Following up on our earlier post announcing the first closing of 500 Falcons, our fund for the Middle East and North Africa, we’re going to be posting a few more announcements on the MENA region and the meaningful ecosystem-building projects we’re working on.
As we’ve been investing in the region over the last 6 years, we’ve seen a lot of similarities between the Middle East and other emerging entrepreneurial markets in comparison to the startups we see in Silicon Valley. One particular area of focus that we felt needed a big boost was growth hacking. Growth hacking in simple terms is data-driven, online customer acquisition and distribution methodologies that have evolved as a distinct skill set from either traditional business development, sales or marketing. For this reason, we thought it made a lot of sense to bring our Series A Program to the region with QSTP. Our inaugural Batch 1 kicked off with 9 post-seed startups on the 30th of April and will continue through the 30th July. In addition to arming the batch companies with the skills and processes to scale their businesses quickly, we’re coaching them on presentation and fundraising so they can achieve progression into their next funding round.
Our partnership with the Qatar Science and Technology Park (QSTP) and the Qatar Foundation has been a fruitful one for startups in the MENA region, as it has enabled us to bring our growth hacking superpowered “Distro Team” to the region to transfer knowledge and best practices around rapid growth and distribution.
The Series A Program, which is the first 500 Startups program in the MENA region, is a 3 month program hyper-focused on teaching late seed stage companies growth (sales and marketing teams) and modern distribution hacking techniques. The program consists of a 1 month in-residency training (at QSTP) followed by 2 months of mentoring. Here are a few of the tools that the startups develop expertise in over the 3 months:
Paid channels (Facebook and Google and to a lesser extent Twitter & some SNAP)
B2B selling & sales funnels
Customer discovery interviews
The 1 month in-residence culminated in an exciting Investor Day where the startups pitched their companies to an auditorium full of investors and key stakeholders. All 9 startups received tremendous interest for their Series A rounds.
The startups have already begun achieving great results in the Dojo during the first month and we’re excited to work with Batch 1 for the next two months as they run countless more experiments across their funnels. Here are just a few of the comments heard in the Dojo:
It puts you in beast mode about your business.
Very tangible and structured learnings. Great chance
to learn from other founders and team members.
Legit and honest feedback, no BS. Amazing help
from experts to uncover growth avenues.
We learned a customer driven, clear, repeatable
and measurable way to make changes that
have an impact every week.
Check out each of the 9 companies, hailing from 4 countries, who were part of the first batch of MENA companies that joined the program:
Eat – eatapp.co
Eat allows you to find restaurants around you and confirm your reservation in less than three clicks. It has two products, one for restaurants, and another for consumers. The consumer app is simple. No need to call! The restaurants have an iPad installed at the front desk. This app allows restaurants to internally manage reservations and tables, and to notify the consumer app about availabilities.
Edfa3ly – edfa3ly.co
Edfa3ly provides the Middle East with a personal shopping service to buy Western goods without any of the hassles and confusion of cross border shipping. Orders are fast and guaranteed.
Eventtus – eventtus.com
Eventtus is an event engagement platform and mobile app for event planning, networking and ticketing. Eventtus helps event organizers create an interactive mobile app for their events in few minutes. Through the app, organizers share content, such as the agenda/logistics, speaker bios, and exhibitors. Polls and surveys provide real-time feedback, and Eventtus’ post-event analytics help organizers understand their audiences, measure success, and improve future planning.
Mumm – getmumm.com
Mumm, the first word many of us ever learned to exemplify food that we got from our most trusted source, our Moms. Mumm is an online marketplace for delicious Home Cooked Meals. Cooked by Moms, Housewives and Freelance Chefs near you. Order your food and it will arrive fresh and healthy.
Ghinwa – ghinwa.com
Ghinwa is the Snapchat for singing. Download the app, sing along to your favorite tune, apply Ghinwa exclusive background music and filters and share with your loved ones.
Justmop – justmop.com
Justmop.com is a website and mobile app connecting individuals looking for cleaning services with well-trained & pre-screened cleaning service providers across the gulf.
Meddy – meddy.co
Meddy helps you find best doctors in the gulf based on patient reviews and credentials. Browse doctor profiles with their background information, get reviews from other patients going to that doctor and get clinic locations. Make an informed health decision based on knowledge, not chance.
Find Doctor profiles, patient reviews, clinic locations. Helping you make informed health decisions.
Souq Al Mal – souqalmal.com
Souqalmal.com (Souq al Mal is Arabic for ‘money market’) is the #1 comparison website in the Middle East and lets you compare and buy financial and insurance products. With more than 360 credit cards, 450 bank accounts, 147 personal loans, 100 car loans, 105 mortgages, 1143 mobile phone plans, 150 broadband plans, 280 schools and 234 nurseries and 100+ car deals, plus 115 SME financial products, the consumer portal allows customers to do their homework using up-to-date, unbiased information.
Taskty – taskty.com
Taskty is the #1 online home service market in Egypt. Taskty provides home cleaning, washing upholstery, plumbing, electricity, insect control, photography events and many other services.
Taskty services are guaranteed for quality at extremely competitive prices.
Here’s a look back at lessons we’ve learned from the last 7 Demo Days, and how 500 Startups stumbled upon creating the unique pitch day in Silicon Valley.
