2. Dave McClure
Founding Partner & Troublemaker, 500 Startups
00’s & 10’s:
• VC: Founders Fund, Facebook fbFund, 500 Startups
• Angel: Mashery, Mint.com, SlideShare, Twilio
• Marketing: PayPal, Simply Hired, Mint.com
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 VC Fund & Startup Accelerator
• What is 500?
• $200M under management
• 100+ people / 20 Countries
• 3,000+ Founders / 250+ Mentors
• Capital, Education, Community
• #500STRONG
• 1400+ Portfolio Co’s / 50+ Countries
• 3 Unicorns ($1B+)
• Credit Karma
• GrabTaxi
• Twilio
• 50+ exits
• Wildfire (acq GOOG, $350M)
• MakerBot (acq SSYS, $400M)
• Viki (acq Rakuten, $200M)
• 30+ Centaurs ($100M+)
• Udemy
• Ipsy
• SendGrid
• VivaReal
• The RealReal
• TalkDesk
• Intercom
• Virool
• BarkBox
4. This Talk is About…
• Re-inventing a 50 year old sport
• 500 Startups… WTF?
• 99 VC Problems, But a Batch Ain’t 1
• MoneyBall for Startups: Lots of Little Bets
• 500 VCs, 500 Funds
28. 500 Strategy: Lots of Little Bets*
1) make lots (>100) of
investments in early-
stage startups
3) wait 3-10 years for returns:
-10-20% small exits @1-5X (<25M+)
-5-10% larger exits @5-20X ($25-250M+)
-1-2% unicorns @20-50X+ (>$250M-1B+)
*See Peter Sims book: “Little Bets”
2) over next 2 years, double-
down on top 20%
29. Building Tech Startups
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”)
31. 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
32. 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 / Unit Economics, Find Profitable Customer Segments
• Prove Solution/Benefit, Assess Market Size
• Test Channel Cost, Unit Economics, Revenue Opportunity
• Determine Org Structure, Key Hires
33. 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
34. Legal review Partner approval
Angel Pre-Seed Seed Post-Seed Series A/B Growth
Accelerator
Seed
“Distro"
Follow-On
Selection Criteria – Data-Driven Process Based on Pre-defined Metrics
• Product or service solves a problem for a specific target customer
• Capital-efficient business; operational at less than $1M in external financing
• Scalable internet-based distribution (search, social, mobile) or proven ability to scale sales
• Functional prototype required before investing (or previous product success)
• Measurable traction: engaged users, some revenue, and attractive unit economics
• Cross-functional team with design, engineering and marketing expertise
How 500 Invests:
Accelerator, Seed, Distro
36. We live in a World of ABUNDANCE
• There are LOTS of talented people in the world
• There are LOTS of entrepreneurs everywhere
• There is a LOT of capital sitting around, BUT….
• Not much is available for un-tested entrepreneurs :(
• 500 Startups plans to change that.
38. Who/What is an Entrepreneur?
• someone who WANTS to start a business
• someone who can RUN a business
• someone who can run a SUSTAINABLE business
• someone who can run a PROFITABLE business
that creates VALUE & employs LARGE # people
• someone who can run a $10M/yr business that
employs 100+people
39. How Big Is The Market?
Q: How Many Entrepreneurs?
• How Many People = 7,000,000,000 on earth
• 1% of Humanity is Entrepreneurial = 70,000,000 founders
• Live 70 years, try at least once = 1,000,000 founders / year
• How Much Do They Need? Zero? $100K? $1M? $10M?
• How Big is the Market = 1M founders x $10M = $10 TRILLION / year
• Come on, REALLY? (ok Divide by 100)
• 100,000 founders / year * $1M each = $100 BILLION / year
40. How Many VCs?
• How Many Founders? 1,000,000 founders / year
• (ok, divide by 100, let’s say 10,000 founders / year)
• 1 VC can make 20 investments / year
• 10,000 founders / 20 deals per VC = 500 VCs
41. How to Become a VC
• Option 1: Go to Harvard/Stanford/Wharton, Get MBA,
Become VC Associate, Work at McKinsey / Google /
Facebook, Re-Join VC as Junior Partner or Partner
• Option 2: Start a Startup, Grow Really Big, Sell for $1B+,
Join VC as Partner
• Option 3: Wander around lost in the forest, Work Your Ass
Off for 25 yrs, do some angel investing, Start your own Firm
42. 500 Startups + Stanford University Investor Education Program
#Venture Capital Unlocked: Learn best practices of Silicon Valley Investing
#Startup Accelerator: Build your own accelerator with 500 Startups
#VC/Angel 101: How to build an early-stage investment thesis
#500VCs
43. How to build investment
thesis
Meet REAL startup founders
and conduct selection
Connection with Silicon Valley
investors and mentors
Legal docs: cap table and
standard terms
How to generate deal flow Trends and relevant area of
investments
500 Startups + Stanford University Investor Education Program
#500VCs
44. Feb 8th-19th 2016
@ Stanford+500
signup NOW:
http://500.vc
500 Startups + Stanford University Investor Education Program
#500VCs