Corporate VC Innovation: Strategies That Don't Suck
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Transcript of Corporate VC Innovation: Strategies That Don't Suck
Corp VC Innovation New Strategies That Don’t Suck.
Dave McClure http://500.co (@DaveMcClure)
NewPort Beach, Feb 2013 http://slideshare.net/dmc500hats
Why This Talk Will Blow Your Corp VC Mind
Teaser + Intros • Funny Videos ‘n Stuff J • Shameless, Blatant 500 Startups Plug (<3m) • What’s New in Tech & Startups • What’s New in Investing • Lean Startup, Lean VC –> ”Moneyball” Strategy for Corp VC
Corp VC: Strategies 4 Innovation • *STOP* Doing Same Old Crap & Expecting Diff Results. • Run Vertically-Focused Conferences, Contests, & “Hack”-athons • Your Relevance to Startups: Customers + Distribution • How to Disrupt & Disintermediate Big VC (pro tip: BUY EARLY.) • Turning Your [Company + Tech + Customers] into APIs & Platforms
Blatant Plug.
(<3 min, promise)
Dave McClure Founding Partner & Troublemaker, 500 Startups
00’s & 10’s: • Investor: Founders Fund, Facebook fbFund, 500 Startups • Companies: Mint.com, SlideShare, Twilio, WildFire, SendGrid • Marketing: PayPal, Simply Hired, Mint.com, O’Reilly
80’s & 90’s: • Entrepreneur: Founder/CEO Aslan Computing (acq’d) • Developer: Windows / SQL DB consultant (Intel, MSFT) • Engineer: Johns Hopkins‘88, BS Eng / Applied Math
500 Startups Global Seed Fund & Startup Accelerator
• What is 500? – $60M+ under management – 20 people / 10 investing partners – US: SF + NY | INTL: MEX, BRZ, IND, CHN, SEasia – 1000+ Founders / 200+ Mentors – 20+ confs/events per year – 10+ Corp VCs Partners + LPs – 20 exits to 10+ Public Co’s
• 450+ Portfolio Co’s / 30+ Countries – Wildfire (acq GOOG, $350M) – Twilio – SendGrid – TaskRabbit – MakerBot – 9GAG – Viki
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500 Corporate Sponsors, Tech Partners, & Investors
500 Startups: Global Seed Fund startup investments in 30+ countries
• Q4/12 added: Germany, Korea, Peru; + Russia & Turkey in Q1/13 • Priorities In 2013: SE Asia, Middle East, Eastern Europe
What’s HAWT, What’s NOT.
(note: i don’t really care what ppl think is hot / sexy, but since many folks do here’s a quick roundup)
Angel* List: It Rocks.
• Startups & Investors • Activity & Metrics • Platform & APIs • Customers & Corporates
• *ps – not just for Angels, or USA
Trends in Tech What’s HOT • Mobile, Mobile, Mobile… and Tablets • Wearables & Sensors • Hardware + Software combo • Crowdfunding (if SEC approves) • Video Content (+ commerce) • Big Data • Enterprise Startups / Consumerization of Enterprise • Photos (still!)
What’s NOT • Daily Deals • Social Games • Photos (except see above) • Social Media w/ no business model
Trends in Investing What’s HOT • Big-Ass Funds: A16Z, Accel, Greylock, Battery, NEA • Micro-VC: Felicis, SoftTech, IA Ventures • Incubators: Y Combinator, TechStars, AngelPad, 500 J) • Full-Service VC: A16Z, First Round Capital, Lightbank • Angel List, Angel List, Angel List! • Moneyball Investing
What’s NOT • Big Funds w/ no Branding or Results • Regional Incubators outside SV/NYC • Incubators w/ no Experience, Smart $ or Mentorship • Mobile 1st? 2nd? 3rd? (How about Enterprise SW?)
Changes in Startup & VC Ecosystem
• LESS Capital required to build product, get to market – Dramatically reduced $$$ on servers, software, bandwidth – Cheap access to online platforms for 100M+ consumers, smallbiz, etc – A few big IPOs @ $1B+, but LOTS of small acquisitions (<$100M)
• MORE Customers via ONLINE platforms (100M+ users) – Search (Google) – Social (Facebook, Twitter, LinkedIn) – Mobile (Apple, Android)
• LOTS of little bets: Accelerators, Angels, Angel List, Small Exits – Y Combinator, TechStars, 500 Startups, AngelPad, Betaworks – Funding + Co-working + Mentoring -> Design, Data, Distribution – “Fast, Cheap Fail”, network effects, quantitative + iterative investments
Startup Investor Ecosystem
Angels & Incubators ($0-10M)
“Micro-VC” Funds
($10-100M)
Smaller VC Funds ($100-300M)
Larger VC Funds (>$300M)
True First Round
Andreessen Atomico
Y-Combinator
TechStars
SoftTech (Clavier)
Felicis (Senkut)
SV Angel (Conway)
Sequoia Greylock
Union Square
Floodgate (Maples)
Foundry Group
Incubation
Seed
Series A
Series B
Series C+
Bootstrap, KickStarter, Crowdfunding
Venture Capital 2.0: Lots of Little Bets
aka “MoneyBall for Startups”
• VC Evolution: Physician, Scale Thyself (Aug 2012) • MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
Think Different.
