GROW2010 Conference - Dave mcclure
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Transcript of GROW2010 Conference - Dave mcclure
The Lean VC:a Silicon Valley 2.0 Story
Dave McClure, 500 Startups(@DaveMcClure) http://500startups.com
GROW conference - August 2010 – Vancouver, CA
Re-Inventing Venture Capital & Angel Investing throughInnovation, Incubation, & Iteration
Lean VC - Topics
• Venture Capital 2.0 = Fewer, Smaller Funds (<$100M)– Death of Large Funds– Birth of Super Angel Funds– M&A Market Changes
• Platforms = Distribution + Monetization (not Tech)– Search (Google)– Social (Facebook, Twitter)– Mobile (Apple, Android)
• Incubators & Metrics = Many Small Experiments (most FAIL)
– Y-Combinator, TechStars, SeedCamp– Betaworks, fbFund REV, Nitobi– 500 Startups
[Pardon The Blatant Commercial]
Dave McClure
2001-2009:• Startup Investor: 500 Hats LLC, Founders Fund• Tech Marketing: PayPal, Simply Hired, Mint• Advisor, Angel Investor: 40+ Startups• Conf. Organizer: Web 2.0, O’Reilly, Startonomics• Stanford Visiting Lecturer: Facebook, Startup Metrics
80’s & 90’s:• Entrepreneur: Founder/CEO Aslan Computing (acq.)• Developer: Windows Apps / SQL DB Admin• User Groups: E-Commerce, Internet, Client-Server• Engineer: Johns Hopkins ‘88, BS Eng / Applied Math
GEEK, CODER,
ENTREPRENEUR
Blogger, Startup AdvisorInternet Marketing, SuperAngel/Micro-VC
Professional Investments (Founders Fund: 43 deals, Q4/08-Q1/10, ~$3M)
fbFund REV22 incubator deals
($850K)
FF Angel21 seed deals
($2M)
Personal Investments(500 Hats: 26 deals, 2004-2010, ~$400K)
LinkDex
oneforty
Networked Blogs
MyGengo
Votizen
Postling
EcoMom SiteJabber
Graphicly
WePayPlancast
Recurly
500 Startups LPMountain View, CA – Founded 2010
• Seed Fund & Incubator Program• Design, Distribution, Metrics (AARRR!)• 30+ Portfolio Companies ($50K-250K)
– Twilio– Wildfire– Sendgrid– MyGengo– Erply– MyGengo– Payvment– Tello– …
Venture Capital 1.0 = Too Big To FAIL WIN?(at least for *Internet* Startups)
Venture Capitalist? Super Angel.
Silicon ValleyInvestor Ecosystem
Angels & Incubators($0-10M)
“Seed” Funds ($10-50M)
“Small” VC Funds ($50-250M)
“Large” VC Funds (>$250M)
True VenturesFirst Round Capital
BenchmarkSequoia
Y-CombinatorTechStars
SoftTech (Clavier)FloodGate (Maples)
Felicis (Senkut)SV Angel (Conway)
Venture Capital: Still Relevant?
Good 4 big CAPex:
• Hardware
• Enterprise SW
• Clean Tech
• BioScience
• Facebook, Zynga,
Groupon
Not So Great 4:
• Most Consumer / SMB Internet Startups
• Consulting Shops
• Lifestyle Biz
• Porn, Gambling
More & Smaller Acquisitions
• Mature Internet Platform Co’s:– GOOG, MSFT, YHOO, EBAY, AOL,
AMZN, AAPL, INTU, ADBE, Fbook
• Lots of Users, $$$• Outsourcing Innovation
• Lots of M&A (but small)• Great for Angels & Entrepreneurs• Not so Great for (big) VCs
Platforms 2.0Search, Social, Mobile
Web 2.0: Good Times, G.
1. # Users, Bandwidth = Bigger.
2. Startup Costs = Lower.
3. Transaction$$$ = Better.
Building Product => Cheaper, Faster, Measurable Getting Customers => Easier, More Predictable
Product & Market Decisions based on
Measured User Behavior
R.I.P.
