Financing Startup Communities #FSC

Dave McClure , PracticalVC.com @DaveMcClure linkedin.in/davemcclure

Vitalia , Startup Societies Feb 2024, Roatan, Honduras

FSC: Overview & Summary

Goals :

• ● MVP for building sustainable, profitable startup communities ($50-100M, 200+ co's)
• ● Integrated financial approach: equity + debt investing, real estate ( commercial + residential )
• ● Access to capital , startups, human capital, job creation , affordable home ownership
• ● non-VC co's + services critical for building, retaining community
• ● Motivated, Incentivized Leadership

Strategies & Tactics

• ● Companies, products, services, jobs make life better (most of the time)
• ● Capital formation via debt + equity investing in companies is critical
• ● Capital formation via commercial + residential real estate is critical
• ● essential svcs : Education, Healthcare, Food, Culture, Transport, Governance
• ● to build strong community, you need jobs, homes, services, freedom, happiness
FSC: Mixing VC, RE, Debt to create Gravity, Diversification, Liquidity

• ● VC : rocket fuel, but blows up a lot of ships
• · highly asymmetric outcomes, unpredictable, long-term illiquidity (10-15 yrs)
• · majority are losses, 10-30% small winners, 5-10% big winners, 0-2% IPOs
• ● Real Estate : lower risk, usually positive ROI
• · real estate value driven by occupancy, utilization, more liquid (3-5 yrs)
• · need both commercial + residential, renters + owners
• · * note: real estate is an index bet on local economic conditions (companies, jobs, people)
• ● Debt : lower risk, some losses, but usually positive ROI
• · debt lending usually requires 2-3 yrs profitability, not always available for small co's
• · after companies are doing $5-10M rev and profitable, more likely
• · relatively liquid, payback period over 2-5 years
• ● VC = gravity for founders, early-stage co's will come, creates utilization for RE
• ● RE = used by companies (commercial) and employees (residential)
• ● Debt = for both VC and non-VC co's, needed for rest of the community
FSC: (in case i'm boring - here's the punchline)

● 500 Startups first 3 funds (2010-15, $160M, ~1250 seed/pre-seed companies)

• · 70% fail (50% fail fast, 20% fail slow) = 900 co's x 5 ppl = 4,000 jobs for 1-2 yrs
• · 20% small co's : 10-50 ppl = 250 co's x 20 ppl = 5,000 jobs for 3+ yrs
• · 8% large co's: 50-500 ppl = 100 co's x 200 ppl = 20,000 jobs for 5+ yrs
• · 2% unicorn/IPO : 500-2500 ppl = 25 co's x 1000 ppl = 25,000 jobs for 10+ yrs
• · result: 50K+ jobs -> $1B+ real estate utilization (commercial + residential)

● Startup Community MVP: $50-100M budget, 250-500 co's

• · $25-50M: 1 FoF / 5-10 microVC funds (5-10 x 50 co's)
• · $10-20M: 1+ commercial bldg for 100-500 ppl
• · $10-20M: 1+ residential bldg for 100-500 ppl
• · $5-10M: traditional debt lending for 10-50 co's
• ·
• target: 10-25K+ jobs, $100-500M CRE/RRE
FSC: Who is this crazy nerd?

Dave McClure

• ● hillbilly from West Virginia + grew up in Columbia, MD
• ● engineer , BS Applied Mathematics, Johns Hopkins Univ
• ● moved to Silicon Valley in early 90's (tech startups + ultimate frisbee)
• ● software developer, founder, angel investor, eventually VC
• ● worked at PayPal , Founders Fund , other tech startups
• ● founder 500 Startups (early-stage), Practical VC (later-stage, secondary)
• ● side projects: GeeksOnaPlane, 42Geeks.com , Network States fanboi

Optimism, Belief, Motivation

• ● I'm an optimist and I believe in humanity (altho we fuckup a lot)
• ● I believe founders + capitalism can be a force for good (but far from perfect)
• ● I want to work and live with fun, smart, caring people - all over the world
• ● 'Make Love Trade, Not War' - people who trade are less likely to kill each other

FSC: Inspirations, Role Models

• ● Property Rights , Capitalism, Founders, Startups, Mortgage Finance
• ● The Mystery of Capital , Hernando de Soto (also 'The Other Path')
• ● Homesteading / Squatting (informal) -> formal ownership over time
• ● Debt, Equity, Microfinance, Securitization, Financial Engineering
• ● Bill Gross (Idealab), Paul Graham (YC), Vitalik Buterin (ETH)
• ● Software Eats The World, Marc Andreessen (also 'It's Time to Build')
• ● The Network State, Balaji Srinivasan
• ● Erick Brimen, Prospera
• ● Sesame Street , Bugs Bunny, Free to Be You and Me, Mary Tyler Moore
• ● my mom (entrepreneur, solo parent, 60's/70's hippie, feminist, confident, occasionally wrong but never in doubt… thx for those crazy genes mom)
FSC: Examples of Global / Regional Tech Communities

