Changes in Tech Startups & Venture Capital @DaveMcClure #ABAF Mumbai Nov 2013
This Talk… • Industry Changes: Da$ Punk Lean Startup • Myth BusJng: The Series A Crunch • 500 Strategy: Lots of Li8le Bets • Venture Metrics: The Lean VC • Scalable PlaMorms: Marke=ng & Distribu=on • Demography=Geography: Local vs. Global Startups
SoftTech (Clavier) “Micro-VC” Funds Floodgate (Maples) ($10-100M) Felicis (Senkut) First Round Series A True “Big” VC Funds Union Square ($100-500M) Foundry Series B A16Z Atomico “Mega” VC Funds (>$500M) Sequoia Greylock Series C+
Changes in Tech Startups • LESS Capital required to build product, get to market – Dramatical y reduced $$$ on servers, software, bandwidth – Crowdfunding, KickStarter, Angel List, Funders Club, etc – Cheap access to online platforms for 100M+ consumers, smal biz, etc • MORE Customers via ONLINE platforms (100M+ users) – Search (Google) – Social (Facebook, Twitter) – Mobile (Apple, Android) – Local (Yelp, Groupon, FourSquare) – Media (YouTube, Pinterest, Instagram, Tumblr) – Comm (Email, IM/Chat, Voice, SMS, etc) • LOTS of little bets: Accelerators, Angels, Angel List, Smal Exits – Y Combinator, TechStars, 500 Startups – Funding + Co-working + Mentoring -> Design, Data, Distribution – “Fast, Cheap Fail”, network effects, quantitative + iterative investments
Industry Changes • Startup Eﬃciency, Reduced Capital Costs • Growing Market, Growing PlaIorms • VC Industry Upheavals (2000, 2008) • Super Angel - ‐> Micro VC: Seed Funds (ex: First Round) • Incubators & Accelerators (ex: Y Combinator) • Big VC (ex: A16Z) & PlaMorms (ex: Angel List)
more info see: h.p://PreMoney.co
Daft Punk Lean Startup: Simpler, Faster, Cheaper, Smarter
1. Startup Costs = Lower.
2. # Users, Bandwidth = Bigger.
3. Transaction $$$ = Better. Ø Building Product => Cheaper, Faster, Better Ø Getting Customers => Easier, More Measurable Iterative Product & Marketing Decisions based on Measured User Behavior
Before & After 2 Dot-Com Crashes Daft Punk Startup: Simpler, Faster, Cheaper, Smarter Before 2000 Acer 2008 • Sun Servers • AWS, Google, PayPal, FB, TW • Oracle DB • Cloud + Open Source SW • Exodus HosJng • Lean Startup / Startup Wknd • 12- ‐24mo dev cycle • 3- ‐90d dev cycle • 6- ‐18mo sales cycle • SaaS / online sales • <100M people online • >3B people online • $1- ‐2M seed round • <$100K incub + <$1M seed • $3- ‐5M Series A • $1- ‐3M Series A • Sand Hil Road crawl • Angel List global visibility • Big, Fat, Dinosaur Startup • Lean, Li8le, Cockroach Startup
Series A Crunch: Good or Bad? Series A rqmts: $1M revenue, 1M active users, 10M downloads, 100% YoY growth • Lots of Incubation / Seed startups wil “fail” • BUT: Fail Budget = $50-$500K, not $5M+ • Many “failed” startups = ramen-profitable, smal acquisition, or MBA alternative (<$100K) • Series A/B VCs have lots to choose from • Overal , founders / market getting smarter • More focus on customers, problems, revenue • Many die, some survive (1-5x), a few thrive (20x+).
Silicon Val ey 2.0: Lots of Little Bets aka “MoneyBal for Startups” • VC Evolution: Physician, Scale Thyself (Aug 2012) • MoneyBal for Startups, 500 Startups Investment Thesis (Jul 2010)
500 Strategy: “Lots of Li.le Bets”* Quan=ta=ve Inves=ng before Trac=on 1) Make lots of limle 250+ companies @ $25- ‐100K bets pre- ‐tracJon, (1st check) early- ‐stage startups - ‐ Assume high failure rate (up to 80%)
- ‐ 5- ‐10% large exits @20X ($50- ‐100M+) - ‐ 10- ‐20% small exits @5X ($5- ‐50M) * 13 See Peter Sims book: “Little Bets”
The Lean VC: Lots of Little Bets, Incremental Investment Method: Invest in lots of startups using incremental investment, iterative development. Start with many smal experiments, filter out failures, and expand investment in successes… (Rinse & Repeat).
• Media: Video (YouTube), Photos (Instagram, Pinterest), Blogs • Comm: SMS, IM (WeChat, WhatsApp), Skype, Phone/Voice
Going Local, Going Global web gets bigger -> world gets smal er
Local vs Global? • Emerging / Developing Markets • Global Languages: English, Chinese, Spanish, Arabic • CriJcal Factors: Educa=on, Mentorship, Capital • Capital Availability: Incuba=on, Seed, Series A • PosiJve Macro: Payments, LogisJcs, Mobile/Web PenetraJon, Growing Middle Class, Distribu=on
Global Trends • Growth of Global Languages (see Gengo.com) – 1B+ speakers: Mandarin, English – 300-500M+ spkrs: Spanish, Arabic • Smart Device Proliferation – mobile, tablet, TV, console, auto, home, 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, Logistics • Dramatical y Reduced Cost: Product Dev, Customer Acqstn • Global Distribution Platforms – US/EU: AAPL, FB, AMZN, GOOG (Search, YouTube, Gmail, Android), TWTR – Asia: Baidu, Tencent/WeChat, Alibaba, Sina, NHN, Yahoo-J, Softbank, Rakuten