1. Listen to Your Audience
Back in the day, 500 Startups Demo Day was pretty basic (see Batch 8):
500 Startups Founding Partner, Dave McClure, speaking at 500 Batch 8 Demo Day (back when the most colorful thing at Demo Day was Dave’s language).
During Batch 13 Demo Day, things got a little bit more interesting.
It all started when I bought Dave a unicorn hoodie for his birthday, which happened to coincide with the Batch 13 Preview Day (an invite-only sneak peek to Demo Day). To our surprise, many investors and founders in the audience loved Dave’s unexpected fashion statement, talking and tweeting about it.
Dave noted the audience engagement and decided to wear the unicorn costume again on Demo Day. He also encouraged Founding Partner Christine Tsai, a former ballerina, to wear a rainbow tutu. Again, the response was extremely positive at Demo Day. Silicon Valley Business Journal even dedicated an article to Unicorn theme.
The lightbulb turned on, and we saw the potential marketing value in bringing creativity to our Demo Days. But it wasn’t a mere fluke — we listened to the audience feedback, saw the marketing value, and applied it.
2. Turn Challenges into Creative Advantage
When planning for Batch 14 Demo Day, we found out the only day the venue was available was the day before Halloween. We were not happy. Typically we tried to plan our events around major holidays, like Halloween, assuming people would be busy attending their own company parties. We were worried about not having enough investors attend our event, but we couldn’t change the date. So we decided to exploit the timing instead. Thus, Demo-Ween was born.
In our past Demo Days, we always focused on the pitches, not wanting to take away from the big day of our batch companies. However, the thematic timing forced us to look at the Demo Days from a different angle. We decided to make Demo Days more entertaining. We added the Halloween theme to our Demo Day, aka “Demo-ween” — presenting the content in a new form. The new form of Demo Day allowed startups and investors to dress up, have fun, and get deals done together.
As a result, the Demo-ween not only helped us maintain the previous demo day attendance, it also attracted more international investors than ever before (50% increase). By presenting the content in a more engaging format, we turned a challenge into our competitive advantage.
The first Demo-ween was so successful, we decided to make it an annual theme.
In order to highlight our new Fintech focus, we made the Batch 16 Demo Day poker themed. In order to create an authentic experience, the 500 events team hired a top poker player to give attendees poker lessons and play blackjack. Founding Partners Dave McClure and Christine Tsai also dressed up for the poker theme.
Partly in thanks to a successful Fintech-Themed Demo Day, we saw a 23% increase in Fintech applications to the following batch.
4. Embrace Company Culture
During the Batch 17 program in June 2016, the 500 team and batch companies attended the San Francisco Pride Parade. Pride inspired us to redefine the meaning of “unicorn” at 500. In tech, a unicorn company means a billion dollar company valuation. We decided that being a unicorn also brings about a sense of love and unity. We are not only about making profits and increasing portfolio company valuations but also about celebrating people and culture.
The momentum of the Pride Month continued into our Demo Day planning process. We wanted to use the upcoming Demo Day as a platform to promote 500’s company value of embracing diversity and inclusion. We chose the theme “Beauty & the Geek” based on our B17 tracks Fashion & B2B and decided to break down gender stereotypes by having Dave dress up as the “Beauty” and Christine the “Geek”.
After Demo Day, Microsoft offered to sponsor our efforts to advocate diversity in tech by supporting our Unity and Inclusion Summits. Our open and embracing culture has attracted a very diverse group of companies. In our latest batch, Batch 20, 36% of our batch companies were international (from 10 different countries), 20.5% of companies had at least one female founder, and 25% of companies had a black / Latinx founder.
5. Make It About Your People
At the end of the Batch 17 Demo Day, a flash mob of the 500 team appeared from the audience and started dancing on stage with Dave. The big screen started playing videos of venture capital investors and founders of successful 500 portfolio companies around the world wishing Dave a happy birthday. The B17 Demo Day happened to be Dave’s 50th birthday and our 500 family planned a surprise for Dave.
The Demo Day birthday surprise is just one example of the many things that we would do simply because we care about people. We build the 500 brand by connecting with people on a personal level.
6. Create Positive Emotion
From the previous Demo Days, we began to see that themes created a supportive environment for founders and investors to develop relationships. For Batch 19, we chose a Valentine’s Day theme because we wanted to bring more emotion into the experience.
We dressed up our founders as Cupid (Christine) and the Queen of Hearts (Dave) and decorated the stage with all shades of pink and hearts. Investors could give batch companies Valentine cards that said, “I have my eyes on you!”.
7. Leverage Culture & History
Our Batch 20 program was based in San Francisco around the same time as the city’s 50th anniversary of the “Summer of Love” – the 1967 summer event that drew nearly 100,000 young people to the city’s Haight-Ashbury neighborhood. Starting from early spring 2017, streets in San Francisco were decorated with the “Summer of Love” theme. We decided to do the same theme for our Demo Day to pay tribute to the city’s history.
With flowers, rainbow-colored lighting and our emcee in a Grateful Dead bear costume, this Demo Day brought a sense of nostalgia to the city many 500 Startups team members call home.
Our Demo Days are instrumental in building the 500 brand. We strive to create an organic ecosystem of investors, founders, and corporate partners by providing meaningful and engaging content to our audience.
