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Uploaded byDave McClure
Silicon Valley 2.0: The Lean VC
The document discusses several trends in technology, venture capital, and startups. Specifically, it notes that platforms now focus on distribution and monetization rather than just technology. Venture capital funds are smaller with more "super angels" and micro-VCs funding early stage companies. Incubators help run many small, low-cost experiments to identify successes using metrics and fast iteration. This "lean" model involves incremental investment in successful startups. Global opportunities are also growing as the web becomes more international.
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Silicon Valley 2.0: The Lean VC
- 1. Silicon Valley 2.0 The Lean VC Dave McClure http://500startups.com ( @DaveMcClure ) Moscow – Oct 2011 http://slideshare.net/dmc500hats Re-Inventing Venture Capital through Innovation, Incubation, & Iteration
- 2. Changes in Tech& VC Platforms = Distribution + Monetization ( not Technology) Search (Google) Social (Facebook, Twitter, LinkedIn, YouTube) Mobile (Apple, Android) Venture Capital = Fewer, Smaller Funds (<$100M) Decline of Large Funds (> $250m), except for HUGE ONES (>$1B). Birth of “Super Angel” / “Micro-VC” seed funds (<$100M) Market Changes: a Few Big IPOs (>$1B), Lots of Small Acquisitions (<$250M) Incubators, Metrics = Many Small Experiments (most FAIL ) Y-Combinator, TechStars, 500 Startups The “Lean Startup”, Design/UX, Distribution Lots of Little Bets; Incremental Investment
- 3. Read GeoffreyMiller Sex + Evolution + Consumer Mktg = Awesome
- 4. Dave McClure 2000-2010:Investor : 200+ Startups (Mint, SlideShare, Twilio, WildFire) Marketing : PayPal, Simply Hired, Mint, Founders Fund Community : Startup2Startup , GeeksOnaPlane , StartupVisa Speaker : Lean Startup Metrics, Stanford Facebook class 80 ’s & 90’s: Entrepreneur : Founder/CEO Aslan Computing (acq.) Developer : Windows App Dev / SQL DB Admin Engineer : Johns Hopkins ‘88, BS Eng / Applied Math
- 5. 500 Startups – “Super-Angel” Fund Mountain View, CA – Founded 2010 Design , Distribution , Data Seed Fund & Startup Accelerator 25-30 companies @ 3x/yr Silicon Valley HQ Total Portfolio: 200+ Companies Twilio Wildfire SendGrid FeeFighters (Chi) MyGengo (JPN) BugHerd (AU) Erply (EST) MoonFruit (UK) ChinaNetCloud (CH)
- 6. Platforms 2.0 Search,Social, Mobile
- 7. Web 2.0 : Good Times . # Users, Bandwidth = Bigger . Startup Costs = Lower . Transaction $$$ = Better . Building Product => Cheaper, Faster, Better Getting Customers => Easier, More Measurable Product & Marketing Decisions based on Measured User Behavior R.I.P. *BAD* TIMES
- 8. Platform Viability SuccessfulPlatforms have 3 Things: 1) Features 2) Users 3) Money Users . . Money Features Growth Profit Profitable Growth Nirvana
- 9. Distribution Platforms CustomerReach: 100M+ Search : Google (SEO/SEM) Social : Facebook , Twitter , Zynga, LinkedIn Mobile : Apple (iPhone, iPad), Android Media : YouTube (Video), Blogs, Photos Inbox : Gmail , Yahoo, Microsoft
- 10. Web 2.0 BusinessModel: KISS ( “Keep It Simple, Stupid”) 1) Re-invent Web 1.0 Businesses Make a Website, a Widget, an App Sell Stuff to People (Transactions, Subscriptions) 2) add Web 2.0 Tech nology Search , Social , Mobile Google , Facebook/Twitter , Apple/Android Email, SMS, Ecommerce / Payments 3 ) Get Customers , Make Money Distribution, Distribution, Distribution (Customer Acq ’stn Cost) vs. ($Rev. Per Customer) Low CapX + Profitable Web Businesses
- 11. Venture Capital 2.0(smaller / bigger, faster, better? ) Venture Capital 1.0 “ Super” Angel (aka Micro-VC)
- 12. Silicon Valley InvestorEcosystem True Ventures First Round Capital Founders Fund Accel SoftTech (Clavier) Felicis (Senkut) SV Angel (Conway) Angels & Incubators ($0-10M) “ Seed” Funds ($10-50M) VC Funds ($50-250M) VC Funds (>$250M) Y-Combinator TechStars
- 13. Big VC: StillNecessary? Good 4 BIG CAPx: Hardware Enterprise SW Clean Tech BioScience Facebook, Zynga, Groupon May Not Be Needed 4: Consumer Internet Small Business Consulting (Pr0n, Gambling, etc…)
- 14. More & SmallerAcquisitions Mature Internet Platform Co ’s: GOOG, MSFT, YHOO, EBAY, AOL, AMZN, AAPL, INTU, ADBE, Fbook Non-Tech BigCo / Consumer Verticals buying tech startups (for distribution) Lots of Users, $$$ Outsourcing Innovation * Mint acquired by Intuit in Sept 2009 for $170M Lots of M&A (but small) Founders own MORE % Will Sell for LESS $ Great for Angels & Entrepreneurs Not so Great for (big) VCs
