VC Evolution: Geeks Got Next. (aka, Software Eats Private Equity) Grow Conf, Vancouver (Aug 2012)

1. VC Evolution: Geeks Got Next.
(aka “Software Eats Venture Capital”)
@DaveMcClure @500Startups
#GROWconf @ Vancouver (Aug 2012)

2. Shit I’m Gonna Talk About
Pro Tip: Leave Now B4 This Gets Ugly
• 500 Startups: Dude. Srsly. Like, WTF?
• Angel List: Use It, You Fucking Idiot.
• Making Venture Work Better (This is Easy)
– MoneyBall 4 Startups
– Startups #FAIL & VCs #SUCK.
– Early Stage Investing = Risk Reduction
– Your Diligence Is an Illusion
– Guild of Geeks / Mentor Network
• Making Incubators Work Better (This is Hard)
– It Takes A Village: Mentors, Advisors, Investors
– Education & Community
– Outlier Competition & Success Behavior Modeling
– Product, Market, Revenue, Pitch
– Customer Acquisition, Growth Hacking, & Platform Distribution
– Winners Win, Losers Lose, Tweeners Tween
• Scaling VC
• Going Intl

3. Dave McClure
Founding Partner & Sith Lord, 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 Media
• Speaker: Lean Startup, Web 2.0, Stanford/Facebook
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

4. 500 Startups: SRSLY, WTF?
Mountain View, CA – Founded 2010
• Seed Fund & Startup Accelerator
– 10,000 sq ft / Silicon Valley HQ
– 15 people / 7 investing partners
– Design, Distribution, Data
– US, Brazil, Mexico, India (+ more)
– 600 Founders / 180+ Mentors
• 350+ Portfolio Co’s / 20+ Countries
– Wildfire (acq GOOG, $350M)
– Twilio
– SendGrid
– TaskRabbit
– MakerBot
– 9GAG 
– Unbounce
– HighScoreHouse
– StoryPanda

5. Angel List*: It Fucking Rocks.
(Use it, You *&#% Idiot)
• Startups & Investors
• Activity & Metrics
• Platform & APIs
• *ps – it’s not just for Angels

6. Making Venture Capital
Work Better
This is Actually Pretty Easy,
Since Most VCs / Funds
Suck Balls.

7. 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

8. Startups #FAIL & VCs #SUCK.
But You Knew That Already
• Play Blackjack, Not Roulette. (Count Cards. Make Lots of Little Bets.)
• Don’t Be An Arrogant, Insufferable Prick.
• Don’t Assume Your Diligence is 4 Shit.
• Don’t Assume You. or They are Smart.
• Build a Fucking Brand That Matters.
• Increase Sample Size.
• Don’t Make Big Bets Too Early.
• Simplify Revenue Model. (as in: HAVE ONE, you fucking idiot)
• Bet on Hackers, Hustlers, Designers.
• Create a Community.
• Invest after they have a functional prototype.
• Be early and contrarian, or late and right.
• Use The Tools (you fucking idiot): Twitter, Facebook, Quora, Instagram, Pinterest, etc
• Talk / Blog / Present about something u know about, care about.
• Admit Your Faults Frequently.
• Laugh a little bit. (at yourself, not others).
• Don’t worry too much about legal structure.
• Worry a SHIT TON about valuation. (because your exits will be SMALL)

9. Bet on Singles, Not HomeRuns.
(Look for Ichiros, Not Barry Bonds)

10. Early-Stage Risk Reduction
• Intro: Crazy, Liars or crooks? Fucking idiots?
• 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?
• Finance: what will it cost
– Q1: cost to get a customer?
– Q2: how & when do you make money?

11. Your [up-front] Diligence Is An Illusion
(Real Diligence = Quick Check + 3-6 mo’s)
• You Might Be Able to Detect Idiots & Assholes.
• You Probably Can’t Figure Out Winners (Yet).
• Your Network is Better Than Your Homework.
• Trusted Referrals >> Diligence
• Functional Prototype >> Team.
• Customers/Revenue >> Market.
• 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.

12. TIRED: White Guys in Khakis & Blue Shirts.
WIRED: Guild of Geeks. Mentors. YC, 500.

13. Making Incubators
Work Better
(This is Actually Pretty HARD.)
Find & Fund Potential.
Help Them Improve.
Education & Community.
Access to Mentors.
Access to Investors.
If You’re Lucky, Discover *a few+ Winners.

14. It Takes A Village
• Physical Space.
• People = Tribe.
• Mentors (Advise 1st, Invest 2nd)
• Events, Foods, Awesome.
• This is YOUR FAMILY. Make Them AWESOME.
• This is also YOUR BRAND. So Don’t SUCK.
• Make a Big Tent. (Collaborate, don’t Compete).

15. Education & Community
• Mentors, Investors
• Design, Data, Distribution
• Platform Partners
• Sponsors & Strategics
• Marketing & Visibility

16. 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
• Prune losers quickly

17. 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

18. 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

19. Growth Hacking FTW
• (More Here TBD)

20. 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 a fucking arrogant asshole.

21. Scaling VC
• VC is an immature & fragmented market
• It’s Ripe for Disruption
• It Hasn’t Scaled (Yet)

22. Going International
• Brazil, Mexico, India
• Canada, UK, Japan
• China, Indonesia, Russia, Turkey
• Etc