If your goal is to stand out from the crowd and flaunt your unique brand to the world, don’t forget to incorporate these 7 Marketing Lessons from 500 Startups Demo Days:
Listen to the Audience: Gather feedback from your audience, catch the opportunity, and act on it
Reframe the Challenge: Look at the problem from another perspective and turn challenges into advantages
Inspire with your products: Rejuvenate your brand with new products
Embrace Company Culture: Integrate the company values and culture to create a powerful marketing message
Focus on People: Build a people-centric ecosystem to organically grow your business
Engage your audience with Emotions: Create Positive emotions to Drive Connection and Awareness
Integrate Art into Business: Leverage the power of culture and history in your marketing
500 Batch 22 begins July 24th, 2017 in San Francisco.
Click Here to apply for our the Batch 22 Seed Program.
Yiying Lu is award-winning bilingual (English & Chinese) artist and designer. Born in Shanghai China, Educated in Sydney Australia & London UK, now based in San Francisco, Silicon Valley, she currently is a Design Lecturer at the NYU Shanghai Program on Creativity & Innovation. She is also an individual creative consultant who provides talks & workshops for global startups and corporate innovation teams on design thinking, entrepreneurship & creativity. Her projects have been featured in many publications, including The New York Times, Forbes, NBC News, TIME, CNN, BBC, San Francisco Chronicle, TechCrunch, Mashable, and The Huffington Post. She was named a “Top 10 Emerging Leader in Innovation” in the Microsoft Next 100 series. For more from Yiying, you can follow her on Twitter, Linkedin and Medium.
Optimizing adds on Pinterest isn’t necessarily straightforward, and can often involve a lot of trial and error. Brittany Murlas, a mentor for 500 Startups, spent time and money navigating what works and what doesn’t on the platform and imparts her hard-earned lessons below. Read on so you avoid the same mistakes, and instead, profit from BIG growth like she did.
Lesson #1: Build for platform.
You know to design your Facebook ads differently than your Google ads, but do you tweak your Facebook ads for promotion on Instagram? Now I do.
We humans open different apps for different reasons. I open Facebook for entertainment, SnapChat for connection, and Pinterest for ideas. My intent varies drastically with each.
So as marketers, if we remain content rearranging the same successful assets and copy, then we leave serious money on the table. With each ad platform, it’s our job to understand the intentions of our potential clickers.
For instance, I go to Instagram to lose myself in aspirational imagery. So my guess is the two beautiful square-ish lifestyle photos below performed very well on Instagram. But I saw them on Pinterest & Facebook instead, and since I open Pinterest for ideas and Facebook for entertainment, neither ad gave me reason to click.
Lesson #2: Make your ads look like they belong there.
Native ads are the coolest. Native ads are like getting asked to Senior prom when you’re a Freshman. If you fit in, you’re in for the night of your life. Stick out as the Freshman (you are)…well, then you might as well catch an Uber Pool back.
Native ads are a gift to us growth marketers, and we must respect them by blending in as we’re supposed to. Let’s talk through three examples.
While I really like Lyft’s idea here (i.e., I pin stuff I want to do, and Lyft can give me the cash to do those things), their Promoted Pin sticks out as an ad. Sure it grabs my attention and I may click, but I’d never save it my Pinterest account, which limits virality. However, if I came across a Lyft pin titled “How to quit your job and fund your dream” (a very pinteresting title) I’d not only click the pin and read the content, I’d also save it and share it with a friend. Huzzah!
It’s clear SoFi has done its research when it comes to pin design. Even with prominent text, this pin blends in with the Pinterest feed. What I’d change is the copy. The title reads like a HuffPo article, when folks come to Pinterest to browse ideas, not information. Something like “How to use personal loans instead of credit cards” should perform better.
What made me stop on this ad is that I thought it was actually shared on Facebook by my friend Lauren. A reminder that our target audience should be our source of greatest inspiration.
Lesson #3: Play with average designs.
Below, “the Real Real” ad below is stunning. It catches my eye. I admire the pretty photo. I read, and then I realize “this is an ad.” I move on.
Tiek’s ad is basic. It’s boring. But it is pure, sweet genius. This pin looks like it was designed by a mom blogger in Illinois, not a NYC-based ad designer, which gives me the trust I need to pour over the details of this ad. This is extraordinarily clickable content (for my boys out there this is a like a, “Are Bose really worth the price?” ad), and when I do click, instead of being taken to the Tiek’s website, I land on an independent review. The reviewer confirms Tiek’s really are worth the price (didn’t see that coming!), so I click to the Tiek’s website, find my favorite color and save it to my “Presents I Want” Pinterest Board.
Want MORE Pinterest expertise? Check out Brittany’s talk at 500 Startups Weapons of Mass Distribution 2016:
And her Marketing Hell Week 2015 talk here:
Brittany’s been building small enterprises since high school. As BabyList.com’s second employee, Brittany was responsible for 15x growth, making BabyList.com the most popular online baby registry. She is known as an expert in marketing to women and parents. Now, Brittany is building a feminist book club for kids, thelittlefeminist.com. For more from Brittany, you can follow her on Twitter and Linkedin.
On May 11, 2017 at Parc 55 in San Francisco, 500 Startups’ latest batch, Batch 20, celebrated their graduation from our 4-month accelerator program with Demo Day. The 41 Batch companies hailing from 10 different countries successfully pitched their companies to a room full of active and accredited investors, resulting in follow-up investor meetings and funding on-site. Below is a recap of the event.
