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angel and incubator lessons - Dave McClure.pdf

Peter Jones [LION: li.blueoyster~@~gmail.com]
Peter Jones [LION: li.blueoyster~@~gmail.com]

This document provides advice and lessons learned from Dave McClure's experience as an angel investor and founder of 500 Startups accelerator. It outlines the key steps needed to successfully invest as an angel, including having sufficient capital, deal flow, expertise in evaluation and negotiations, support for portfolio companies, and connections for follow-on funding. McClure discusses his early investments from 2004-2008, noting most failures but a few large exits. The document also provides tips for new angel investors and what it takes to run a successful accelerator, including funding, branding, programs/services, deal flow, mentors, downstream capital, and proof points from past wins.

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Angels & Incubators: Lessons Learned @DaveMcClure @500Startups May 12, 2015
angel and incubator lessons - Dave McClure.pdf
Investing 101: 9 steps to not fuck it up 1) enough money (to write checks) 2) good branding / good deal鍖ow (to see good deals) 3) selection intelligence (to choose good deals) 4) valuation sensitivity / negotiation expertise (for reasonable prices) 5) document execution & 鍖nancial/legal support (to get deals done) 6) some domain of expertise / access to mentors (to help co's win) 7) connections to downstream capital (to help co's get next round) 8) connections to buyers (to help co's 鍖nd an exit) 9) patience (to wait until they exit) * on Quora: What does it take to run a successful angel syndicate or fund?
Angel Investing How I Got Started Started investing in 2004, as i was leaving PayPal got to co-invest with folks like Ron Conway, Josh Kopelman / First Round, Reid Hoffman, Jeff Clavier (SoftTech), Aydin Senkut (Felicis), Mark Goines, Esther Dyson, other PayPal/Google employees Made 13 investments between 2004-2008, total ~$300K, avg $25K each (altho spent $150K on 鍖rst 2 investments in 鍖rst year). Most things failed, a few small exits, some advisory wins, and ultimately 3 big (>10X) wins; overall up ~3-5X in 10 years Mint ($140M, Intuit, 2009) 際際滷Share ($119M, LinkedIn, 2012) Mashery (~$180M+?, 2013) Mostly had no idea what i was doing (valuation, legal, etc); some ideas about whether the company doing well (product, marketing, etc). Was successful mostly because i co-invested with other smart people, and because i got in early on a few good deals. Didnt allocate any money for follow-on; not sure it mattered all that much. Didnt distribute investments equally or over time; de鍖nitely mattered a lot. Fortunate to be investing in a market where i had access to good deal鍖ow, reasonable valuations
Angel Investing tips for n00bs & rookies Be prepared to lose all the money you invest. (One can only go to Zero!) Co-Invest w/ Other Smart / Famous Angels & VCs Invest small $ in many deals (min 20, ideally 50+) or focus exclusively on your expertise, but if so why not just be a founder? Develop an area of focus or expertise; build your brand around this Bias towards lower-valuation deals, OR higher-valuation deals with proven metrics / investors By default, dont double-down but if/when you do, focus on increasing relative ownership % + clear path to exit. Continue to re-evaluate your strategies based on current market conditions + structural changes to environment * on Quora: How do angel investors gain traction?
Accelerators / Incubators What does it take? Funding / Capital / Budget Story / Branding / Focus / Expertise Region / Stage / Industry Programs & Services Product, Design, Market[ing], Metrics, Funding, Recruiting, Pitch Prep, etc Deal鍖ow: Access, Selection, Ability to Close Mentors / Community Downstream Capital Wins / Proof Points
pre-2000: worshipping Idealab, Garage.com, etc 2001-2004: work at PayPal; meeting angels & VCs 2005/6: watching Paul Graham / YC, TechStars 2007: teaching Stanford Facebook class 2008-10: Founders Fund (Twilio, Credit Karma, SendGrid), ran Facebook fbFund incubator (Zimride/Lyft, Wild鍖re, TaskRabbit, Life360) 2010-2015: 500 Startups, 18 acc cohorts (13 US + 5 MX) = 400+ companies, 2-3 $100M+ cos; 100+ Series A cos Accelerators / Incubators How did Dave/500 get started?
Accelerator Economics tough to be sustainable historical: invest $50-100K @ $250K-$2.5M valtn; for 3-10%; keep $10-25K program tuition for overhead B14: invest $125K for 5%, keep $25K program tuition ~2/3 raise $500K-$2M; ~1/3 Series A; ~15% Series B estimate ~10-20% get to an exit in 3-7 yrs; ~5-10% get to meaningful outcome (>10X) these #s will be worse if youre new and/or not in Silicon Valley current winners: $200M+, $100M+, several @ $50M+
Questions? Answers: $1 Correct Answers: $10 Stupid Looks: Free! :)

