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@DaveMcClure
@500Startups http://500.co
Stanford Univ - Feb 2016
Venture Capital 2.0
Make Lots of Little Bets.
Expect Most...
Dave McClure

Founding Partner, 500 Startups
00’s & 10’s:
• VC: Founders Fund, Facebook fbFund, 500 Startups
• Angel: Mash...
How to Become a VC
• Option 1: Go to Harvard/Stanford/Wharton, Get MBA, Become
VC Associate, Work at McKinsey / Google / F...
• What is 500?
– $220M silicon valley VC fund + startup accelerator
– 100 people / 30 partners / 25 languages / 20 countri...
Re-inventing a
50 year old sport:
Venture Capital 2.0
Football
West Coast
Offense
Baseball
MoneyBall
Basketball
3 point
revolution
Venture Capital
500 Startups
“Lots of little ...
500 Startups…
WTF?
500 Startups Mission
1. Find Smart People.
2. Give Them Money.
3. Wait for Good Shit to Happen.
Building Startup Ecosystems
500 Startups Mission
• Provide capital, community, education
to smart people (founders, investors)
• Build functional star...
500 Startups History:
What a Long Strange Trip It’s Been
Year People Locations AUM $ Companies
2010 5 MV 10 75
2011 10 BRZ 30 250
2012 15 MX, IND 50 450
2013 30 CHN, SEA 75 650
20...
500 Startups: a Platform made of People
#500STRONG #500LOVE #HFGSD
100 People, 20 Countries, 25 Languages
500 Startups: “Full-Stack” VC
Legal review Partner approval
Angel Pre-Seed Seed Post-Seed Series A/B Growth
Accelerator
Seed
“Distro"
Follow-On
Selectio...
http://bit.ly/99VCProblems
Portfolio Diversification
“Spray, not Pray”
Q: Chances of spotting
unicorn?/
a) 1%
b) 2%
c) 5%
d) 10%
e) ZERO
Chances of spotting
unicorn = ~1%/
If portfolio size = 15
companies/
/
If portfolio size = 30
companies
/
If portfolio size = 100
companies
500 Strategy: Lots of Little Bets*
1) make lots of little
bets on pre-traction,
early-stage startups
3) wait 5-10 years fo...
Startup Risk Reduction
Concept
Early
Customer
Usage
Scalable
Customer
Acquisition
[about to be]
Profitable
Unit
Economics
...
Investor Ecosystem
Angels &
Incubators
($0-10M)
“Micro-VC” Funds
($10-100M)
“Big” VC Funds
($100-500M)
“Mega” VC Funds
(>$...
[ This Talk ]
• Changes in Building Technology Startups
• Changes in Venture Capital Investing
• The “Lean” Investor + Por...
Changes in Tech Startups
• LESS Capital required to build product, get to market
– Dramatically reduced cost for servers, ...
Platforms 2.0

Search, Social, Mobile,
Video, Messaging
Before & After 2 Dot-Com Crashes

LEAN Startup: Simpler, Faster, Cheaper, Smarter
Before 2000
”Big, Fat, Dinosaur Startup”...
Startup Education
• Business Plans / Revenue Projections
• Software + Design/UX
• Lean Startups + Continuous Deploy (Itera...
[ This Talk ]
• Changes in Building Technology Startups
• Changes in Venture Capital Investing
• The “Lean” Investor + Por...
Industry Changes
• Financial Market Crises (2000, 2008)
• Startup Efficiency, Lean Startup Movement, Reduced Capital Costs...
SV Investor Ecosystem
Angels &
Incubators
($0-10M)
“Micro-VC” Funds
($10-100M)
“Big” VC Funds
($100-500M)
“Mega” VC Funds
...
Angel List:
Platform for Investors + Startups
• Startups + Metrics
• Founders + Bios
• Investors + Syndicates
• Accelerato...
Investor Education
• Startups are NOT Real Estate
• Most Startups Fail / Power Law Returns
• Portfolio Approach (20-100+ i...
Critical Ecosystem Factors
• Optimism & Belief (“Silicon Valley”)
• Mentorship + Education (Knowledge)
• Universities + Co...
[ This Talk ]
• Changes in Building Technology Startups
• Changes in Venture Capital Investing
• The “Lean” Investor + Por...
Building Startup Ecosystems
500 Strategy: Lots of Little Bets*
1) make lots of little
bets on pre-traction,
early-stage startups
3) wait 5-10 years fo...
The Lean Investor
Make lots of little bets:
• Start with many small “experiments”
• Filter out failures + small wins
• Dou...
Investment Stage #1: 

Product Validation + Customer Usage
• Structure
– 1-3 founders
– $0-$100K investment
– Incubator en...
Investment Stage #2: 

Market Validation + Revenue Testing
• Structure
– 2-10 person team
– $100K-$1M investment
– Syndica...
Investment Stage #3: 

Revenue Validation + Growth
• Structure
– 5-25 person team
– $1M-$10M investment
– Seed & Venture I...
[ This Talk ]
• Changes in Building Technology Startups
• Changes in Venture Capital Investing
• The “Lean” Investor + Por...
Investing Workshop
• General Strategy
• Investment Thesis & Model
• Helping Companies Succeed
• Generating Dealflow
• Sele...
Startup Investment Stages
• Concept
• Product
• Functional Prototype
• Early Users/Customers
• Other Investors
• Profitabl...
Startup Risk Reduction
Concept
Early
Customer
Usage
Scalable
Customer
Acquisition
[about to be]
Profitable
Unit
Economics
...
Investment Thesis + Model
• Define Investment Thesis (geography, technology,
customer segment, investment stage, etc)
• Wh...
Helping Companies Succeed
• Advice (Product, Design, Marketing, etc)
• Recruiting
• Advisor / Mentor Intros
• Growth Consu...
Investment Allocation Strategy
• How long will companies take to exit / reach liquidity? (3-7 yrs)
• How long is your inve...
Generating Dealflow
• Writing / Speaking
• Attend (or Run!) User Groups / Conferences
• Networking / Referrals / LinkedIn ...
Writing / Speaking
54
Selecting/Evaluating
55
Deal Terms, Deal Memos
• Summarize Opportunity:
• Concept, Product, Problem, Market, Traction, Team,
Terms, IP, Users, Rev...
The Flat, The Elbow, The Wall
• Invest @ “The Flat”
when prices are low
• Double-down if/when
you detect “The Elbow”
(if v...
Investing Resources
• The Venture Capital Cycle (Gompers, Lerner)
• Venture Deals (Feld, Mendelson)
• Angel Investing (Ros...
Questions? Comments?
• More Info?
– http://500.co (our company)
– http://500hats.com (my blog)
– https://angel.co/500start...
Appendix
500 Startups
to 500 VCs
We live in a World of ABUNDANCE
• There are LOTS of talented people in the world
• There are LOTS of entrepreneurs everywh...
Who, What is an
Entrepreneur?
Who/What is an Entrepreneur?
• someone who WANTS to start a business
• someone who can RUN a business
• someone who can ru...
How Big Is The Market?
Q: How Many Entrepreneurs?
• How Many People = 7,000,000,000 on earth
• 1% of Humanity is Entrepren...
How Many VCs?
• How Many Founders? 1,000,000 founders / year
• (ok, divide by 100, let’s say 10,000 founders / year)
• 1 V...
/ If portfolio size =
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