B20 DEMO DAY OVERVIEW >>
414 total attendees (not including the batch companies)
300 investors and corporate strategics inattendance
35 current LP’s inattendance
19 guests from General Motors, a partner of Batch 20
3,813 people watched via Livestream. The top 10 countries who viewed remotely are as follows:
WHAT IS DEMO DAY? An invite-only event for 500+ active & accredited investors, Demo Day is a private viewing of our most recent accelerator startups before they ‘graduate’. Attendees will get a first look at the startups, meet the founders, and network with other top-tier investors, corporate strategists, & press.
WHY DO WE DRESS UP? Wondering what’s up with the flowers and tie-dye? B20 Demo Day was “Summer of Love” themed. Read check out this article for more on why we dress up our Demo Days.
B20 includes GovTech (13.6% of B20), FinTech (27%) and Digital Health (15.9%). 36% of the B20 are international representing 10 countries. Canada, Israel, Thailand, Hong Kong, Latvia, Estonia, Brazil, United Kingdom, Nigeria, and France.
B20 is also a diverse set and has 20.5% of companies with at least one woman founder, 11.4% of companies in with at least one black founder, and 13.6% of companies with at least one latinX founder.
AllVirtuous — On-demand investigation platform to fight counterfeit products through crowdsourcing.
Alta5 — An event-driven automation platform for trading the financial markets.
BenRevo — Digitally connects insurance carriers, brokers, and employers.
Biomarker.io — A monitoring and tracking platform that optimizes your wellness and supplement routine.
Bloom Credit — Takes a data-driven approach to improving the financial health and eligibility of loan applicants.
Boon — An AI-powered referral recruiting network that helps companies hire talent in their employees’ social networks.
Cadence — An API for connecting language interpreters with businesses.
Clanbeat — An ongoing feedback tool for monthly performance reviews targeted at managers.
Cyberwrite — Cybersecurity predictive analytics for the insurance space
Court Buddy — A tech platform that matches users with solo attorneys based on their budget.
From March 20 – April 2, 500 Startups brought a group of 22 “geeks” to Africa for our 18th Geeks on a Plane (GOAP) tour. Over two non-stop weeks, the group of entrepreneurs, investors, and corporate executives got an in-depth look at the West and South African startup and investment ecosystems through events like accelerator visits, mentoring sessions, dinners with US ambassadors, pitching events, tech conferences, and evening meetups. Below is our summary, insights, and takeaways from the trip.
GEEKS ON A PLANE OVERVIEW >>
3 countries &4 cities (Lagos, Nigeria / Accra, Ghana / Johannesburg, South Africa / Cape Town, South Africa)
43 events over 2 weeks (including accelerator visits, pitch competitions, intimate roundtable discussions, embassy dinners, red carpet events, and one helluva safari)
22 ‘Geeks’ representing financial services/fintech, social impact investing, government, and venture capital
Connections to top investors/investment firms (like African Capital Alliance, Venture Garden Group, EchoVC, and Singularity Investments in Nigeria, Pave Investments and Chanzo Capital in Ghana, and 4di, Edge Growth, and AngelHub Ventures in South Africa)
Connections to public sector officials including the Nelson Mandela family, Dr. Nkosazana Dlamini-Zuma, US Embassy Charges d’ Affaires Jessye Lapenn, Ghana Ministry of Communication Liaison, the U.S. Consul General F. John Bray, Minister Naledi Pandor from the South African Department of Science and Technology, and Minister Rob Davies from the South African Department of Trade & Industry
Connections with local accelerators and entrepreneur communities (Andela, CCHub, Seedstars, MEST, Startup Grind Cape Town, Barclays Rise, Workshop 17, IBM Innovation Lab, Google Launchpad)
Over two dozen pieces of press coverage, including a TV interviewbyCNBC Africaand online article by TechCrunch
“GOAP was an intense road trip with some incredible people. It’s a strong mix of networking, learning and having fun. The access to local tech leaders was very valuable and made it easy to build up a picture of what’s really happening in Africa” – Itai Damti, CEO Asia Pacific, Leverate
“Geeks on a Plane has contributed significantly to my personal and professional development. GOAP creates a context to make great new friends, insights, and opportunities. Anyone interested in really understanding the global investment and entrepreneurship landscape should consider becoming a geek!” – Dave Troy, CEO, 410 Labs
“RippleWorks only works with the best social ventures in the world. GOAP short-circuited the time it took me to meet great entrepreneurs and ventures that have a legit shot to build a great business AND make the world a better place.” – Doug Galen Co-Founder & CEO RippleWorks
Large population: Nigeria (190M), South Africa (55M), Kenya (48M), Ghana (28M)
More than half of the global population growth predicted between now and 2050 is expected in Africa, where the number of people is set to more than double, from 1.1 billion to 2.4 billion. [The Guardian]
Lagos alone has a population (21M) that is increasing by 85 people per hour and is larger than the city of London (8.63M) and nearly equal to Beijing (21.5M).
Smartphone penetration is rising: South Africa (34%), Nigeria (30%), Kenya (15%), Ghana (14%)
Emerging markets present challenges in infrastructure, financial services, and online commercial activity that are ripe for entrepreneurs to solve.
