

The 500 Startups Index – 369 Companies and Counting - dmor
http://www.daniellemorrill.com/2013/03/the-500-startups-index/

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argonaut
It is important to understand that 500 Startups consists of two separate
entities/programs: an accelerator and a seed fund. It is very common for 500
Startups (the seed fund) to invest in YC startups.

To look at the flip side, it is rare for YC to invest in companies that did
not actually go through YC (it has happened before, however).

~~~
davemc500hats
500 has invested in ~50 YC companies to date. I believe there are about 30 or
so in our first fund.

YC has invested in 2 companies that went thru 500 accelerator first (9GAG and
Vayable), and also a few others where we invested at around the same time as
YC (Scoutzie, Virool, Microryza, Referly).

also, we are investors in ~20 TechStars companies (including Sendgrid), and
also ~10 companies each from AngelPad in SF, and SeedCamp in Europe, and
StartMate in Australia.

altho we run our own accelerator program at 500, we are frequent investors in
other accelerator programs, including several around the world in East Asia,
South Asia, Latin America, Western & Eastern Europe, and the Middle East.

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mattbarrie
Are any of these making any money? Ron Conway's second angel fund had Google
in it and it only returned 1.5x because 80% went bust.

A rough calc of what it would take for one runaway success to payback the
total funds invested;

Assuming $20k per deal, $7.4m invested.

Assuming 7% equity per deal, that would need one success to sell for $100m and
have no follow on dilution or liquidation preference stacked on top. Given
this is seed, assuming 50% dilution that's $200m+ just to return the money
back to shareholders. For a big success of 5-10x on the fund, one of these has
to hit $1-2 billion. I'm still ignoring liq pref which could be a killer.

A couple of these numbers might be off a bit, but I'm a bit sketchy on the
spray and pray of a 369 (or 500) company portfolio unless you are really #1
(YC) and can effectively synthesize "the index".. and then you will only
generate beta ("market") returns.

~~~
davemc500hats
actually yes, many of our companies generate revenue, and a good number are
profitable. in fact we probably have a slight bias for revenue over growth.

btw, our initial investment at accelerator or seed is more like $50-100k, and
follow-on investments at Series A/B are between $100-500k. in about 10
companies we hold aggregate basis positions of between $500K-$1.5M.

500 Startups Fund I has ~256 companies, and currently Fund II has ~220
companies (and will likely be around 275 total). out of each of these funds,
we aim for perhaps 50+ companies to get to Series A/B rounds led by
institutional investors (in which we will also continue investing as well),
and from these perhaps 10-20 may achieve larger exits of $100M or more.

as to performance & exit model expectations, our rough model expects that
5-10% of portfolio (~10-25 companies) will do 20x or better, and perhaps
10-25% (25-60 companies) do 3-5X. at a median initial entry valuation of ~$4M,
20x would be an exit of $80M, and 3-5x would be an exit of $12-20M.

so far, 500 Startups Fund I has had about 10 exits in the $5-30M range, and 1
exit at $350M (Wildfire). still private and growing are 5-6 companies that are
valued around or above $100M (Twilio, Sendgrid, Taskrabbit, Makerbot, Viki,
Smule). we also have about 25-30 companies valued at between $25-$75M that
look promising. with luck, hopefully some of these companies will find exits
at or above current valuations (tho likely not all of them).

also different from the earlier SV Angel portfolios, 500 Startups doubles down
(& triples down) selectively on our top 20-30% of portfolio companies in later
rounds. we believe this enables us to weight our portfolio more towards
winners, rather than a pure scattershot index strategy.

in any case, it will take a few more years to see if our strategy works, but
so far it looks like it's not completely irrational.

(ps - altho they are usually higher valuation, about 10% of our portfolio is
YC companies. since median valuation at YC demo day is more like $7-8M, you
might have to double the target exits noted above... however we also have many
of our own accelerator companies where our entry valuation is more like $1-2M
to offset)

~~~
mattbarrie
Thanks for the clarification on the numbers, I guess only time will tell on
the distribution of exits and what the actual returns back to you would be on
them look like (20x @ $80m ignores liq pref and dilution). How many are in
your team now looking after all the portfolio companies?

~~~
davemc500hats
indeed there will be some further dilution, but typically there is not
dramatic liquidation preference on winners, at least that we have seen thus
far. if you like, you can double the exit targets I mentioned, but regardless
we are looking for ~10-20 companies that exit north of $50-100M, and 25-50
that exit at between $10-50M.

overall 500 is currently about 22 people. of those, we have ~10-12 investment
professionals, each of which is making 10-25 investments per year. if we are
lucky, 1 or 2 of those might be larger wins, and 3-5 might be smaller wins.

since we generally do not sit on boards, most of our team is not spending the
majority of their time in future years managing a large # of investments,
altho they do spend time in the first year or so helping some of them get
financing from downstream institutional investors.

hope this helps explain our strategy.

~~~
mattbarrie
Great overview, thanks.

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mikeknoop
Anyone know the story about ChirpMe? The Alexa rank seems really high (~3400)
for a "beta" product:

<http://i.imgur.com/2rAlmVX.png> <http://i.imgur.com/OcTNU5s.png>

~~~
TomGullen
Alexa rank can be a very poor gauge of real world traffic especially with low
sample sizes

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hayksaakian
I didn't realize 9gag was in YC _and_ 500

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sachitgupta
There are many others: Rapportive, 9GAG, Daily Muse, MixRank, Referly, etc.

~~~
davemc500hats
as noted above, 500 has invested in ~50 YC companies over the past 3 years. we
are likely the 2nd-most active investor in YC after the Start Fund / SV Angel
/ A16Z / NEA group... however, we pick selectively rather than indexing (altho
indexing YC is likely a pretty solid strategy too).

500 is also an active investor in companies that graduate from TechStars,
AngelPad, SeedCamp, Startmate, and several other programs globally.

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rdl
I'm constantly amazed at how 500 Startups came out of nowhere to become #2.

~~~
byoogle
#2 at what? (Or did you mean:
<http://www.urbandictionary.com/define.php?term=%232>)

~~~
rdl
I mean, after YC, the second best startup accelerator, by the "if I didn't get
into YC, which accelerator would I consider" metric. (SendGrid still tips the
scales for historical performance in favor of TechStars, I guess)

~~~
byoogle
Since I've never heard my entrepreneur friends say stuff like that about 500
Startups ;-) and it's probably too soon to rank accelerators on performance, I
went looking for something more scientific. This evaluation is the best I
could find -- 500 Startups is #10: <http://tech.co/reports/startup-
accelerator-report-2012>

~~~
argonaut
I don't give that ranking any credibility.

Personally speaking from a Silicon Valley perspective (and having worked at a
YC company before), 500 Startups is tied with TechStars on my list. I've never
heard of any of the other accelerators on that list except AngelPad.

~~~
davemc500hats
Thomas Korte has done a terrific job with AngelPad, and I'd rank it as highly
as 500 or TechStars, perhaps even higher.

but it's true we are all chasing YC's tail currently.

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anonfunction
Cool! I always loved iconfinder, now I know who made it possible.

~~~
davemc500hats
actually, the founders of IconFinder made it possible... we were quite
fortunate to be investors rather recently.

~~~
anonfunction
I thought about how poorly that sounded after I wrote it, I've been using
IconFinder for years and am thankful and happy for the founders.

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pcl
FTR, that should be Versly / versly.com down there towards the bottom.

~~~
dmor
Fixed, thank you