*BAD*TIMES
Platform Viability
Users .Users . . Money
. Money
FeaturesFeatures
Growth Profit
ProfitableGrowth
Nirvana
Successful Platforms have 3 Things:1) Features2) Users3) Money
Distribution Platforms
Customer Reach: 100M+
• Search: Google (SEO/SEM)
• Social: Facebook, Twitter, Zynga, LinkedIn
• Mobile: Apple (iPhone, iPad), Android, Blackberry
• Media: YouTube/Video, Blogs, Photos
• Email/IM: Gmail, Yahoo, Microsoft
Web 2.0 Business Model: KISS
• 1) Re-invent Web 1.0 Businesses– Make a Website, a Widget, an App– Sell Stuff to People (Transactions, Subscriptions)
• 2) add Web 2.0 Technology– Search, Social, Mobile– Google, Facebook, Apple– Email, ECommerce
• 3) Get Customers, Make Money G– Distribution– Distribution– Distribution
Startup Incubators Lots of Hot, Cool, Web 2.0!
(+ lots of FAIL.)
Incubator 2.0: Fast, Cheap, FAIL• Incubators growing in popularity, acceptance
• Supportive ecosystem for startups (angels, VCs)
• Efficient use of investment capital ($0-100K)
• High fail rate (60-80%) => large initial sample size
Incubator 2.0: Education, Collaboration, Iteration
• Focus on education & shared resources• Success based:
– many small startup experiments– common platforms, problems & solutions– physical proximity, open/collaborative environment– fast fail, iteration, metrics & feedback
• 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 ($850K total)• 3 month program: Technology, Design, Marketing, Business topics • Success: ~8 startups funded >$500K – Wildfire Interactive raised $4M
Startup Metrics: Lean Startup & Lean VC
Measure Stuff, Iterate.
(Rinse & Repeat.)
Startup 2.0: “Lean Investor” Model
Method: Invest in many startups using incremental investment, iterative development. Start with lots of small experiments, filter out failure, and expand investment upon success… (Rinse & Repeat).
• Incubator: $0-100K (“Build & Validate Product”)• Seed: $100K-$1M (“Test & Grow Marketing Channels””)• Venture: $1M-$10M (“Maximize Growth & Revenue”)
Investment #1: Incubate(“Product”)
• Structure– 1-3 founders– $25K-$100K investment– Incubator environment: multiple peers, mentors/advisors
• Build Functional Prototype / “Minimum Viable Product” (MVP):– Prototype->Alpha, ~3-6 months– Develop Minimal Critical Feature Set => Get to “It Works”– Instrument Basic Dashboard, Conversion Metrics– Test Cust. Adoption (10-1000 users) / Cust. Satisfaction (Scale: 1-10)
• Demonstrate Concept, Reduce Product Risk, Test Functional Use• Develop Metrics & Filter for Possible Future Investment
Investment #2: Seed(“Market”)• Structure
– 2-5 person team– $100K-$1M investment– Syndicate of Angel Investors / Small VC Funds
• Improve Product, Expand Market, Test Revenue:– Alpha->Beta, ~6-12 months– Customer Sat ≥ 6 => Get to “Doesn’t Suck”– Setup A/B Testing Framework, Optimize Conversion– Test Marketing Campaigns, Cust Acqstn Channels
• Prove Solution/Benefit, Assess Market Size• Test Channel Cost, Revenue Opportunity• Determine Org Structure, Key Hires
Investment #3: Venture(“Revenue”)
• Structure– 5-10 person team– $1M-$5M investment– VC Investors
• Make Money, Get to Sustainability:– Beta->Production, 12-18 months– Customer Sat ≥ 8 => “It Rocks, I’ll Tell My Friends”– MktgPlan => Predictable Channels / Campaigns + Budget– Scalability & Infrastructure, Customer Service & Operations– Connect with Distribution Partners
• Prove/Expand Market, Operationalize Business
• Future Milestones: Profitable/Sustainable, Exit Options
Summary
• Venture Capital 2.0 = Fewer, Smaller Funds (<$100M) + More, Smaller Exits (<$100M)
• Platforms 2.0 = Distribution + Monetization, not Tech
• Incubators, Metrics = Many small Experiments (most FAIL).
– Measure Stuff.– Iterate, Iterate, Iterate.