Silicon Valley 2.0: Lots of Little Bets (Hong Kong, May 2013)
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The document outlines the strategies and evolution of venture capital in the tech startup landscape, particularly focusing on the concept of making numerous small investments, referred to as 'moneyball for startups.' It discusses the roles of 500 Startups, its global seed funding approach, the impact of technology on startup costs and market access, and emphasizes iterative development and validation in early-stage funding. The importance of data-driven metrics in assessing startup performance and potential for success is also highlighted.
Silicon Valley 2.0: Lots of Little Bets (Hong Kong, May 2013)
- 1. Silicon Valley 2.0 Lots of Little Bets + Moneyball for Startups Dave McClure http://500.co (@DaveMcClure) Hong Kong, May 2013 http://slideshare.net/dmc500hats
- 2. Dave McClure Founding 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
- 3. 500 Startups Global Seed Fund & Startup Accelerator • What is 500? – ~$70M under management – 25 people / 12 investing partners – Locations: SV, NYC, MEX, BRZ, IND, CHN, SEasia – 1000+ Founders / 200+ Mentors • 500+ Portfolio Co’s / 30+ Countries – Wildfire (acq GOOG, $350M) – Twilio – SendGrid – TaskRabbit – MakerBot – Doodle Mobile (BJ) – ChinaNetCloud (SH) – 9GAG (HK) – Viki (SG) – PicCollage (TWN) – Cubie (TWN)
- 4. 500 Startups: Global Seed Fund Over 100+ startups outside US, in 35+ countries • Q4/12 added: Germany, Korea, Peru; + Russia, Israel, Turkey in Q1/13 • Priorities in 2012: Brazil, Mexico, India • Priorities In 2013: China, SE Asia, MENA, Eastern Europe
- 5. 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)
- 6. Changes in Tech Startups • LESS Capital required to build product, get to market – Dramatically reduced $$$ on servers, software, bandwidth – Crowdfunding, KickStarter, Angel List, Funders Club, etc – Cheap access to online platforms for 100M+ consumers, smallbiz, etc – A few big IPOs @ $1B+, but LOTS of small acquisitions (<$100M) • MORE Customers via ONLINE platforms (100M+ users) – Search (Google) – Social (Facebook, Twitter, LinkedIn) – Mobile (Apple, Android) – Local (Yelp, Groupon, Living Social) – Media (YouTube, Pinterest, Instagram, Tumblr) – Comm (Email, IM/Chat, Voice, SMS, etc) • LOTS of little bets: Accelerators, Angels, Angel List, Small Exits – Y Combinator, TechStars, 500 Startups – Funding + Co-working + Mentoring -> Design, Data, Distribution – “Fast, Cheap Fail”, network effects, quantitative + iterative investments
- 7. Web 2.0 + Lean Startup 1. Startup Costs = Lower. 2. # Users, Bandwidth = Bigger. 3. Transaction $$$ = Better. Building Product => Cheaper, Faster, Better Getting Customers => Easier, More Measurable Iterative Product & Marketing Decisions based on Measured User Behavior
- 9. 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
- 10. 70% Capital 10 500 Strategy: “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”
- 11. Startup Investor Ecosystem Angels & Incubators ($0-10M) “Micro-VC” Funds ($10-100M) Smaller VC Funds ($100-500M) Larger 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
- 12. Angel* List: It Rocks. • Startups & Investors • Activity & Metrics • Platform & APIs • *ps – not just for Angels, or USA
- 13. Early-Stage Risk Reduction • 1st Mtg: Crazy, Idiots, Liars or Crooks? • Product: does it work? (crappy, not perfect) • Market: are people using it? (not their mom) • Revenue: will people pay for it? (just a few) • Growth: how will it/they scale? (online? offline?) • Finance: what will it cost? – Q1: cost to get a customer? – Q2: how & when do you make money?
- 14. Early-Stage Startups: Your “Due Diligence” Is An Illusion (Better approach = write a quick, small check then wait ~6 mo’s) • Problems in Early-Stage Due Diligence: – You Might Be Able to Detect Idiots & Liars, but… – Not much history, product, customers, or revenue (yet), so… – You probably can’t figure out Winners (yet). • The New Due Diligence = Incremental Achievements – “Due Diligence” Trusted Referrals + History – “Great Team” Functional Prototype + Usage – “Size of Market” Evidence = Customers, Revenue • The Odds Are: They Suck, You’re Wrong – You’ll Be Wrong 4x out of 5x. (If U Don’t Suck). – In 6 Months, You’ll Know If They Don’t Suck. – In 1-2 Years, You’ll Know If They’re Awesome.
