VC Evolution: Geeks Got Next.(aka “Software Eats Venture Capital”)

@DaveMcClure @500StartupsPublic Policy Forum on Venture Capital & Innovation

Quebec City, Oct 2012

This Talk Is About…(Pro Tip: Leave Now B4 This Gets Ugly)

• 500 Startups: Internet Seed Fund + Accelerator + Business School 2.0• Angel List: It Rocks. Use It.• Making Venture Capital 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)– Takes A Village: Mentors, Founders, Investors– Education & Community– Outlier Competition & Success Behaviors– Product, Market, Revenue– Hacker, Hustler, Hipster– Winners Win, Losers Lose, Tweeners Tween

• Scaling VC• Going Intl

Dave McClureFounding 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

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

500 StartupsMountain View, CA – Founded 2010

• Seed Fund & Startup Accelerator– $50M under management– 18 people / 9 investing partners– 10,000 sq ft / Silicon Valley HQ– SF, NY, MEX, BRZ, IND (+ more)– 700 Founders / 200 Mentors– Focus: Design, Data, Distribution

• 400+ Portfolio Co’s / 20+ Countries– Wildfire (acq GOOG, $350M)– Twilio– SendGrid– TaskRabbit– MakerBot– Viki– 9GAG

Angel* List: It Rocks.(Use it, You Idiot)

• Startups & Investors• Activity & Metrics• Platform & APIs

• *ps – not just for Angels, or USA

Making Venture Capital Work Better (Easy)

“MoneyBall for Startups”(Lots of Little Bets,

Double Down on Winners)

MoneyBall 4 Startups

http://slideshare.net/paulsingh/moneyball-a-quantitative-approach-to-angel-investing-austin-tx-aug-2012

1. Make Lots Of Little Bets2. Count Cards (Monitor Progress & Stats)3. Double Down on Winners

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 Brand That Matters.• Increase Sample Size.• Don’t Make Big Bets Too Early.• Simplify Revenue Model. (as in: HAVE ONE, you 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: 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)

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

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?

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.

TIRED: White Guys in Blue Shirts.WIRED: Guild of Geeks. YC, 500.

Making Incubators Work Better (Hard)

Find, Fund [Lots of] Startups. Education & Community.

Data, Design, Distribution.Access to Mentors + Investors

Move Fast & Break Things.

Accelerators!

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).

Education & Community

• Mentors, Investors• Design, Data, Distribution• Platform Partners• Sponsors & Strategics• Marketing & Visibility

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

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

Hacker, Hustler, Hipster

• Hacker: engineers & developers• Hipster: design & UX• Hustler: marketing & business

1. Build functional prototypes2. Improve UX so people convert3. Scale customer acq & distribution

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 an arrogant a-hole.

Scaling VC

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

Going International

• Brazil, Mexico, India• China, SE Asia, Japan, Korea• Russia, Turkey, Middle East