Silicon Valley 2.0 @ Startup Labs Istanbul
Post on 08-May-2015
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Silicon Valley 2.0
“Geeks Gone Global”
Changes: Startups, Tech, VC• Venture Capital = Fewer, Smaller Funds
– Decline of Larger Funds (> $250m), except for a few HUGE ONES (>$1B)– Rise of “Super Angel” / “Micro-VC” seed funds (<$100M)– Fewer Large IPOs (>$1B), Lots of Small Acquisitions (<$250M)– Small funds typically run by Operators, not MBAs
• BIG Customer Platforms = Distribution + Monetization (not Tech)– Search (Google)– Social (Facebook, Twitter)– Mobile (Apple, Android)– Local (Groupon, Living Social)
• Incubators, Metrics = Many Small Experiments– Y Combinator, TechStars, 500 Startups– The “Lean Startup”, Design/UX, Distribution– Lots of Little Bets; Incremental Investment
70 % Fund
Capital
3
500 Strategy: Lots of Little Bets
1. Start with large, well-screened funnel of early-stage companies.
30% Fund
Capital
2. After first check / 3-6 months, identify top performers and double-down on best of them
3. Build conservative model assuming 5-10% larger exits @ > $100M, 10-20% smaller exits @ <$100M
500 Startups: “Super-Angel / Micro-VC” Fund
• Seed Fund & Startup Accelerator– $29M Fund I; $50M Fund II– 9-person team, 4 partners– 10,000 sq ft, HQ in Silicon Valley– 175+ Mentors in 10+ Countries
• Fund I Portfolio: 250 co’s– Twilio (Union Square, Bessemer)
– Wildfire (Summit)
– SendGrid (Foundry, Bessemer)
– TaskRabbit (First Round)
– MakerBot (Foundry)
– Viki (Greylock, Andreessen)
– Smule (Bessemer, Granite)
Dave McClure
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
Why Micro VC? What has changed?
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Angel Money
Venture Investor Ecosystem
Angels & Incubators($0-10M)
“Micro-VC” Funds ($10-100M)
Smaller VC Funds ($100-500M)
Larger VC Funds (>$500M)
True VenturesFirst Round
Andreessen-Horowitz
Accel Partners
Y-Combinator
TechStars
SoftTech (Clavier)
Felicis (Senkut)
SV Angel (Conway)
SequoiaGreylock
Union Square
Floodgate (Maples)
Foundry Group
Distribution PlatformsCustomer Reach: 100M+
• Search: Google (SEO/SEM)
• Social: Facebook, Twitter, Zynga, LinkedIn
• Mobile: Apple (iPhone, iPad), Android
• Local: Groupon, LivingSocial, Yelp, Google, Facebook
• Media: Video (YouTube), Blogs, Photos, Music.
• Comm: Email, IM, Chat, Phone/Voice.
Lots of Small Bets = Quantitative Approach
$ Invested Great Performers
$ Distributed
$1-5M avg exit
50
100
150
$ Millions
$25M average exit
$1-2M payback/co.
30+ companies (15%)
5-8% Ownership
High Performers5% of Portfolio
$100M of return
Ok Performers
• No heroic exit assumptions• Double-down on top 20%• Protected by Law of Large #s.
$50M into200+ companies
Solid Performers15% of Portfolio
$50M of returnGood Performers
$150M+ out50 companies
Ok Performers
$250M average exit
$5-10M payback/co.
10+ companies (5%)
1-5% Ownership
$ Invested
9
Details
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
Going Local, Going Globalweb gets bigger -> world gets smaller
Global Trends• Growth of Global Languages (see MyGengo.com)
– 1B+ speakers: Mandarin, English
– 300-500M+ spkrs: Spanish, Arabic
• Smart Device Proliferation– mobile, tablet, TV, console, etc
• More Young, More Old ($$$) Users Online• More Bandwidth, More Video, More Social, More Mobile• Wealthy Chinese + Indian, Web + IRL Globetrotters ($$$B)• Acceleration of Global Payment, E-Commerce• Dramatically Reduced Cost: Product Dev, Customer Acqstn• Global Distribution Platforms
– US/EU: Apple, Facebook, AMZN, GOOG (Search, YouTube, Gmail, Android), Twitter
– Asia: Tencent/QQ, Taobao/Alibaba/AliPay, Yahoo-J, Softbank, Rakuten, DeNA, Gree
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