More recommended reading on the Africa Startup Ecosystem:
Hi, I’m Michael Rivera. I’ve started (and exited) two companies in my career. I’ve been an early-stage venture investor, advisor and mentor. I’ve recently joined with three brilliant Stanford grads to launch an LA-based accelerator dedicated to consumer products in the health & wellness, toy, and home goods verticals. I just took 500 Startups Bootcamp for Accelerator Managers (April 24th – 28th) and here are some of my reflections.
During the weeklong Bootcamp for Accelerator Managers, Dave McClure, Christine Tsai, Bedy Yang and the 500 Startups team shared all the successes and failures they’ve had after running 40+ accelerator programs. They were transparent, hilarious, and incredibly inspiring.
It. Was. Awesome.
(Except the part where Dave McClure told us we were crazy for running accelerators and would probably fail. The truth hurts! Thanks, Dave!)
For five days, I sat with my batch mates as we learned about accelerator investment theses, accelerator marketing and positioning, and the accelerator application process among many topics in information-packed sessions. These sessions conveyed best-practices for every facet of accelerator operations and management.
Here are three of the changes we’re making to our program after attending #500BAM:
1. Shifting our mindset from an accelerator to a fund with services.
By starting a private accelerator, we’re really starting a Seed Fund with super-charged value-add components. We owe it to our investors, our strongest performing cohort companies, and ourselves, not to spend limited resources on the worst companies. It sounds harsh, but we’re accelerating the good companies and we’re accelerating the bad companies.
We understand this with greater clarity now so we’re developing internal metrics to identify our least promising cohort companies and develop a process to allocate resources to them accordingly during our program.
2. Paying more attention to timing.
We know that the success of the first fund will determine whether we raise a second fund. We hadn’t fully thought through the timing of LP capital calls and how that impacts fund IRR/LP ROI. So now we’re mapping LP capital calls against our cohort start dates and anticipated follow-on investment windows. Though this may seem like a minor point, any incremental improvement on IRR/ROI is critical, especially for a new fund.
3. Engaging partners and sponsors.
We realized we were focused on our accelerator program to the detriment of our sponsors and partners program. As 500 Startups has proven in the private accelerator space, it is crucial to engage corporations, governments, and NGOs via sponsorships, partnerships, and events. If you’re not, you’re leaving tons of operational revenue on the table.
We’re now in the process of developing a fully integrated corporate outreach and sponsorship program. Not only will this strengthen us operationally, we’re further developing relationships with potential exit partners for our cohort companies. As Venture Partner Zafer Younis put it in his session on corporate partnerships, it’s a “win-win-win.”
Although I think the challenges that face me and my team are going to be the hardest of my career, after my time at #500BAM, I feel energized and focused. I received invaluable, personalized advice from the very best accelerator operators in the world. I have #500BAM resources and materials to reference as we move forward. I am a part of the 500 Startups ecosystem.
Perhaps most importantly, I have a stronger support network of like-minded accelerator managers. My batch mates hailed from Europe, the Middle East, South America, Asia, and all corners of the United States. We are men and women coming from a mix of private, government, university and corporate accelerators.
Some of us have yet to welcome our first group of companies; others have been operating their accelerator for years. And yet our diversity – in all things – was our greatest strength. In truth, we learned as much from each other as we did from our friends at 500 Startups.
If you’re in the accelerator ecosystem, there is nothing else like #500BAM in the world. I encourage you to see for yourself next year.
Thank you to Michael Rivera for contributing to the 500 blog. For more insights from Michael, follow him on Twitter.
500 Startups just wrapped our second Bootcamp for Accelerator Managers, which brought 23 participants from Brazil, Colombia, Germany, Iran, Japan, Oman, Saudi Arabia, South Korea, Taiwan, United States, and Uruguay together to learn best practices in accelerator management.
Reflecting on the program, we’ve compiled a list of three simple questions every effective accelerator manager should be able to answer.
What problem do you solve?
Are there gaping holes in UX/UI knowledge among entrepreneurs in your ecosystem? Do startups struggle to sell products internationally? Do you see too many founders fundraising the wrong way? Each ecosystem has it’s own set of challenges. Accelerator managers should know what ails entrepreneurs and bake solutions to their problems into their accelerator’s DNA.
Entrepreneurs relinquish equity in their company in return for cash, mentoring, and programing. Accelerators have a responsibility to equip them with the knowledge needed to fight, and win in the marketplace.
Accelerator managers know what entrepreneurs need, and then work relentlessly to provide it.
What’s your superpower?
We’ve been unapologetically loud about our growth hacking superpower. 500’s Seed Program focuses on marketing and fundraising strategies; our Series A Program cultivates the metric-driven marketing techniques needed to raise and utilize Series A financings. Notice any similarities? Both lean heavily on our growth hacking superpower.
Before starting a new accelerator or changing the structure of your existing accelerator, make sure you clearly understand your superpower. What can founders say they definitively gain from being part of your program and network?
Accelerator managers know and exploit their superpowers.
How patient are you?
It takes time to witness the results of investing in early stage companies. How long will it take before your program proves itself? Do you have the bandwidth to survive until then?
Reflection and iteration are key to creating a great program. Over time, accelerators managers’ expertise will evolve, leading to better company selection and better financial outcomes. Accelerator managers are in it for the long term. They know their work will not always produce immediate results, but are patient and continue to iterate and evolve.
Accelerator managers know time is on their side.
