Bringing Silicon Valley to LatAm: Startup Ecosystems & Investment
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Dave McClure is a founding partner at 500 Startups, a $350 million venture capital fund and startup platform. He discussed 500 Startups' strategy of making many small investments in early-stage startups, with the goal of a few large exits. He explained how 500 Startups supports startups through different investment stages as they progress from validating their product to achieving revenue and growth. McClure also talked about opportunities for building startup ecosystems in Latin America and Miami, noting the need for more venture capital funds and critical factors like mentorship, capital, and a path to exits.
![Startup Risk Reduction
Concept
Early
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](https://image.slidesharecdn.com/miami-170612142750/85/Bringing-Silicon-Valley-to-LatAm-Startup-Ecosystems-Investment-7-320.jpg)
Bringing Silicon Valley to LatAm: Startup Ecosystems & Investment
- 1. @DaveMcClure @500Startups http://500.co eMerge Americas - Miami, June 2017 Bringing Silicon Valley to Latin America: Startup Ecosystems & Investment Insights
- 2. Dave McClure Founding 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
- 3. • What is 500? – $350M AUM / 4+ main funds / 10+ microfunds – 150 people / 25 languages / 20 countries – 1800+ Companies / 3000+ Founders / 200+ Mentors – Investment, Accelerator, BizDev, Marketing, Events, Education – Community + Content + Conferences • 1800+ Co’s / 60+ Countries – Twilio (NYSE: TWLO) – Credit Karma (>$3B) – Grab (>$5B) – Wildfire (ace GOOG, $350M) – MakerBot (acq SSYS, $400M) – Viki (acq Rakuten, $200M) – Behance (acq Adobe, $150M) – Simple (acq BBVA, $117M) – Sunrise (acq MSFT, $100M) – SendGrid – TalkDesk – Intercom – Udemy – Ipsy 500 Startups Global Seed Fund & Startup Platform
- 4. Silicon Valley -> LatAm • Startups: Cheaper, Faster, Bigger, Better • VCs: Lots of Funds, Lots of Bets • Govt: How to create Silicon Valley? (write checks) • LatAm: Undervalued Emerging Market • Miami: LatAm + USA + Hot Sexy Startups
- 5. Dinosaurs vs. Cockroaches LEAN Startup: Simpler, Faster, Cheaper, Smarter 1990-2000 ”Big, Fat, Dinosaur Startup” • Sun Servers • Oracle DB • Exodus Hosting • 12-24mo dev cycle • 6-18mo sales cycle • <100M people online • $5-10M Series A/B • Sand Hill Road crawl 2017 ”Lean, Little, Cockroach Startup” • AWS, Google, PayPal, FB, TW • Cloud + Open Source SW • Lean Startup; 3-90d dev cycle • SaaS / online sales • >3B people online • <$100K incub + <$1M seed • $1-3M Seed / Series A • Angel List global visibility
- 6. Startup Platforms: Search, Social, Mobile, Pics, Video, Voice, Msgs
- 7. Startup Risk Reduction Concept Early 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
- 8. Silicon Valley -> LatAm • Startups: Cheaper, Faster, Bigger, Better • VCs: Lots of Funds, Lots of Bets • Govt: How to create Silicon Valley? (write checks) • LatAm: Undervalued Emerging Market • Miami: LatAm + USA + Hot Sexy Startups
- 9. Chances of spotting unicorn = ~1%/
- 10. 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
- 11. If portfolio size = 15/
- 12. / If portfolio size = 30
- 13. / If portfolio size = 100
- 14. 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”)
- 15. 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%)
- 16. 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
- 17. 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
- 18. 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
- 19. Building the LatAm Ecosystem • Startups: Cheaper, Faster, Bigger, Better • VCs: Lots of Funds, Lots of Bets • Govt: How to create Silicon Valley? (write checks) • LatAm: Undervalued Emerging Market • Miami: LatAm + USA + Hot Sexy Startups
- 20. 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)
- 22. Q: How many VC funds needed to build a startup ecosystem? • USA: ~800 VC funds; 2.5 per 1M ppl • China: ~700 VC funds; 0.5 per 1M ppl • UK/EU: ~100 VC funds; 0.25 per 1M ppl —- • LatAm: <25 VC funds; <0.1 per 1M ppl -> More VC Funds Needed in LatAm & Miami
- 23. Silicon Valley -> LatAm • Startups: Cheaper, Faster, Bigger, Better • VCs: Lots of Funds, Lots of Bets • Govt: How to create Silicon Valley? (write checks) • LatAm: Undervalued Emerging Market • Miami: LatAm + USA + Hot Sexy Startups
- 24. LatAm Capital Growing in Brazil & Mexico
- 25. Active Latam VC investors
- 26. 500 LatAm portfolio: 160+ Investments
- 27. Silicon Valley -> Miami • Startups: Cheaper, Faster, Bigger, Better • VCs: Lots of Funds, Lots of Bets • Govt: How to create Silicon Valley? (write checks) • LatAm: Undervalued Emerging Market • Miami: LatAm + USA + Hot Sexy Startups
- 28. Miami The Miami Opportunity: Global Hub for LatAm Startups
- 30. Startup Wins in South Florida “Mixed Reality” (AR + VR) Raised $1.4B Online retailer of pet food and products Sold $3.35B to PetSmart (Apr 2017) SaaS (EMR) for specialty healthcare providers Raised $318M Cloud-based health info tech (sw + svcs) Raised $103M Edtech – teaching English to Latam and Hispanics Raised $120M
- 31. Miami is Growth Center for LatAm Tech, Innovation and Entrepreneurship Active stakeholders • Entrepreneurs • Accelerators and capacity developers • Networks / community building organizations • Investors • Foundations • City projects and companies attracting investors from around the globe • Great quality of life attracting young, multi-cultural talent • City is cultural, logistic, and economic capital for Latin America • Great opportunity to access similar markets and achieve scale Thriving ecosystem… … in a BOOMING city
- 32. $50M fund drives 2,400 jobs in 5 years Stage #co Invested Subtotal raised subtotal jobs/ co subtotal accel 100 $100k $10M $250k $25M 2.5 250 seed 40 $250k $10M $1M $40M 10 400 A 10 $1M $10M $5M $50M 25 250 B 5 $2M $10M $10M $50M 100 500 C 2 $5M $10M $25M $50M 500 1000 $50M FUND $215M LEVERAGE 2,400 JOBS
- 33. 2,400 jobs drive ~$50M/ year in rent collective real estate rental Stage #co FUND SIZE JOBS TOTAL commercial (Sq ft x avg 35 $) residential (Sq ft x 25$) accel 100 $10M 250 $1.75M $3.125M seed 40 $10M 400 $2.8M $5M A 10 $10M 250 $1.75M $3.125M B 5 $10M 500 $3.5M $6.25M C 2 $10M 1000 $7M $12.5M $50M 2400 $16.8M $30M
- 34. What’s Most Important? • You DON’T need to be in Silicon Valley, but… • Silicon Valley Needs to be in YOU.