the unicorn hedge: why are corporations buying unicorns? (madrid, oct 2016)
TRANSCRIPT
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@DaveMcClure @500Startups http://500.co
Madrid - Oct 2016
The Unicorn Hedge Why Are Corporations
Buying Unicorns?
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Dave McClureFounding Partner, 500 Startups
00’s & 10’s: • VC: Founders Fund, Facebook fbFund, 500 Startups • Angel: Mashery, Mint.com, SlideShare, Twilio, Wildfire, SendGrid • Marketing: PayPal, Simply Hired, Mint.com, O’Reilly
80’s & 90’s: • Entrepreneur: Aslan Computing (acq’d by Servinet/Panurgy) • Developer: Windows / SQL DB consultant (Intel, MSFT) • Engineer: Johns Hopkins‘88, BS Eng / Applied Math
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• What is 500? – $250M global seed fund + startup accelerator – 130 people / 25 languages / 20 countries – 1700+ Companies / 3500+ Founders / 250+ Mentors – Investment, Accelerator, Distro, Marketing, Events, Education – Community + Content + Conferences
• 1700+ Co’s / 60+ Countries – Twilio (NYSE: TWLO) – Credit Karma – Grab (aka GrabTaxi) – Wildfire (acq GOOG, $350M) – MakerBot (acq SSYS, $400M) – Viki (acq Rakuten, $200M) – Behance (acq Adobe, $150M) – Simple (acq BBVA, $117M) – Sunrise (acq MSFT, $100M) – Udemy – Ipsy – TalkDesk – Intercom
500 Startups Global Seed Fund & Startup Accelerator
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500 Strategy: Lots of Little Bets*
1) make lots of little bets on early-stage startups when they’re 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: “Little Bets”
2) over the next five years, double-down on top 20-30%
~500 co’s @ $100K 1st checks
100+ co’s @ $200-500K 2nd/3rd checks
(hope for a few big exits @ $100M-$1B+)
(assume high failure rate ~50-80%)
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Old Startups vs. New Startups LEAN Startup: Simpler, Faster, Cheaper, Smarter
1996 ”Big, Fat Startup” • Sun Servers • Oracle DB • Exodus Hosting • 12-24mo dev cycle • 6-18mo sales cycle • <100M people online • $1-2M seed round • $3-5M Series A • Sand Hill Road crawl
2016 ”Lean, Little Startup” • AWS, Google, PayPal, FB, TW • Cloud + Open Source SW • Lean Startup / Startup Wknd • 3-90d dev cycle • SaaS / online sales • >3B people online • <$100K incub + <$1M seed • $1-3M Series A • Angel List global visibility
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Platforms:Search, Social, Mobile,
Video, Messaging
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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”)
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Startup Risk Reduction
ConceptEarly
Customer Usage
Scalable Customer
Acquisition
[about to be] Profitable
Unit Economics
Scalable Profitable Business
Functional Prototype
PRODUCT
MARKET
REVENUE
Exit?
When 500 Likes to Invest
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Startups Disrupting Corporations
• Uber, Lyft, Tesla = Car Companies • AirBnb = Hotels • Twilio = Telecom • Apple, Spotify = Music, Phones • Netflix = BlockBuster, Movies, Television • Facebook, Google = Media, Advertising • Amazon = Walmart / EVERYTHING!
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Corporations are Becoming VCs
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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.
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How Many Startups to Get to 1 Unicorn?
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Perils of Becoming a Unicorn (Before/After IPO)
2009 2016
Jeff Lawson, Founder/CEO Twilio (NYSE:TWLO)
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Startup Odds Unicorns 100:1 | Centaurs 20:1
Data from ~600 companies from 500 Startups Funds I + II (2010 - 2013 cohorts)
$1-10M
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Startups + Corporation = TEAM
15
Startups: • Speed • Talent (People) • Product / IP
Corporations: • Customers • Budget / Money
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Corporate/Startup Innovation Framework
Partnerships
Investments
M&A
OutcomesStrategies
People Product Customers
Dealflow
Accelerators
PR & Sponsorships
Competitions & Events
Silicon Valley Outposts
Investing in VC funds
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Corporate/Startup Innovation Framework
Outcomes
People Product Customers
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Corporate/Startup Innovation Framework
Partnerships
Investments
M&A
OutcomesStrategies
People Product Customers
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Corporate/Startup Innovation Framework
Partnerships
Investments
M&A
OutcomesStrategies
People Product Customers
Dealflow
Accelerators
PR & Sponsorships
Competitions & Events
Silicon Valley Outposts
Investing in VC funds
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Different Strategies, Rqmts Different Outcomes, Impact
Partner Invest Acquire
Effort Low Medium High
Cost Low Medium High
Impact Low Medium High
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Investor Ecosystem
Angels & Accelerators
($0-10M)
“Seed” Funds ($10-100M)
“Traditional” VC Funds ($100-500M)
“Unicorn” VC Funds (>$500M)
Incubation 0-$100K
Seed $100K-$1M
Series A/B $1-10M
Series B/C $10-100M
Bootstrap, KickStarter, AngelList, Crowdfunding
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The “Series B Snipe” (aka Stealing Baby Unicorns)
Seed Series A Series B/C
Late Stage / Unicorn
Driver Team Product Customers Business
Cost 1X 10X 100X 1000X
Risk Very High High Medium Low
Size / Ppl 1-10 10-50 50-200 500-1000
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Critical Ecosystem Factors
• Optimism & Belief (“Silicon Valley”) • Mentorship + Education (Knowledge) • Universities + Companies (People) • Capital, Legal, Finance (Infrastructure) • Engineering + Design / UX (Product) • Platforms + Distribution (Customers) • Online Payments (Monetization) • IPO / M&A Market (Exits)
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What’s Most Critical?• You DON’T need to be in Silicon Valley, but… • Silicon Valley Needs to be in YOU.