slides from my talk at #SouthSummit Madrid on how corporations are becoming venture capitalists, buying unicorns, and trying to avoid disruption.

1. @DaveMcClure
@500Startups http://500.co
Madrid - Oct 2016
The Unicorn Hedge
Why Are Corporations
Buying Unicorns?

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?
– $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

4. 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%)

5. 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

6. Platforms:
Search, Social, Mobile,
Video, Messaging

7. 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”)

8. 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

9. 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

10. Corporations are Becoming VCs

11. 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.

12. How Many Startups
to Get to 1 Unicorn?

13. Perils of Becoming a Unicorn
(Before/After IPO)
2009 2016
Jeff Lawson, Founder/CEO Twilio (NYSE:TWLO)

14. Startup Odds
Unicorns 100:1 | Centaurs 20:1
Data from ~600 companies from 500 Startups Funds I + II (2010 - 2013 cohorts)
$1-10M

15. Startups + Corporation = TEAM
15
Startups:
• Speed
• Talent (People)
• Product / IP
Corporations:
• Customers
• Budget / Money

16. Corporate/Startup
Innovation Framework
Partnerships
Investments
M&A
Outcomes
Strategies
People
Product
Customers
Dealflow
Accelerators
PR & Sponsorships
Competitions & Events
Silicon Valley Outposts
Investing in VC funds

17. Corporate/Startup
Innovation Framework
Outcomes
People
Product
Customers

18. Corporate/Startup
Innovation Framework
Partnerships
Investments
M&A
Outcomes
Strategies
People
Product
Customers

19. Corporate/Startup
Innovation Framework
Partnerships
Investments
M&A
Outcomes
Strategies
People
Product
Customers
Dealflow
Accelerators
PR & Sponsorships
Competitions & Events
Silicon Valley Outposts
Investing in VC funds

20. Different Strategies, Rqmts
Different Outcomes, Impact
Partner Invest Acquire
Effort Low Medium High
Cost Low Medium High
Impact Low Medium High

21. 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

22. 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

23. 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)

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