Horngren’s Cost Accounting A Managerial Emphasis, Canadian 9th edition soluti...
Silicon Valley 2.0: Lots of Little Bets
1. Silicon Valley 2.0
Lots of Little Bets +
Moneyball for Startups
Dave McClure
http://500.co
(@DaveMcClure)
January 2013
http://slideshare.net/dmc500hats
6. Changes in Tech Startups
• LESS Capital required to build product, get to market
– Dramatically reduced $$$ on servers, software, bandwidth
– Crowdfunding, KickStarter, Angel List, Funders Club, etc
– Cheap access to online platforms for 100M+ consumers, smallbiz, etc
– A few big IPOs @ $1B+, but LOTS of small acquisitions (<$100M)
• MORE Customers via ONLINE platforms (100M+ users)
– Search (Google)
– Social (Facebook, Twitter, LinkedIn)
– Mobile (Apple, Android)
– Local (Yelp, Groupon, Living Social)
– Media (YouTube, Pinterest, Instagram, Tumblr)
– Comm (Email, IM/Chat, Voice, SMS, etc)
• LOTS of little bets: Accelerators, Angels, Angel List, Small Exits
– Y Combinator, TechStars, 500 Startups
– Funding + Co-working + Mentoring -> Design, Data, Distribution
– “Fast, Cheap Fail”, network effects, quantitative + iterative investments
7. Web 2.0 + Lean Startup
1. Startup Costs = Lower.
2. # Users, Bandwidth = Bigger.
3. Transaction $$$ = Better.
Building Product => Cheaper, Faster, Better
Getting Customers => Easier, More Measurable
Iterative Product & Marketing Decisions
based on Measured User Behavior
9. MoneyBall 4 Startups
http://slideshare.net/paulsingh/
moneyball-a-quantitative-approach-to-angel-investing-austin-tx-aug-2012
1. Make Lots Of Little Bets
2. Count Cards (Monitor Progress &
Stats)
3. Double Down on Winners
10. 500 Strategy: “Lots of Little Bets”*
1) Make lots of little 30%
bets pre-traction, Capital
early-stage startups
2) after 6-12 months, identify 70%
top 20% performers and Capital
double-down higher $$$
3) conservative model assumes
-5-10% large exits @20X ($50-100M+)
-10-20% small exits @5X ($5-50M)
10
*See Peter Sims book: “Little Bets”
12. Angel* List: It Rocks.
• Startups & Investors
• Activity & Metrics
• Platform & APIs
• *ps – not just for Angels, or USA
13. Early-Stage Risk Reduction
• 1st Mtg: Crazy, Idiots, Liars or Crooks?
• Product: does it work? (crappy, not perfect)
• Market: are people using it? (not their mom)
• Revenue: will people pay for it? (just a few)
• Growth: how will it/they scale? (online? offline?)
• Finance: what will it cost?
– Q1: cost to get a customer?
– Q2: how & when do you make money?
14. Early-Stage Startups:
Your “Due Diligence” Is An Illusion
(Better approach = write a quick, small check then wait ~6 mo’s)
• Problems in Early-Stage Due Diligence:
– You Might Be Able to Detect Idiots & Liars, but…
– Not much history, product, customers, or revenue (yet), so…
– You probably can’t figure out Winners (yet).
• The New Due Diligence = Incremental Achievements
– “Due Diligence” Trusted Referrals + History
– “Great Team” Functional Prototype + Usage
– “Size of Market” Evidence = Customers, Revenue
• The Odds Are: They Suck, You’re Wrong
– You’ll Be Wrong 4x out of 5x. (If U Don’t Suck).
– In 6 Months, You’ll Know If They Don’t Suck.
– In 1-2 Years, You’ll Know If They’re Awesome.
15. Bet on Singles, Not HomeRuns.
(Look for Ichiros, Not Barry Bonds)
19. Web 2.0 Business Model:
KISS (“Keep It Simple, Stupid”)
• 1) Re-invent Web 1.0 Businesses
– Make a Website, a Widget, an App
– Sell Stuff (Transactions, Subscriptions, Affiliate)
• 2) add Web 2.0 Technology
– Search, Social, Mobile, Local, Media, Comm
– Google, Facebook/Twitter, Apple/Android, YouTube
– 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
20. More Acquirers (tech + non-tech);
More & Smaller Acquisitions
1. Mature Internet Platform Co’s:
– GOOG, MSFT, YHOO, EBAY, AOL, AMZN,
AAPL, INTU, ADBE, FB, TW, LNKD, GRPN
1. Non-Tech “BigCo” / Consumer Verticals
buying tech startups (for distribution)
• BigCo = Lots of Customers, $$$
• BigCo = Bureaucracy, Innovator Dilemma
• Outsource Innovation; Buy Talent / Products
• Acquiring LOTS (Small) Startups
• Great for Founders, Investors
* Mint acquired by Intuit in
Sept 2009 for $170M
21. Lean Startup, Lean VC
Customers, Metrics, Iteration.
Invest BEFORE Traction;
Double Down AFTER.
22. The Lean Startup
• Progress ≠ Features; Measure Conversion
• Talk to Customers; Discover Problems
• Focus on “Product/Market Fit” (good solution)
• Fast, Frequent Iteration (+ Feedback Loop)
• Keep it Simple & Actionable
23. Startup Incubators & Metrics
Lots of Little Bets. Most FAIL.
(but a few succeed :)
24. 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
25. 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
27. Product, Market, Revenue
• Product: assess functional use, improve design/UX
• Market: test usage, distribution channels
• Revenue: test cust acq cost, revenue, *timing*
• Work on Pitch, Help Find Co-Investors, etc
28. Hacker, Hustler, Hipster
• Hacker: engineers & developers
• Hipster: design & UX
• Hustler: marketing & business
1.Build functional prototypes
2.Improve UX so people convert
3.Scale customer acq & distribution
29. Outlier Competition +
Modeling Success Behaviors
• You want min 3-5 “rockstars” to compete
• Rockstars to model success for others
• You can’t assume >20% rockstars
• Therefore, pick 5x5 = 25 teams
• 3-5 rockstar teams emerge, compete, win
• 5-10 *other* non-rockstars learn
• Prune losers quickly
30. Winners, Losers, Tweeners
• Winners #WIN (with or without you)
• Losers #LOSE (with or without you)
• Tweeners #TWEEN
– They might win with your help
– They might lose with your help
– Be helpful, but don’t dally
– Note: you might be wrong about the losers &
tweeners, so don’t be an arrogant a-hole.
31. fbFund REV
fbFund REV: Facebook “Social” Incubator: invest in startups, apps,
websites based on Facebook platform & Facebook Connect.
• 22 startups @ ~$35K each (< $1M total)
• 3 month program: Technology, Design, Marketing, Business topics
• Success: 8 startups raised $500K –> 5 Series A -> 3 Series B (+ 3 small exits)
• Wildfire Interactive acquired by GOOG for $350M (>50X)
32. 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 Marketing Channels””)
• Venture: $1M-$10M (“Maximize Growth & Revenue”)
33. 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
34. 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
35. 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
37. Global Trends
• Growth of Global Languages (see MyGengo.com)
– 1B+ speakers: Mandarin, English
– 300-500M+ spkrs: Spanish, 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: Baidu, Tencent, Alibaba, Sina, NHN, Yahoo-J, Softbank, Rakuten, DeNA, Gree