This document discusses building startup ecosystems and the 500 Startups investment strategy. It begins with Dave McClure's background in venture capital and entrepreneurship. It then discusses 500 Startups, which is a $250 million global seed fund and accelerator that has invested in over 1,600 companies across more than 20 countries. McClure outlines 500 Startups' strategy of making many small "moneyball" style bets on early stage startups. He believes this approach maximizes the chances of finding unicorns, or billion dollar companies, despite the high failure rate of startups. The document concludes by discussing the critical factors for building strong startup ecosystems and emphasizes the importance of fostering an entrepreneurial spirit.
19. 500 Strategy: Lots of Little Bets*
1) make lots of little
bets on early-stage
startups when theyâre
just getting started
3) wait 5-10 years for returns:
-10-20% small exits @1-5X ($5-25M+)
-5-10% larger exits @5-20X ($25-250M+)
-1-2% unicorns @20-50X+ ($250M-1B+)
*See Peter Sims book: âLittle Betsâ
2) over the next five years,
double-down on top 20-30%
~500 coâs @ $100K 1st checks
100+ coâs @ $200-500K
2nd/3rd checks
(hope for a few big exits @
$100M-$1B+)
(assume high failure rate ~50-80%)
21. The Lean Investor
Make lots of little bets:
âą Start with many small âexperimentsâ
âą Filter out failures + small wins
âą Double-down on stuff that looks like itâs working
âą Incubation: $0-100K (âBuild & Validate Productâ)
âą Seed: $100K-$1M (âTest & Grow Marketing Channelsââ)
âą Venture: $1M-$10M (âMaximize Growth & Revenueâ)
22. Investment Stage #1: âš
Product Validation + Customer Usage
âą Structure
â 1-3 founders
â $0-$100K investment
â Incubator environment: multiple peers, mentors/advisors
âą Test Functional Prototype / âMinimum Viable Productâ (MVP):
â Prototype->Alpha, ~3-6 months
â Develop Minimal Critical Feature Set => Get to âIt Works! Someone Uses It.â
â Improve Design & Usability, Setup Conversion Metrics
â Test Small-Scale Customer Adoption (10-1000 users)
âą Demonstrate Concept, Reduce Product Risk, Test Functional Use
âą Develop Metrics & Filter for Possible Future Investment
23. Investment Stage #2: âš
Market Validation + Revenue Testing
âą Structure
â 2-10 person team
â $100K-$1M investment
â Syndicate of Angel Investors / Small VC Funds
âą Improve Product, Expand Customers, Test Revenue:
â Alpha->Beta, ~6-12 months
â Scale Customer Adoption => âMany People Use It, & They Pay.â
â Test Marketing Campaigns, Customer Acquisition Channels + Cost
â Test Revenue Generation, Find Profitable Customer Segments
âą Prove Solution/Benefit, Assess Market Size
âą Test Channel Cost, Revenue Opportunity
âą Determine Org Structure, Key Hires
24. Investment Stage #3: âš
Revenue Validation + Growth
âą Structure
â 5-25 person team
â $1M-$10M investment
â Seed & Venture Investors
âą Make Money (or Go Big), Get to Sustainability:
â Beta->Production, 12-24 months
â Revenue / Growth => âWe Can Make (a lot of) Money!â
â Mktg Plan => Predictable Channels / Campaigns + Budget
â Scalability & Infrastructure, Customer Service & Operations
â Connect with Distribution Partners, Expand Growth
âą Prove/Expand Market, Operationalize Business
âą Future Milestones: Profitable/Sustainable, Exit Options