- 15. Bet on Singles, Not HomeRuns. (Look for Ichiros, Not Barry Bonds)
- 16. Platforms 2.0 Search, Social, Mobile
- 17. Platform Viability Users .Users . . Money . Money FeaturesFeatures Growth Profit Profitable Growth Nirvana Successful Platforms have 3 Things: 1) Features 2) Users 3) Money
- 18. 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 (WeChat, Line, WhatsApp, Kakao), Skype, Phone/Voice, etc
- 19. Web 2.0 Business Model: KISS (“Keep It Simple, Stupid”) • 1) Re-invent Web 1.0 Businesses – Make a Website, a Widget, an App – Sell Stuff (Transactions, Subscriptions, Affiliate) • 2) add Web 2.0 Technology – Search, Social, Mobile, Local, Media, Comm – Google, Facebook/Twitter, Apple/Android, YouTube – Email, SMS, Ecommerce / Payments • 3) Get Customers, Make Money – Distribution, Distribution, Distribution – (Customer Acq’stn Cost) vs. ($Rev. Per Customer) – Low CapX + Profitable Web Businesses
- 20. 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 1. 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 * Mint acquired by Intuit in Sept 2009 for $170M
- 21. Lean Startup, Lean VC Customers, Metrics, Iteration. Invest BEFORE Traction; Double Down AFTER.
- 22. 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
- 23. Startup Incubators & Metrics Lots of Little Bets. Most FAIL. (but a few succeed :)
- 24. 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
- 25. 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
- 26. Education & Community • Mentors, Investors • Design, Data, Distribution • Platform Partners • Sponsors & Strategics • Marketing & Visibility
- 27. Product, Market, Revenue • Product: assess functional use, improve design/UX • Market: test usage, distribution channels • Revenue: test cust acq cost, revenue, *timing* • Work on Pitch, Help Find Co-Investors, etc
- 28. Hacker, Hustler, Hipster • Hacker: engineers & developers • Hipster: design & UX • Hustler: marketing & business 1.Build functional prototypes 2.Improve UX so people convert 3.Scale customer acq & distribution
- 29. Outlier Competition + Modeling Success Behaviors • You want min 3-5 “rockstars” to compete • Rockstars to model success for others • You can’t assume >20% rockstars • Therefore, pick 5x5 = 25 teams • 3-5 rockstar teams emerge, compete, win • 5-10 *other* non-rockstars learn • Identify losers quickly (but don’t be an ass)
- 30. Winners, Losers, Tweeners • Winners #WIN (with or without you) • Losers #LOSE (with or without you) • Tweeners #TWEEN – They might win with your help – They might lose with your help – Be helpful, but don’t dally – Note: you might be wrong about the losers & tweeners, so don’t be an arrogant a-hole.
- 31. 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)
- 32. 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”)
- 33. 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
- 34. 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
- 35. 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
- 36. Going Local, Going Global web gets bigger -> world gets smaller
- 37. Global Trends • Growth of Global Languages (see MyGengo.com) – 1B+ speakers: Mandarin, English – 300-500M+ spkrs: Spanish, Arabic • Smart Device Proliferation – mobile, tablet, TV, console, etc • More Young, More Old ($$$) Users Online • More Bandwidth, More Video, More Social, More Mobile • Wealthy Chinese + Indian, Web + IRL Globetrotters ($$$B) • Acceleration of Global Payment, E-Commerce • Dramatically Reduced Cost: Product Dev, Customer Acqstn • Global Distribution Platforms – US/EU: Apple, Facebook, AMZN, GOOG (Search, YouTube, Gmail, Android), Twitter – Asia: Baidu, Tencent, Alibaba, Sina, NHN, Yahoo-J, Softbank, Rakuten, DeNA, Gree
- 38. Thanks • Questions / More Info? – http://500.co (our company) – http://500hats.com (my blog) – https://angel.co/500startups (our fund) – Rui Ma, 500 Startups China (@MissRuiMa) – Khailee Ng, 500 Startups SE Asia (@Khailee) – Dave McClure, 500 Startups USA (@DaveMcClure)