We look forward to sharing more insights learned from this year’s BAM! program in the coming months. Sign up for our mailing list at education.500.co/accelerator to keep up to date with the latest in accelerator manager education.
Our next program is planned for February 2018. We hope you’ll join us.
Today, I’m thrilled to announce the first closing of our 500 Startups MENA Fund (aka 500 Falcons) at $15M out of our $30M target. While we have been investing in the MENA (Middle East and North Africa) region since 2011, including 55 deals in 32 companies for a total of $6M, this is our first fund focused entirely on the Arab world.
With this new fund, we plan to invest in approximately 100-150 companies with about half of the fund and reserve the other half for follow-on investment in the top 20% of companies. The fund will focus on early-stage startups in the MENA region, MENA diaspora founders and non-MENA founders targeting MENA.
The MENA Team
I’m so thrilled to announce that Sharif El-Badawi has joined the team as a Partner for 500 Falcons.
Sharif joined 500 Startups as a Venture Partner in February of 2016 while he was still at Google and the Chairman of the leading global non-profit bridging MENA entrepreneurs with Silicon Valley, TechWadi. He left his role at Google after nearly 7 years this past September working with some of the top startups and VC funds in Silicon Valley to focus his time and attention on investing in MENA startups. He’s already been a great help to the startups in our portfolio and an asset to the team. Prior to Google, Sharif was with AdMob, which sold to Google in 2009 for $750 million, and a serial entrepreneur, advisor and investor in Consumer Internet startups since 1998 having jumped into his first tech startup, Website.com. Sharif brings almost twenty years of product, business development, marketing, and sales experience to the 500 portfolio.
We’re also actively recruiting for our team in the region, with plans to have people on the ground in our key markets such as Saudi Arabia, Egypt, and Jordan amongst others.
Who Are We Working With?
I’m pleased to announce that among our LPs for the first closing are 2 highly respected regional institutions, the Qatar Science and Technology Park and the Oman Investment Fund. In these LPs we have found partners that will help us achieve our mission to support and invest in startups and build ecosystems in the MENA region. I truly believe that thanks to LPs such as these we’ll have a significant impact on the regional ecosystem.
Along with our partners at QSTP, we are bringing our Series A Program (formerly known as our Distro Dojo) to the region as ‘Doha Dojo.’ Once a year, we will be working with some of the top MENA startups at the Series A level to bring them to Doha with some of the best growth hackers in the world to help build a growth mindset and support them in their growth. More information on our first batch is coming soon and investor day is taking place on May 23rd in Doha. If you’re a Series A investor and interesting in joining, please get in touch with Ms. Ghada Darwish at email@example.com.
In Oman, we are engaging on an ecosystem building project in partnership with the Oman Investment Fund through the Oman Tech Fund. This year we’ll be advising and supporting the Wadi Accelerator program in Oman with knowledge transfer, capacity building and a cadre of mentors. In addition, we’re working on a unique event, Geeks in a Wadi, the first event of its kind, with further details to be announced soon.
Why Are We Doing This?
The region has long faced political and economic uncertainty, and a growing younger population that is looking to take charge and change things with their own hands. These youth have access to the same global wealth of information as anyone else. If they so choose, they’re capable of achieving the same things anyone else in the world is.
The Middle East and North Africa are among the last large regional ecosystems to rise up, and emerging markets tend to leapfrog adoption of innovations and technology at higher and higher frequencies. Being a latecomer does not mean staying behind, and the Arabic speaking world is 500 million strong – young, resourceful, wealthy and a yearning to thrive.
Top 5 Reasons MENA is a Must Bet
Massive 500 million Arabic speaking population
Largely untapped ecosystem/market, internally and internationally
Shift in fossil fuel prices and changing geopolitical forces
Lower valuations and costs of operating a business
Highly educated, competitive and vibrant talent pool
Bonus (coming soon): Surge in investor interest and options for progression from seed to exit
According to MAGNiTT’s State of MENA Funding Report, 2016 saw nearly $1B of venture capital investment into regional startups, a 424% increase over the previous year, and arguably a flat year due to the fact almost all the VCs were fundraising, including us. Sorry founders, but 2017 is looking very strong! We hope that our 40+ deals/year will boost early-stage startup growth and encourage more angel and venture capital to flow in.
I look forward to 500 Startups playing a significant role in building ecosystems across the MENA region, and investing in the best founders solving real problems. I hope that our deal volume and speed will provide at least a small boost in funding activity at the earliest stages and even encourage others to do more deals as well. I’m grateful to the other investors and key stakeholders in the region who are fighting for the same cause. Progression is key for entrepreneurs and they need optionality of capital sources at all stages in their startup and scaling. We’re all aligned in that we want to create more companies and help those companies grow.
Here’s to building world class startups from the Middle East, creating jobs, solving real problems, empowering the youth, women and anyone who wants to effect real change to better their surroundings, and generating a positive return on capital while we’re at it!
They are here. Two weeks ago Batch 21 (B21) kicked off at 500 Startups in Mountain View. Thirty-one young companies will now spend the next four months hacking out of the flagship location nestled in the center of Silicon Valley where 500 Startups was launched six years ago (AARRR!).
Since the original Batch 1, the 500 Seed Program has accelerated over 600 companies between the San Francisco and Mountain View programs (shout out to our LatAm program in Mexico City currently on Batch 007).