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angel and incubator lessons - Dave McClure.pdf

  • 1. Angels & Incubators: Lessons Learned @DaveMcClure @500Startups May 12, 2015
  • 3. Investing 101: 9 steps to not fuck it up 1) enough money (to write checks) 2) good branding / good deal鍖ow (to see good deals) 3) selection intelligence (to choose good deals) 4) valuation sensitivity / negotiation expertise (for reasonable prices) 5) document execution & 鍖nancial/legal support (to get deals done) 6) some domain of expertise / access to mentors (to help co's win) 7) connections to downstream capital (to help co's get next round) 8) connections to buyers (to help co's 鍖nd an exit) 9) patience (to wait until they exit) * on Quora: What does it take to run a successful angel syndicate or fund?
  • 4. Angel Investing How I Got Started Started investing in 2004, as i was leaving PayPal got to co-invest with folks like Ron Conway, Josh Kopelman / First Round, Reid Hoffman, Jeff Clavier (SoftTech), Aydin Senkut (Felicis), Mark Goines, Esther Dyson, other PayPal/Google employees Made 13 investments between 2004-2008, total ~$300K, avg $25K each (altho spent $150K on 鍖rst 2 investments in 鍖rst year). Most things failed, a few small exits, some advisory wins, and ultimately 3 big (>10X) wins; overall up ~3-5X in 10 years Mint ($140M, Intuit, 2009) 際際滷Share ($119M, LinkedIn, 2012) Mashery (~$180M+?, 2013) Mostly had no idea what i was doing (valuation, legal, etc); some ideas about whether the company doing well (product, marketing, etc). Was successful mostly because i co-invested with other smart people, and because i got in early on a few good deals. Didnt allocate any money for follow-on; not sure it mattered all that much. Didnt distribute investments equally or over time; de鍖nitely mattered a lot. Fortunate to be investing in a market where i had access to good deal鍖ow, reasonable valuations
  • 5. Angel Investing tips for n00bs & rookies Be prepared to lose all the money you invest. (One can only go to Zero!) Co-Invest w/ Other Smart / Famous Angels & VCs Invest small $ in many deals (min 20, ideally 50+) or focus exclusively on your expertise, but if so why not just be a founder? Develop an area of focus or expertise; build your brand around this Bias towards lower-valuation deals, OR higher-valuation deals with proven metrics / investors By default, dont double-down but if/when you do, focus on increasing relative ownership % + clear path to exit. Continue to re-evaluate your strategies based on current market conditions + structural changes to environment * on Quora: How do angel investors gain traction?
  • 6. Accelerators / Incubators What does it take? Funding / Capital / Budget Story / Branding / Focus / Expertise Region / Stage / Industry Programs & Services Product, Design, Market[ing], Metrics, Funding, Recruiting, Pitch Prep, etc Deal鍖ow: Access, Selection, Ability to Close Mentors / Community Downstream Capital Wins / Proof Points
  • 7. pre-2000: worshipping Idealab, Garage.com, etc 2001-2004: work at PayPal; meeting angels & VCs 2005/6: watching Paul Graham / YC, TechStars 2007: teaching Stanford Facebook class 2008-10: Founders Fund (Twilio, Credit Karma, SendGrid), ran Facebook fbFund incubator (Zimride/Lyft, Wild鍖re, TaskRabbit, Life360) 2010-2015: 500 Startups, 18 acc cohorts (13 US + 5 MX) = 400+ companies, 2-3 $100M+ cos; 100+ Series A cos Accelerators / Incubators How did Dave/500 get started?
  • 8. Accelerator Economics tough to be sustainable historical: invest $50-100K @ $250K-$2.5M valtn; for 3-10%; keep $10-25K program tuition for overhead B14: invest $125K for 5%, keep $25K program tuition ~2/3 raise $500K-$2M; ~1/3 Series A; ~15% Series B estimate ~10-20% get to an exit in 3-7 yrs; ~5-10% get to meaningful outcome (>10X) these #s will be worse if youre new and/or not in Silicon Valley current winners: $200M+, $100M+, several @ $50M+
  • 9. Questions? Answers: $1 Correct Answers: $10 Stupid Looks: Free! :)