10 Challenges for Emerging Market Startup Ecosystems

1 0 C H A L L E N G E S F O R E M E R G I N G M A R K E T

S TA RT U P E C O S Y S T E M S

@ D A V E M C C L U R E @ 5 0 0 S TA R T U P S 5 0 0 . C O

Dave McClureFounding 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, O’Reilly

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

• What is 500? – $200M under management – 100+ people / 30 investing partners / 18 Countries – 2500+ Founders / 250+ Mentors

• 1300+ Portfolio Co’s / 50+ Countries – Wildfire (acq GOOG, $350M) – MakerBot (acq SSYS, $400M) – Viki (acq Rakuten, $200M) – Simple (acq BBVA, $117M) – Credit Karma (~$3.5B) – GrabTaxi ($1B+) – Twilio ($1B+) – Ipsy – SendGrid – VivaReal – Udemy – Zozi – The RealReal – Virool – BarkBox – Tradesy

500 Startups Global Seed Fund & Startup Accelerator

1 ) T H E R E A R E N ’ T M A N Y I N V E S T O R S . M O S T O F T H E M A R E E V I L O R S T U P I D .

• low valuations and crappy terms: “51% for $100K”

• supply vs. demand problem; fewer investors than startups, lack of competition = no urgency,

• NO to business plans / revenue projections

• YES to mktg plans, expense projections

• wins & exits => FOMO, competition increases

2 ) T H E R E A R E N ’ T M A N Y E N T R E P R E N E U R S . M O S T O F T H E M A R E C L U E L E S S .

• more mentorship, more founder experience

• product management, design & UX, growth hacking & marketing

• changes after 1st gen founders exit -> 2nd gen startups

3 ) T H E R E A R E N ’ T M A N Y C U S T O M E R S . M O S T O F T H E M D O N ’ T PAY.

• no longer true; 3B+ smart phones; massive mobile market

• increasing internet availability + rising consumer GDP

• improved payment & logistics

• local/regional markets are BIG

• access to global markets easier

4 ) S TA RT U P S D O N ’ T H AV E T R A C T I O N , A N D N O I D E A H O W T O G E T I T.

• Growth Hackers -> DISTRO

• STOP building product features; START growing customers (via online platforms)

• unit economics: CAC vs. CLV, timing of revenue & expense, conversion metrics

• find profitable, high-volume customer acquisition channels that convert to KPIs, learn how to grow them

5 ) T H E R E A R E N ’ T M A N Y E X I T S . M O S T O F T H E M A R E S M A L L .• where are the unicorns?

• acquirers crossing borders to find talent (US, EU, China, Japan, etc)

• non-tech companies acquiring startups for innovation

• global companies looking for emerging market footprint

• local -> regional -> global growth

6 ) I N V E S T I N G I N R E A L E S TAT E I S B E T T E R B E T T H A N I N V E S T I N G I N S TA RT U P S• startups aren’t real estate!

• real estate doesn’t go up forever

• most startups fail completely

• but a few startups grow up to be unicorns

• use real estate to lower risk, drive liquidity

7 ) M O S T A C C E L E R AT O R S S U C K . A N D T H E Y ’ R E G O I N G T O D I E . S O O N .

• Accelerator economics are tough.

• Most startups fail. Most wins are small. Big wins take time (5-10 years).

• Most accelerators are under-staffed, under-capitalized, short time horizons.

• Accelerators should verticalize, focus on industry-specific expertise, get corporate / academic / govt sponsors

• Create operational capital via investment; use real estate to hedge risk, be creative

8 ) E M P L O Y E E S D O N ’ T U N D E R S TA N D E Q U I T Y. F O U N D E R S D O N ’ T G I V E I T T O T H E M .

• equity should be distributed widely among team (not just founders and management)

• when exits happen, a thousand angels are born

• US: PayPal, Google, Facebook

• CHINA: Alibaba, TenCent, Baidu

• MENA: Souq + ?

• create equity culture, angel investor culture

9 ) M O S T S TA RT U P S N E V E R G O G L O B A L . M O S T T H AT T RY W I L L FA I L .

• startups have to start SOMEwhere

• some local & regional markets are BIG India, Turkey, Brazil, Indonesia, MENA

• 50-100M customers good place to start

• hard to jump to global markets without local market MVP, product/market fit

• you don’t need to go to Silicon Valley, get Silicon Valley to come to YOU.

1 0 ) M O S T F O U N D E R S & I N V E S T O R S D O N ’ T T H I N K T H E Y ’ R E A S G O O D A S S I L I C O N VA L L E Y.

• Silicon Valley isn’t a place, it’s a State of Mind.

• Most startups in Silicon Valley came from somewhere else (PayPal, WhatsApp, FreshBooks)

• The biggest problem isn’t lack of experience, it’s lack of confidence (for both investors & founders)

• You’re Good enough. You’re Smart enough. Get Going!