- 15. Startup Incubators &Metrics Lots of Little Bets. Most FAIL . (but a few succeed :)
- 16. Incubator 2.0: Fast,Cheap, FAIL Incubators = supportive startup ecosystem (+ angels, VCs) Efficient use of investment capital ($0-100K) High fail rate (60-80%) => large initial sample size
- 17. Incubator 2.0: Education, Collaboration, Iteration Success based on: MANY , small experiments common platforms , customers , problems & solutions physical proximity , open/collaborative environment Domain-specific mentors & expertise fast fail, iteration , metrics & feedback loop Incremental investment; high-risk, but high-reward
- 18. fbFund REV fbFundREV : Facebook “Social” Incubator: invest in startups, apps, websites based on Facebook platform & Facebook Connect. 22 startups @ ~$35K each ($850K total) 3 month program: Technology, Design, Marketing, Business topics Success: ~ 8 startups funded >$500K – Wildfire Interactive raised $4M
- 19. Lean Startup, LeanVC Customers , Metrics, Iteration. Invest BEFORE Traction; Double Down AFTER .
- 20. The Lean StartupProgress ≠ Features; Measure Conversion Talk to Customers ; Discover Problems Focus on “ Product/Market Fit” (good solution) Fast, Frequent Iteration (+ Feedback Loop ) Keep it Simple & Actionable
- 21. Discover Customers(Steve Blank, SteveBlank.com)
- 22. Iterate : Learn,Measure, Build. (Eric Ries, StartupLessonsLearned.com) LEARN BUILD MEASURE IDEAS CODE DATA
- 23. Startup Metrics forPirates A cquisition: users come to site from various channels A ctivation: users enjoy 1 st visit: " happy ” experience R etention: users come back , visit site multiple times R eferral: users like product enough to refer others R evenue: users conduct some monetization behavior (note: If you ’re in a hurry, Google “Startup Metrics” & watch 5m video) AARRR !
- 24. AARRR! : 5-StepStartup Metrics Model Website.com R evenue $$$ Biz Dev Ads, Lead Gen, Subscriptions, ECommerce A CQUISITION SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains R etention Emails & Alerts System Events & Time-based Features Blogs, RSS, News Feeds
- 25. One Step ata Time. Make a Good Product : Activation & Retention Market the Product : Acquisition & Referral Make Money : Revenue & Profitability
- 26. 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 Market ing Channels” ”) Venture : $1M-$10M ( “ Maximize Growth & Revenue ”)
- 27. 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
- 28. 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
- 29. Investment Stage #3: Revenue Validation + Growth Structure 5-25 person team $1M-$5M 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
- 30. Going Local, GoingGlobal web gets bigger -> world gets smaller
- 31. Global TrendsGrowth of Global Languages (see MyGengo.com ) 1B+ speakers: Mandarin , English 500M+ spkrs: Spanish , Hindi, 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, Youku, MediaTek, Rakuten, DeNA, Gree
- 32. Local HacksDominate your local/native market first Or, move so that your local market is bigger (China, US, India) Language + Visual Design Matters Read: Spent , Influence, Understanding Comics Niche 2 Win: Big Enough Markets + Great Customer 1M users @ $9/mo = ~$100M+/yr business Sell Something : Shoes, Clicks, Bits, Anything. Transactns, Subscriptns, Virtual Goods, LeadGen You Don ’t Need to Be [in] Silicon Valley But, Silicon Valley Needs to BE IN YOU . (Use The Force Luke… Close Yo ur Eyes, Let Go )
- 33. Summary Platforms 2.0 = Distribution + Monetization (not Tech) Customer Acquisition MUCH easier, MUCH faster Monetization keeps getting BETTER Capital Rqmts MUCH lower Incubators, Metrics = Lots of Small Bets / Experiments Most Fail, a Few Succeed Quantity Over (Perceived) Quality Incremental Investment after Success Venture Capital 2.0 = Fewer, Smaller Funds (<$100M) More, Smaller Exits (<$100M) Globalization, Specialization, Verticalization
Editor's Notes
- #23 BUILT TO LEARN This is the core feedback loop that powers startups. Their goal is not to optimize the time it takes to do any one of these steps. There are many specific practices that can power lean startups, and we ’ll cover a few in this presentation. But more important than any specific practice is this core idea: startups should be built to learn.