Dave McClure is a founding partner at 500 Startups, a global seed fund and startup accelerator. 500 Startups has invested in over 1700 companies across 60+ countries. McClure discussed building startup ecosystems in emerging markets like MENA. He said the critical factors include optimism, mentorship, universities/talent, capital/infrastructure, product skills, platforms/customers, payments, and exit opportunities like IPOs and acquisitions. The most important thing is developing a culture of innovation and entrepreneurship locally, even if not physically located in Silicon Valley.
8. 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
18. Q: How many VC funds do we
need to build an ecosystem?
• USA: ~800 VC funds; 2.5 per 1M ppl
• China: ~700 VC funds; 0.5 per 1M ppl
• MENA: ~30 funds; 0.1 per 1M ppl
NOT EVEN CLOSE!
19. 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)
20. Q: How to Bring 500 VC Funds
to Emerging Markets?
21. A) Invite VCs to Dinner?
Q: How to Bring 500 VC Funds
to Emerging Markets?
22. A) Invite VCs to Dinner?
B) Give VCs some Arabic Coffee?
Q: How to Bring 500 VC Funds
to Emerging Markets?
23. A) Invite VCs to Dinner?
B) Give VCs some Arabic Coffee?
C) Take VCs for a Ride on a Camel?
Q: How to Bring 500 VC Funds
to Emerging Markets?
Umm, NO.
24. A) Invite VCs to Dinner?
B) Give VCs some Arabic Coffee?
C) Take VCs for a Ride on a Camel?
… or…
D) Invest in VCs!*
Q: How to Bring 500 VC Funds
to Emerging Markets?
Umm, NO.
26. 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”)
27. 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
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-$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
30. The Unicorn “Hedge”
https://500hats.com/welcome-to-the-unicorn-hedge-2fd3c6b50f89
Q: Which is more overvalued? — 100 Unicorn startups or Fortune 500?
TREND: Non-tech public companies buying innovation (aka Unicorns) as a
hedge against the value of their own stock.
Examples: Dollar Shave Club -> Unilever, Cruise -> GM, Jet.com -> Walmart.