slides for my talk at TomTomFestival (Charlottesville, VA, April 2017)

1. Building #500STRONG
Dave McClure, 500 Startups
@davemcclure / 500.co
Charlottesville, VA - April 2017
Tom Tom Festival #TomTomFest

2. Dave McClure
Founding Partner & Chief Troublemaker, 500 Startups
00’s & 10’s:
• VC: Founders Fund, Facebook fbFund, 500 Startups
• Angel: Mashery, Mint.com, SlideShare, Twilio, WildFire, SendGrid
• Marketing: PayPal, Simply Hired, Mint.com, oDesk, 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

3. What a Long, Strange Trip It’s Been…
EAST COAST (1966-1989)
• Hillbilly: born in WV — “LET’S GO MOUNTAINEERS!”
• WV->MD: grew up in Morgantown, WV -> Columbia, MD
• College: Johns Hopkins (Baltimore), class of ’86.. ’87, wait.. ’88 (finally)
• Go West Young Man: headed to California in ’89 (..earthquake!)
WEST COAST (1989-present)
• Geek: Software Developer / SQL DB Programmer (1989-94)
• Entrepreneur: Small Startup, Small Exit <$1M (1994-98)
• Marketing: PayPal, Simply Hired, Mint.com (2001-05)
• Community: Blogs, Facebook, Twitter, etc (2002-present)
• Investor: Angel, Founders Fund, Facebook fbFund (2004-08, 2008-10)
• Founder/VC: 500 Startups, #500STRONG (2010-17+)

4. • What is 500?
– $330M AUM / 4+ main funds / 10+ microfunds
– 150 people / 25 languages / 20 countries
– 1800+ Companies / 3000+ Founders / 200+ Mentors
– Investment, Accelerator, BizDev, Marketing, Events, Education
– Community + Content + Conferences
• 1800+ Co’s / 60+ Countries
– Twilio (NYSE: TWLO)
– Credit Karma
– Grab
– Wildfire (acq GOOG, $350M)
– MakerBot (acq SSYS, $400M)
– Viki (acq Rakuten, $200M)
– Behance (acq Adobe, $150M)
– Simple (acq BBVA, $117M)
– Sunrise (acq MSFT, $100M)
– SendGrid
– TalkDesk
– Intercom
– Udemy
– Ipsy
500 Startups
Global Seed Fund & Startup Platform

5. Startup Investor Ecosystem
Angels &
Incubators
($0-10M)
“Micro-VC” Funds
($10-100M)
“Big” VC Funds
($100-500M)
“Mega” VC Funds
(>$500M)
TrueFirst Round
AndreessenAtomico
Y-Combinator
TechStars
SoftTech (Clavier)
Felicis (Senkut)
SV Angel (Conway)
SequoiaGreylock
Union Square
Floodgate (Maples)
Foundry Group
Incubation
Seed
Series A
Series B
Series C+
Bootstrap, KickStarter,
Crowdfunding

6. Football
“West Coast
Offense”
Baseball
“MoneyBall”
Basketball
“3-pt revolution” Venture Capital
500 Startups
“Lots of little bets”
500 Strategy: MoneyBall for Startups
Re-inventing a 50-year old sport

7. Dinosaurs vs. Cockroaches
LEAN Startup: Simpler, Faster, Cheaper, Smarter
1990-2000
”Big, Fat, Dinosaur Startup”
• Sun Servers
• Oracle DB
• Exodus Hosting
• 12-24mo dev cycle
• 6-18mo sales cycle
• <100M people online
• $5-10M Series A/B
• Sand Hill Road crawl
2017
”Lean, Little, Cockroach Startup”
• AWS, Google, PayPal, FB, TW
• Cloud + Open Source SW
• Lean Startup; 3-90d dev cycle
• SaaS / online sales
• >3B people online
• <$100K incub + <$1M seed
• $1-3M Seed / Series A
• Angel List global visibility

8. Startup Platforms:
Search, Social, Mobile,
Pics, Video, Voice, Msgs

9. !19
500 Strategy: “Lots of Little Bets”*
*See Peter Sims book: “Little Bets”

