@DaveMcClure @500Startups http://500.co

Madrid - Oct 2016

The Unicorn Hedge Why Are Corporations

Buying Unicorns?

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

• 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

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%)

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

Platforms:Search, Social, Mobile,

Video, Messaging

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”)

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

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!

9

Corporations are Becoming VCs

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.

How Many Startups to Get to 1 Unicorn?

Perils of Becoming a Unicorn (Before/After IPO)

2009 2016

Jeff Lawson, Founder/CEO Twilio (NYSE:TWLO)

Startup Odds Unicorns 100:1 | Centaurs 20:1

Data from ~600 companies from 500 Startups Funds I + II (2010 - 2013 cohorts)

$1-10M

Startups + Corporation = TEAM

15

Startups: • Speed • Talent (People) • Product / IP

Corporations: • Customers • Budget / Money

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

Corporate/Startup Innovation Framework

Outcomes

People Product Customers

Corporate/Startup Innovation Framework

Partnerships

Investments

M&A

OutcomesStrategies

People Product Customers

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

Different Strategies, Rqmts Different Outcomes, Impact

Partner Invest Acquire

Effort Low Medium High

Cost Low Medium High

Impact Low Medium High

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

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

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)

What’s Most Critical?• You DON’T need to be in Silicon Valley, but… • Silicon Valley Needs to be in YOU.