” VC Funds (>$500M)
TrueFirst Round
AndreessenAtomico
Y-Combinator
TechStars
SoftTech (Clavier)
Felicis (Senkut)
SV Angel (Conway)
SequoiaGreylock
Union Square
Floodgate (Maples)
Foundry Group
Bootstrap, KickStarter, Crowdfunding
Lean Startup, Lean VCCustomers, Metrics, Iteration.
Invest BEFORE Traction; Double Down AFTER.
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”)
Build Product -> Get Customers
• Product = Activation / Retention• Market(ing) = Acquisition / Referral• Revenue = Monetization…<collect underpants>
…• Profit!
12
500 Strategy: “Lots of Little Bets”*
1) Make lots of little bets pre-traction, early-stage startups
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”
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
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
Beating The Series A “Crunch”
CustomersDistributionRevenue
Got Crunched Yet?
Source: Bullpen Capital
Before & After 2 Dot-Com CrashesDaft Punk Startup: Simpler, Faster, Cheaper, Smarter
Before 2000•Sun Servers•Oracle DB•Exodus Hosting•12-24mo dev cycle•6-18mo sales cycle•<100M people online•$1-2M seed round•$3-5M Series A•Sand Hill Road crawl•Big, Fat, Dinosaur Startup
After 2008•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•Lean, Little, Cockroach Startup
Crunch Good? Crunch Bad?• Series A bar higher: $1M revenue, 1M active users,
10M downloads, 100% YoY growth• Lots of Incubation / Seed startups will “fail”• BUT: Fail Budget = $50-$500K, not $5M+• Many “failed” startups = ramen-profitable, small
acquisition, or MBA alternative (<$100K)• Series A/B VCs have lots to choose from• Overall, founders / market getting smarter• More focus on customers, problems, revenue• Many die, some survive (1-5x), a few thrive (20x+).
Online Customer Acquisition (aka “Marketing & Sales”)
Search (Google)Social (Facebook, Twitter)
Mobile (Apple, Android)Video (YouTube)
Messaging (Email, SMS, Chat, Voice)
Platforms 2.0Search, Social, Mobile,
Video, Messaging
Distribution PlatformsCustomer Reach: 100M-1B+
• Search: Google, Baidu, Yahoo/Bing, Yandex
• Social: Facebook, Twitter, LinkedIn, TenCent/QQ, WeChat
• Mobile: Apple (iOS), Android
• Media: Video (YouTube), Photos (Instagram, Pinterest), Blogs
• Comm: SMS, IM (WeChat, WhatsApp), Skype, Phone/Voice, etc
Minimum Viable Team:Hacker, Hipster, Hustler
• Hacker: engineers & developers• Hipster: design & user experience (UX)• Hustler: marketing & business, “growth hacker”
1.Build functional prototypes2.Improve UX so people convert3.Scale customer acquisition & distribution
Marketing Strategy(aka Growth Hacking Strategy)
• PR• Contests• Biz Dev• Direct Marketing• Radio / TV / Print• Telemarketing
• Email• SEO / SEM• Social (Paid, Organic)• Blogs / Bloggers• Mobile Apps• Affiliate / CPA
… how do you get customers & distribution?
lots of old, new channels & decisions:
3 Things That Matter / To Measure : 1. Volume2. Cost 3. Conversion
Unit Economics for Customer Acquisition
• What does product cost to build/deliver?• What do customers cost to acquire?
– by channel? by campaign?• What are customers worth?
– 1st visit / transaction? In a year? Lifetime?• When do expenses get incurred?• When is revenue generated?
• Is customer acquisition break-even or better?– For which distribution channels / methods?– For what kind of campaigns?– Does the channel / campaign scale? – Do the #’s change?
• When does a customer become profitable?
• unit economics @ scale -> marketing strategy / campaigns
Marketing Strategy & Financial Modeling
• Volume, Cost, Conversion• Est. volume of available leads / customers• Est. cust acq costs by channel / campaign• Est. customer value / revenue generated• Build financial model for scalable, profitable growth• Hack, Tweak to scale up• Hack, Tweak to break-even
• If it’s not working: don’t scale up / keep testing• If it’s working: stop building / go raise $$$
Silicon Valley 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)
Angel* List: It Rocks.
• Startups & Investors• Activity & Metrics• Platform & APIs
• *ps – not just for Angels, or USA
Thanks • Questions / More Info?
– http://500.co (our company)– http://500hats.com (my blog)– https://angel.co/500startups (our fund)– Dave McClure, @DaveMcClure