10. Q: How Many Series A Startups
Turn Into Unicorns? (~1%)

11. Data from ~600 companies from 500 Startups Funds I + II (2010 - 2013 cohorts)
$1-10M
Q: How Many Startups to Get 1 Unicorn?
Unicorns 50:1 | Centaurs 20:1

12. Startup Risk Reduction
Concept
Early
Customer
Usage
Scalable
Customer
Acquisition
[about to be]
Profitable
Unit
Economics
Scalable
Profitable
Business
Functional
Prototype
PRODUCT
MARKET
REVENUE
Exit?
When 500
Likes to
Invest

13. Strategy, Brand, Marketing
• Lots of Little Bets, Online Platforms
• Design, Data, Distribution
• Blogging, Facebook, Twitter
• #500STRONG: for Geeks, by Geeks
• Seed Fund vs Accelerator
!
• FUN: don’t be boring (t-shirts + flip-flops)
• Community: from Silicon Valley to the World
• Conferences & Events + GeeksOnaPlane.com

14. Fundraising & Team-Building
• Ignorance & Inexperience
• New Fund, Small Fund
• Crazy Strategy, Crazy People
• No Money, No History
• Manufacturing a Budget
• Writing, Telling, Believing, Living Your Story
• Hustle & Humility

15. Deal Flow, Strategy & Selection
• Lots of Little Bets
• Take Lots of Small Risk, Early & Often
• Differentiation & Branding
• Revenue Emphasis, Small but Real Problems
• Focus on Online Platforms
• Hacker, Hipster, Hustler
• Global vs Local

16. Minimum Viable Team:
Hacker, Hipster, Hustler
• Hacker: engineers & developers
• Hipster: design & user experience (UX)
• Hustler: marketing & business, “growth hacker”
1. Build functional prototypes (MVP)
2. Improve UX, conversion
3. Scale customer acquisition & distribution

17. The Lean Investor
Make lots of little bets:
• Start with many small “experiments”
• Filter out failures + small wins
• Double-down on stuff that looks like it’s working
• Incubation: $0-100K (“Build & Validate Product”)
• Seed: $100K-$1M (“Test & Grow Marketing Channels””)
• Venture: $1M-$10M (“Maximize Growth & Revenue”)

18. Investment Stage #1:
Product Validation + Customer Usage
• Structure
– 1-3 founders
– $0-$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

19. 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

20. 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

21. Building Startup Ecosystems

22. Q: How many VC funds needed
to build a startup ecosystem?
• USA: ~800 VC funds; 2.5 per 1M ppl
• China: ~700 VC funds; 0.5 per 1M ppl
• UK/EU: ~100 VC funds; 0.25 per 1M ppl
• Other: <10-50 funds; <0.1 per 1M ppl

23. A Brief History of
US Venture Capital
• first VC funds: ARDC, JH Whitney (1946)
• SBICs / Small Business Investment Act (US, 1958)
• Shockley -> “Traitorous Eight” -> Fairchild (1958) -> Intel (1968)
• Sutter Hill (1964), Venrock (1969), Kleiner, Sequoia (1972)
• ERISA laws + “prudent man rule” (1974, 1978)
• Pension Funds in VCs: $39M (1977) -> $570M (1978) -> $4B (1989)
• Tech Explosion: 80’s, 90’s, 00’s
• Microsoft (1975), Apple (1976), Oracle (1977), Sun (1982), Cisco
(1984), Amazon (1994), eBay (1995), Yahoo (1995), Google (1998),
PayPal (1998), LinkedIn (2002), Facebook (2004), Twitter (2006)

24. Critical Ecosystem Factors
• Optimism & Belief (“Silicon Valley”)
• Mentorship + Education (Knowledge)
• Universities + Companies (People)
• Capital, Legal, Finance (Infrastructure)
• Engineering + Design / UX (Product)
• Platforms + Distribution (Customers)
• Online Payments (Monetization)
• IPO / M&A Market (Exits)