The Unicorn Hedge: Why Are Corporations Buying Unicorns? (Madrid, Oct 2016)
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The document discusses the strategies and insights from Dave McClure of 500 Startups regarding venture capital and the rising trend of corporations acquiring unicorn startups. It highlights the shift from traditional to lean startups, the role of corporate investments in innovation, and the challenges of becoming a unicorn. Additionally, it outlines the importance of a supportive ecosystem for startups, including mentorship, capital, and customer acquisition.
![Startup Risk Reduction
Concept
Early
Customer
Usage
Scalable
Customer
Acquisition
[about to be]
Profitable
Unit
Economics
Scalable
Profitable
Business
Functional
Prototype
PRODUCT
MARKET
REVENUE
Exit?
When 500
Likes to
Invest](https://image.slidesharecdn.com/fu-161005142147/85/The-Unicorn-Hedge-Why-Are-Corporations-Buying-Unicorns-Madrid-Oct-2016-8-320.jpg)
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The Unicorn Hedge: Why Are Corporations Buying Unicorns? (Madrid, Oct 2016)
- 1. @DaveMcClure @500Startups http://500.co Madrid - Oct 2016 The Unicorn Hedge Why Are Corporations Buying Unicorns?
- 2. Dave McClure Founding Partner, 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, 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. • What is 500? – $250M global seed fund + startup accelerator – 130 people / 25 languages / 20 countries – 1700+ Companies / 3500+ Founders / 250+ Mentors – Investment, Accelerator, Distro, Marketing, Events, Education – Community + Content + Conferences • 1700+ Co’s / 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
- 4. 500 Strategy: Lots of Little Bets* 1) make lots of little bets on early-stage startups when they’re 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 co’s @ $100K 1st checks 100+ co’s @ $200-500K 2nd/3rd checks (hope for a few big exits @ $100M-$1B+) (assume high failure rate ~50-80%)
- 5. Old Startups vs. New Startups LEAN Startup: Simpler, Faster, Cheaper, Smarter 1996 ”Big, Fat Startup” • 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 2016 ”Lean, Little Startup” • 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
- 6. Platforms: Search, Social, Mobile, Video, Messaging
- 7. 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 it’s working • Incubation: $0-100K (“Build & Validate Product”) • Seed: $100K-$1M (“Test & Grow Marketing Channels””) • Venture: $1M-$10M (“Maximize Growth & Revenue”)
- 8. Startup Risk Reduction Concept Early Customer Usage Scalable Customer Acquisition [about to be] Profitable Unit Economics Scalable Profitable Business Functional Prototype PRODUCT MARKET REVENUE Exit? When 500 Likes to Invest
- 9. Startups Disrupting Corporations • Uber, Lyft, Tesla = Car Companies • AirBnb = Hotels • Twilio = Telecom • Apple, Spotify = Music, Phones • Netflix = BlockBuster, Movies, Television • Facebook, Google = Media, Advertising • Amazon = Walmart / EVERYTHING! 9
- 10. Corporations are Becoming VCs
- 11. 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.
- 12. How Many Startups to Get to 1 Unicorn?
- 13. Perils of Becoming a Unicorn (Before/After IPO) 2009 2016 Jeff Lawson, Founder/CEO Twilio (NYSE:TWLO)
- 14. Startup Odds Unicorns 100:1 | Centaurs 20:1 Data from ~600 companies from 500 Startups Funds I + II (2010 - 2013 cohorts) $1-10M
- 15. Startups + Corporation = TEAM 15 Startups: • Speed • Talent (People) • Product / IP Corporations: • Customers • Budget / Money
- 16. Corporate/Startup Innovation Framework Partnerships Investments M&A Outcomes Strategies People Product Customers Dealflow Accelerators PR & Sponsorships Competitions & Events Silicon Valley Outposts Investing in VC funds
- 19. Corporate/Startup Innovation Framework Partnerships Investments M&A Outcomes Strategies People Product Customers Dealflow Accelerators PR & Sponsorships Competitions & Events Silicon Valley Outposts Investing in VC funds
- 20. Different Strategies, Rqmts Different Outcomes, Impact Partner Invest Acquire Effort Low Medium High Cost Low Medium High Impact Low Medium High
- 21. Investor Ecosystem Angels & Accelerators ($0-10M) “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
- 22. The “Series B Snipe” (aka Stealing Baby Unicorns) Seed Series A Series B/ C Late Stage / Unicorn Driver Team Product Customers Business Cost 1X 10X 100X 1000X Risk Very High High Medium Low Size / Ppl 1-10 10-50 50-200 500-1000
- 23. 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)
- 24. What’s Most Critical? • You DON’T need to be in Silicon Valley, but… • Silicon Valley Needs to be in YOU.