Startup 2.0:A Silicon Valley Story

Engineering Better Startups with Incubators, Metrics & Iterative Development

Dave McClure (@DaveMcClure)

US Tech DelegationJuly 2010 - Medellin, Colombia

Overview

• Venture Capital = Fewer, Smaller Funds (<$100M)• Platforms = Distribution + Monetization (not Technology)

– Search (Google)– Social (Facebook, Twitter)– Mobile (Apple, Android)

• Incubators = Many Small Experiments (most FAIL)

Silicon ValleyInvestor Ecosystem

Angels & Incubators($0-10M)

“Seed” Funds ($10-50M)

“Small” VC Funds ($50-250M)

“Large” VC Funds (>$250M)

True VenturesFirst Round Capital

BenchmarkSequoia

Y-CombinatorTechStars

SoftTech (Clavier)FloodGate (Maples)

Felicis (Senkut)SV Angel (Conway)

More & Smaller Acquisitions

• Mature Internet Platform Co’s:– GOOG, MSFT, YHOO, EBAY, AOL,

AMZN, AAPL, INTU, ADBE, Fbook

• Lots of Users, $$$• Outsourcing Innovation

• Lots of M&A (but small)• Great for Angels & Entrepreneurs• Not so Great for (big) VCs

Platforms 2.0Search, Social, Mobile, Inbox, Media

Web 2.0: Good Times.

1. # Users, Bandwidth = Bigger.

2. Startup Costs = Lower.

3. Transaction $ Growing = Better.

Building Product => Cheaper, Faster, Measurable Getting Customers => Easier, More Predictable Product & Market Decisions Based on Measured

User Behavior

R.I.P.

*BAD*TIMES

Platform Viability

Users .Users . . Money

. Money

FeaturesFeatures

Growth Profit

ProfitableGrowth

Nirvana

Successful Platforms have 3 Things:1) Features2) Users3) Money

Distribution Platforms

Customer Reach: 100M+

• Search: Google (SEO/SEM)

• Social: Facebook, Twitter, LinkedIn

• Mobile: Apple (iPhone, iPad), Android

• Media: YouTube/Video, Blogs, Photos

• Email/IM: Google, Yahoo, Microsoft

Web 2.0 Business Model

• 1) Existing Business Ideas• 2) Web 2.0 Technology

– Facebook (Connect), Twitter– SEO/SEM, Blogs, Email– E-Commerce & Payments

• 3) Get Customers, Make Money

Startup Incubators Lots of Hot, Cool, Web 2.0!

(+ lots of FAIL, too.)

Startup 2.0: “Lean Investor” Model

Method: Invest in many startups using incremental investment, iterative development. Start with lots of small experiments, filter out failure, and expand investment upon success… (Rinse & Repeat).

• Incubator: $0-100K (“Build & Validate Product”)• Seed: $100K-$1M (“Test & Grow Marketing Channels””)• Venture: $1M-$10M (“Maximize Growth & Revenue”)

Incubator 2.0: Fast, Cheap, FAIL• Incubators growing in popularity, acceptance• Supportive ecosystem for startups (angels, VCs)• Efficient use of investment capital ($0-100K)• High fail rate (60-80%) => large initial sample size

Incubator 2.0: Education, Collaboration

• Emphasis on education, access to shared resources• Success based on common platforms, physical proximity, open

& collaborative environment• Success based on fast fail, iteration & feedback• Incremental investment; high-risk, but high-reward

fbFund REV

fbFund REV: Facebook “Social” Incubator: invest in startups, apps, websites based on Facebook platform & Facebook Connect.

• 22 startups @ ~$35K each ($850K total)• 3 month program: Technology, Design, Marketing, Business topics • Success: ~8 startups funded >$500K