As usual, B21 represents a wide array of technologies ranging between Conversational Commerce, Big Data, drones, VR, transportation, digital health and FinTech. There will also be a focus track in B2B Sales and an automotive track hosted with General Motors.
Forty-three percent of B21 are international companies representing 8 countries with founders from the UK, Argentina, Canada, Israel, Italy, Hong Kong, Portugal, Spain, Taiwan and Turkey. Another 23% of the batch are female founders and 12% are black or Latinx founders.
The core of the 500 program continues to be focused on growth and fundraising with the return of the notorious Marketing Hell Week followed by weekly enterprise sales talks and intensive customer acquisition coaching.
“It’s week two, and we are already feeling the speed at which 500 operates,” says Ryan Stobie, CEO and founder of Adventure Bucket List who’s from Vancouver. “I’ve seen other accelerators and the growth expertise here is unmatched.”
Welcome B21. It is time.
Check out the entire roster of B21 below or on TechCrunch.
By now most VCs are familiar with Dave McClure’s theory of venture portfolio size. In short, he believes that at seed stage, it doesn’t make sense to have a fund with fewer than 50-100 companies, because venture returns depend on outliers and you need a big enough portfolio to consistently capture them.
In the post, he outlines a range of typical outcomes for a large portfolio of seed-stage investments. You can see some variation of this trend in most published venture returns data such as Crunchbase or PitchBook.
These are large ranges (because there’s a lot of randomness in startups), and depending on where you end up in these ranges, you could make or lose a lot of money. Most investors prefer a bit more certainty.
Thankfully, statisticians have invented something called a Monte Carlo analysis, popularized by Nate Silver of 538 fame, to simulate the impact of this randomness by simulating a large range of possible outcomes. And my friend Yannick Roux (@yanroux, blog), a London-based VC, kindly built a Monte Carlo simulation in Excel to help me model the range of possible outcomes for venture portfolios.
The “Blind Squirrel” Portfolio
We have an expression “Even a blind squirrel finds a nut every once in a while.” In other words, any VC with decent deal flow and a reasonable selection process, if they write enough checks, should eventually pick a winner. I’m not saying that’s a good way to invest, but let’s do the math.
Working with Yannick’s model, I plugged in some assumptions from the middle of the ranges above. This represents the “average” venture investor, hence with outcomes that fall in the middle of these ranges.
Then the Monte Carlo engine quickly ran through 10,000 simulated portfolios and listed the outcomes. I repeated this five times, changing only the portfolio size each time, and leaving all other variables constant (such as fund size average investment per company per outcome). These are the results:
As you can see, the results for the three largest portfolios are almost identical, but the results for the 20- and 50-company portfolio are worse. That’s because, in this model, we’re only expecting big (e.g. >50X returns) winners to occur 1% of the time. And in a portfolio of 20 companies, 1% of 20 is, more often than not, zero. But in a portfolio of 200+ companies, you could pretty reliably see a couple 50X outcomes in each iteration of the portfolio.
Here’s a frequency distribution showing the breakdown of return multiples 10,000 simulated portfolios of 20 companies vs. 200 companies. It’s a bit easier to visualise this way.
But We’re Not Average! Enter the Super Squirrel.
The “blind squirrel” portfolio was designed to match the outcomes of the venture universe in-general. These are the middle of our ranges – and a median return of 3.18X before fees and after a 10-year lock-up isn’t terrible.
But we should hope that a well-known venture fund with a recognized brand and a large team of experienced partners would attract better than average quality companies, and be better than average at picking and supporting winners. So I re-ran the model with input assumptions towards the higher end of our ranges, a different picture emerged: 20 companies is still not a great portfolio. But in this model, 200 companies can get you better than 4X before fees.
Now these are much better returns. And in this model, the impact of portfolio size becomes much more pronounced. That’s because payoffs in venture are asymmetrical, meaning the impact of the losers (e.g. you lose 1X your investment) remains the same regardless of how amazing you are, but the impact of the winners is exaggerated for Super Squirrel VCs, because there are more bigger winners in Super Squirrel’s portfolio.
What about the 50 company portfolio?
As you saw above, the 50 company portfolio doesn’t do badly. The top quartile returns more than 6.34X, which is better than the 100 company portfolio. But it carries a lot more risk, and you can see that in the shape of the curves:
Notice that second gray hump on the right? That squirrel looks more like a camel! (a bi-modal, or Bactrian camel at that) That’s because your chance of hitting a “big winner” (50X – 100X) is about 1%. And in a 50 company portfolio, that will happen about half of the time. So the fund outcomes in the hump on the right have that one big winner in them, and the ones on the left don’t.
But in those great outcomes, it’s really down to that one big winner. If I re-run the Super Squirrel model and remove the top performing company in each scenario, then that whole second hump goes away. Notice below, the top quartile return for the 50 company fund drops by 49%, but the top quartile return for the 200 company fund only loses 20%.
Now imagine you’re the manager of the 50 company fund. You’re six years in and you have that one company – late stage, growing fast, looking good. What if they “only” sell for $200M and you get crushed under a stack of liquidation preferences? What if Amazon goes after them? What if a similar company tries to IPO and it’s a disaster? What if the Wunderkind founder gets hit by a bus? Or suppose that company does well and you decide to raise another fund. Then you’ve got to convince your LPs that lightning will strike twice, and you’ll find another big winner again in your next fund. You explain that even though nearly half your returns from your last fund came from a single company, you’re sure you can pull that rabbit out of that hat again. These questions will haunt your dreams.
