slides for my talk "What's New in Tech" (SF, March 2017)

1. @DaveMcClure
@500Startups http://500.co
Khazanah Tech Talk - San Francisco, March 2017
What’s New in Tech?

2. Dave McClure
Founding Partner, 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, 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 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

4. 2017: What’s New in Tech?
• Startups: Cheaper, Faster, Bigger, Better
• VCs: Lots of Little Funds, Lots of Little Bets
• Corp: “How do we become VCs?”
• Govt: “How do we create Silicon Valley?”
• Old Tech: E-Commerce, Marketplaces,
SaaS, Education, Healthcare, FinTech
• New Tech: AI, AR, VR, Blockchain, etc

5. 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

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

7. 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

8. 2017: What’s New in Tech?
• Startups: Cheaper, Faster, Bigger, Better
• VCs: Lots of Little Funds, Lots of Little Bets
• Corp: “How do we become VCs?”
• Govt: “How do we create Silicon Valley?”
• Old Tech: E-Commerce, Marketplaces,
SaaS, Education, Healthcare, FinTech
• New Tech: AI, AR, VR, Blockchain, etc

9. 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

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. 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”)

13. 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

14. 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

15. 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

16. 2017: What’s New in Tech?
• Startups: Cheaper, Faster, Bigger, Better
• VCs: Lots of Little Funds, Lots of Little Bets
• Corp: “How do we become VCs?”
• Govt: “How do we create Silicon Valley?”
• Old Tech: E-Commerce, Marketplaces,
SaaS, Education, Healthcare, FinTech
• New Tech: AI, AR, VR, Blockchain, etc

17. The Unicorn “Hedge”
https://500hats.com/welcome-to-the-unicorn-hedge-2fd3c6b50f89
TREND: Public companies outsourcing research by investing,
partnering in startups & funds, buying innovation (aka Unicorns)
as a hedge against the value of their own stock.

18. Startups + Corporates
18
Startups:
• Speed
• Talent (People)
• Product / IP
Corporations:
• Customers
• Budget / Money

19. Corporate/Startup
Innovation Framework
Partnerships
Investments
M&A
Outcomes
Strategies
People
Product
Customers
Dealflow
Accelerators
PR & Sponsorships
Competitions & Events
Silicon Valley Outposts
Investing in VC funds

20. 2017: What’s New in Tech?
• Startups: Cheaper, Faster, Bigger, Better
• VCs: Lots of Little Funds, Lots of Little Bets
• Corp: “How do we become VCs?”
• Govt: “How do we create Silicon Valley?”
• Old Tech: E-Commerce, Marketplaces,
SaaS, Education, Healthcare, FinTech
• New Tech: AI, AR, VR, Blockchain, etc

21. 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)

22. Building Startup Ecosystems

23. 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

24. 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)

25. 2017: What’s New in Tech?
• Startups: Cheaper, Faster, Bigger, Better
• VCs: Lots of Little Funds, Lots of Little Bets
• Corp: “How do we become VCs?”
• Govt: “How do we create Silicon Valley?”
• Old Tech: E-Commerce, Marketplaces,
SaaS, Education, Healthcare, FinTech
• New Tech: AI, AR, VR, Blockchain, etc

26. 500 Investment Themes
Sectors
CONTENT/CREATION
DATA SCIENCE/AI
CLOUD/SAAS/B2B
E-COMMERCE
EDUCATION
ERP/PRODUCTIVITY
FINTECH
HEALTH
HR/RECRUITMENT
IoT/HARDWARE
MARKETING TECH/CRM
REAL ESTATE/RETAIL
SERVICES
SOCIAL/COMMUNICATION
TRAVEL
*
*
*

27. Fintech still going strong; 19 Fintech
Unicorns valued at $58.7B globally
Source: CBInsights-

28. Over 220 unique investors in fintech in 2010. Now, there are
over 900. Over 70 strategics and corporates invested in
blockchain startups.
Source: CBInsights

29. 2017: What’s New in Tech?
• Startups: Cheaper, Faster, Bigger, Better
• VCs: Lots of Little Funds, Lots of Little Bets
• Corp: “How do we become VCs?”
• Govt: “How do we create Silicon Valley?”
• Old Tech: E-Commerce, Marketplaces,
SaaS, Education, Healthcare, FinTech
• New Tech: AI, AR, VR, Blockchain, etc

30. 500 Startups is one the most active early-stage
frontier technology Investors
IoT - SecurityIoT - ToysIoT - Health IoT - HomeIoT – Enterprise
3D PrintingRobotics / AutoVR / AR ConnectivityAI
IoT -Lifestyle
Drones / Aero

31. >$2.2B invested in 156 VR deals in 2016
Source: Digi-capital: http://www.digi-capital.com/news/2016/07/record-2-billion-arvr-investment-in-last-12-months/#.V9rRVD4rI9c
Popular Investment categories:
• VR/VR video
• Hardware
• Services and studios
• Gaming
• Apps
• Advertising/marketing
• Developer tools and distribution
Top 10 most funded VR/AR startups
1. Magic Leap ($1.39 billion)
2. Razer ($125M)
3. NextVR ($115.5M)
4. OTOY ($101M)
5. Jaunt ($100M)
6. MindMaze ($118M)
7. Blippar ($99M)
8. Oculus ($93.55M)
9. LensAR ($91.1M)
10. Meta ($73M)

32. Apple, Google, Facebook
acquiring VR/AR startups
Source: CBInsights https://www.cbinsights.com/blog/top-acquirers-ar-vr-ma-timeline/
Active VR/AR acquirers
• Apple (3 acquisitions)
• Google (2 acquisitions)
• Facebook
• Autodesk
• GoPro
Notable acquisitions
• Facebook acquires Oculus (VR headset) for $2B
• ALPHAEON acquires LensAR (laser cataract treatment) for $59M
• Google acquires Skill & Hackett ((design studio)
• Google acquires Thrive (VR Audio)
• Apple acquires Flyby Media (mobile AR app developer)
• Apple acquires PrimeSense (interactive device)
• Apple acquires Metaio (AR)
• Qualcomm acquires Kooaba (cloud base image recognition)

33. 2017 VR Investment Focus
Source: Goldman Sachs Global Investment Research
Development building blocks & tools
• VR input
• VR search
• VR Social
• VR payment
Industries
• Health
• Gaming
• Education
• Real Estate
• Retail
• Live Events
• Engineering
• Military

34. Apple, Google, Intel, Microsoft, Salesforce,
Amazon acquired 18 AI companies in 2016
Source: CBInsights

35. 2017 Investment Focus & Predictions
Artificial Intelligence for Verticals
Source: CBInsights
With the rise of big data & AI, startups
applying machine learning algorithms
to solve enterprise problems:
• Health
• Finance
• IoT
• Education
• Commerce
• Security
In area of sales, marketing, CRM,
customer service, legal, HR, etc.