• ● Silicon Valley, Sand Hill Rd : Stanford, Traitorous Eight, Fairchild, Intel, Bell Labs, AAPL, GOOG, META, NVDA, ORCL, TSLA, NFLX, multiple VC firms
• ● Boston, Rt 128 : Harvard/MIT, DEC, Raytheon, ARD, bio tech
• ● other US Tech Metros: Seattle ( AMZN, MSFT ), LA, NY, Austin, Miami?, etc
• ● China : Beijing, Shanghai, Shenzhen
• ● India : Bangalore, Delhi, Mumbai
• ● other global metros: SG, Dubai , London, Tokyo, Tel Aviv, Riyadh?
• ● next 20-50 yrs: the 'global south' (SE Asia, Latam, Africa, Middle East)
FSC: Examples of Startup Micro-Communities

Notable Micro-Communities

• ● Idealab (1996, Pasadena, CalTech, Bill Gross)
• ● Y Combinator (2005, Boston / Silicon Valley)
• ● TechStars (2007), SeedCamp (2008), 500 Startups (2010)
• ● Entrepreneur First (2011), Antler (2017), Ondeck (2019)
• ● (sorry - other examples i'm forgetting / overlooking?)

Attributes

• ● 100+ companies , $10-100M+ seed-stage capital
• ● talented, optimistic people, 'driven' founders with passion, mission
• ● gravity around a physical location(s), daily/weekly community, cult-like following
• ● not just an office, work / live environments , non-work activities
• ● 1+ big winner (maybe 10 years later!) that create heros, mentors, role models
FSC: My journey from engineer -> founder -> investor

Early Attempts + a few fails (1990-2010)

• ● community : 20 years of user groups, meetups, conferences (1992-2010)
• ● startups : my first 'failed' startup + acquisition (1994-98) -> pre-IPO PayPal (2001-04)
• ● teaching : Stanford Facebook class (2007), 'Startup Metrics for Pirates: AARRR!' (2008)
• ● angel investing : ~15 angel investments (2004-2009), SlideShare, Mint.com
• ● VC investing : ~40 deals, Founders Fund 'FF Angel' (2008-10), Facebook fbFund (2009)

500 Startups + a few successes (2010-15)

• ● 500 F1 (2010-11, $30M, 265 companies)
• ● 500 F2 (2012-13, $45M, 325 companies)
• ● 500 F3 (2014-15, $85M, 676 companies)
FSC: Case Study: 500 Startups (2010-15)


FSC: Progression Model for VC-backed Startups


FSC: Capital Formation (Debt, Commercial / Residential RE)


FSC: MVP for Financing Startup Communities?

• ● FoF ('Fund of Funds'), $50-100M budget, 250-500 co's
• · $25-50M: 1 FoF / 5-10 microVC funds (5-10 x 50 co's over 5 yrs)
• · $10-20M: 1+ commercial bldg for 100-500 ppl
• · $10-20M: 1+ residential bldg for 100-500 ppl
• · $5-10M: traditional debt lending for 10-50 co's
• · target: 10-25K jobs, $100-500M CRE/RRE
• ● Future Stakeholders for this experiment:
• · Real Estate Developers & Property Owners : help create more CRE/RRE utilization
• · Banks & Lenders : help create more business and home lending
• · Local Government : help create companies, jobs, tax revenue
• · Community : help create vibrant community of people with jobs, homes, money, culture
FSC: Conclusions, Next Steps

• ● Equity Capital -> Companies
• ● Companies -> Jobs, Offices, Product & Services
• ● Jobs -> Renters / Home Buyers, Borrowers, Taxes
• ● Jobs -> non-tech companies that provide services
• ● Debt Capital -> lending for both tech and non-tech companies
• ● Result : Successful, Sustainable, Startup (and non-startup) Communities
• ● … also, more freedom, happiness, food, culture, and frisbee

Thanks for listening!

Please send feedback

tell me what you liked, what sucked, what could be done better

• ● email: dave.mcclure@gmail.com
• ● twitter/X: @davemcclure
• ● Linkedin: https://linkedin.com/in/davemcclure