But We’re Not Squirrels!
It’s true, most VCs will tell you their investments are not random. They will claim they are able to access and carefully select the best companies in which to invest. So, as an LP in a 20 company fund, all you need to do is pick a fund manager who is consistently able to attract and consistently select the top 5% of seed stage startups.
But remember, if you have someone who can consistently select the top 5% of publicly-traded equities year after year, you have Charlie Munger of Berkshire Hathaway. That’s not a simple task!
And it’s theoretically easier to identify good companies in public markets, where you have decades of historical data, competitive data and armies of analysts poring over every available scrap of information. So the person who can consistently pick the top 5% of seed-stage startups is much smarter than Charlie Munger. (When you meet that person, please please please send her my way!)
But what about Sequoia Capital? Kleiner Perkins? Andreessen Horowitz?
Concentrated portfolios have been the venture game for the last few decades: Most institutional investors allocating into venture capital (representing at best a single digit percent of their asset allocation) have been fighting for allocations into a very small number of top-decile fund managers, typically based on Sand Hill Road.
How do we explain all those famous funds with concentrated portfolios that have done so well? It’s true, a few fund managers have done a great job of landing their outsized share of big winners fund after fund. So this must be possible.
We believe, the main difference is that these people are investing in later stages (Series A onwards). At later stages, a more concentrated portfolio might make more sense, as a higher proportion of your investments should be “winners” and fewer will go to zero. And in that case, your ability as a fund manager depends less on your ability to “select” winners and more on your ability to get into the best deals. That said, although companies in later stages may be 10X further along in traction and the likelihood of success may have improved somewhat vs. the prior stage, their pre-money valuations may have increased much more. (Our typical entry point on valuation for seed-stage is about $2.5M pre-money, whereas a Series A might start at $15-$20M pre-money and a Series B might be at $40M-$50M pre-money). Finally, entering at higher valuations means you need to exit at higher valuations to see a comparable multiple. For example, to get an Amazing (50X) outcome on an investment at $50M pre-money requires getting more than $2.5B exit valuation, whereas to get such an outcome on an investment at $2.5M pre-money requires getting only a $125M exit valuation (before dilution to simplify the math). The net of all of this is that, in our opinion, later-stage investing may have a worse risk-adjusted return profile than seed-stage investments, especially for fund managers who do not have the same kind of branding and deal access as the Legends of Sand Hill Road.
How Big Should My Portfolio Be?
We believe, if you’re 1) investing at seed stage, and 2) you are an average investor (in terms of deal flow & selection experience), and 3) your main goal is maximizing financial returns, you’d want a minimum of 100 companies to get a decent shot at a 3X gross return. If you’re a really good investor, 50 companies might be enough. But if your one big winner doesn’t deliver hugely… that’s the risk. So, in our opinion, if you want consistent outperformance and unicorn failure insurance you should aim for 200 – 500 companies.
This is Not Revolutionary
I’m not the first person in the history of finance to suggest that diversification might be a good thing. And 500 Startups isn’t the first early-stage fund to favor a large portfolio. (That was Y Combinator, or Ron Conway before them). But we keep having this debate for some reason. So I wanted to unpack the math a bit.
Notes: I originally published this post on my Medium blog. If you’re seriously interested in learning more about early stage venture investing check out our investor education programs at education.500.co.
None of this math would have been possible without the portfolio Monte Carlo simulation engine developed by Yannick Roux, who also reviewed and improved drafts of the post. Plus great inspiration from @twentyminutevc in his great discussion with Josh Breinlinger and the ensuing tweetstorm. And many thanks to Dave McClure, Aman Verjee and Eddie Thai for all the feedback on drafts & constantly prodding the math. (And Yiying Liu for photoshopping the Patagonia vests on to the venture squirrels – priceless!) If you learned anything new from this post, it was truly from the shoulders of giants on which I stand.
About Matt Lerner
Matt Lerner (@matthlerner, Medium blog) heads 500 Startups in the U.K. He has led over 30 early-stage investments across Europe and the Middle East, and runs their “Series A” growth program for seed-stage startups. Prior to joining 500 Startups, Lerner worked as a Marketing Director and later Head of UK SME at PayPal. He built and managed growth teams that helped grow PayPal from an $800M business to an $8B business in 10 years. Lerner occasionally lectures on “growth hacking” at Stanford Business School and Imperial college.
THE STATEMENTS HEREIN REPRESENT THE CURRENT OPINION AND BELIEFS OF THE AUTHOR. UNDER NO CIRCUMSTANCES SHOULD ANYTHING IN THIS POST BE CONSTRUED AS INVESTMENT, LEGAL, TAX, REGULATORY, FINANCIAL, ACCOUNTING OR OTHER ADVICE BY 500 STARTUPS. THIS POST IS NOT INTENDED TO PROVIDE THE BASIS FOR ANY EVALUATION OF AN INVESTMENT IN A VENTURE CAPITAL FUND BY 500 STARTUPS OR ANY OF ITS REPRESENTATIVES OR AFFILIATES. THIS POST DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF INTEREST TO PURCHASE ANY SECURITIES BY 500 STARTUPS, OR ANY OF ITS REPRESENTATIVES OR AFFILIATES.
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