MoneyBall 4 Startups
http://slideshare.net/paulsingh/ moneyball-a-quantitative-approach-to-angel-investing-austin-tx-aug-2012
1. Make Lots Of Little Bets 2. Count Cards (Monitor Progress & Stats) 3. Double Down on Winners
70% Capital
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Quan<ta<ve Inves<ng before Trac<on
250+ companies @ $50K avg. (1st check) -‐ Assume high failure rate (up to 80%)
Double-‐Down a'er Trac<on 50+ ‘winners’ @ $100K-‐$1M
(2nd + 3rd check) -‐ -‐ Target 10+ exits @ $100M+
“Lots of Li-le Bets”*
1) Make lots of li@le bets pre-‐tracCon, early-‐stage startups
30% Capital
2) aHer 6-‐12 months, idenCfy top 20% performers and double-‐down higher $$$
3) conservaCve model assumes -‐ 5-‐10% large exits @20X ($50-‐100M+) -‐ 10-‐20% small exits @5X ($5-‐50M)
*See Peter Sims book: “Little Bets”
Bet on Singles, Not HomeRuns. (Look for Ichiros, Not Barry Bonds)
Lean Startup, Lean VC • “Moneyball for Startups” = Lots of Little Checks • Filter out Fail, Invest Incrementally in Success • Apply to Venture, as well as Startups
• … and, can we apply this to Corp VC as well?
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”)
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
Startup Incubators Lots of Little Bets. Most FAIL.
(but a few succeed :)
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
Incubator Community & Resources
• Mentors, Investors • Design, Data, Distribution • Platform Partners (Google, Facebook, Twitter) • Corp Strategics (GE, BBVA, Docomo, Qualcomm) • Marketing & Visibility • Downstream Investors / Acquirers
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
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)
Innovation Strategies for Corporate VC
Partner with Startup Community + Incubators Use Customers & Distribution, Early Acquisition as Leverage
Turn Your Company + Tech into an API + Platform
Not Your GrandDaddy’s Corp VC
• Vertically-Focused Incubators: – Facebook fbFund – Nike / Sensors / Wearables – Digital Health: Rock Health – Digital Media: Turner Media, NY Times
• Investing & Partnering with Incubators & Micro-VCs – Startup Community Development & Outreach – Vertically-focused conferences & events – Hackathons, Contests using your Company as a Platform / API – Portfolio Review, Custom Demo Days, Co-investment – Research & Support for targeted M&A
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Services Early-‐Stage VCs & accelerators Can Provide to Corp VCs
Access to global networks, mentors and staff
Training and space for Corp VC team
Introduc@ons to porAolio companies, including Mini
Demo Days
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Ver<cally-‐Focused Conferences & Events
Par@cipa@on at demo days, conferences, and events
send Mentors to work with the Corp teams
Customized repor@ng and sharing of informa@on; mee@ng on a regular basis to discuss latest trends and innova@ons
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
2. 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 J
* Mint acquired by INTU in 2009 for $170M
* SlideShare acquired by LNKD in 2012 for $110M
Corp VC + Startups: Customers & Distribution, Little Checks, Early Acquisitions
• Your Customers = HUGE Strategic Advantage • Big Companies need Innovation + Products • Small Startups need Customers + Distribution
• Designing Strategy 4 Early, Targeted Acquisitions
– “RFP for Acquisition” with a price-tag / unit economics – “We’ll buy your startup for $5-10M or $X per customer”
Corp VC as Platform + API
Turn your Customers & Technology into an API, and let Startups use your Company
as a Business Platform
Platforms 2.0 Search, Social, Mobile
Platform Viability
Users . .
Money
Features
Growth Profit
Profitable Growth
Nirvana
Successful PlaSorms have 3 Things: 1) Features 2) Users 3) Money
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, Skype, Phone/Voice, etc
The Future: Corp VC as Platform + API
• Identify Key Domain Expertise + Vertical Processes • Identify Customer Attributes / Values / Needs • Identify Customer & Business Unit Economics
• Give Startups Access to Your Company via APIs • Let Startups Offer Products, Svcs to Your Customers • Provide Distribution to Leverage Investment
• Lastly: Buy Early, Fast, & Often
Thanks
• Want more info? Go visit: – http://500startups.com (our company) – http://500hats.com (my blog) – https://angel.co/500-startups-fund-ii (our fund)