500 StartUps Revenue Structure

Dave McClure, works at 500 Startups
Updated Jan 19, 2016 · Featured in Forbes · Upvoted by Alex Baldwin, 500 Startups Founder and Elizabeth Yin, works at 500 Startups

[UPDATED, JAN 2016]
In 2015, 500 Startups generated ~$14M in revenue from several sources including management fees, accelerator program tuition, events & conferences, partnerships & sponsorships, & education. In the future, we may also make money based on carry (aka profit) from our investments. In 2016 we estimate total budget will grow to $20-25M+ from increases in staff, funds under management, and other programs & services.
Historically, most of our budget has come from 3 primary sources: mgmt fees from our investment funds, tuition fees that cover our accelerator programs, and attendance revenue & sponsorships from our events & conferences. Last year we also started making money from customer acquisition / growth marketing consulting & investor education.
Our sources of revenue in 2015 are detailed below:
1) ~$6M came from management fees from our funds, which totaled ~$200M in 2015. (our fee structure averages ~2%/yr, altho it starts at 3%/yr and then decreases over time). as the amount of capital under management grows, our revenue in this area will also grow (altho note that our primary goal is to make money on profits from our investments, aka “carry”, see below)
2) ~$4M came from accelerator program tuition, at a rate of ~$25k per team (note: as of July 2015, we invest $125K less tuition cost of $25K for a net $100K, typically for 5% equity). $125K goes to the company as investment, of which $25K goes to our incubator LLC to cover office space, staff support, distro team, along other amenities & costs. we currently run 4 batches per year out of our Mountain View & San Francisco offices (~40 co’s x 4 batches/yr = ~160 co’s * $25K) = ~$4M/yr. Note that our costs for running the accelerator program are around $5M/yr, so we are probably still running at a slight loss in this area.
3) ~$3M came from our events, including our PreMoney conferences, our growth marketing or “DISTRO” events, our GeeksOnaPlane trips, and other in-person events & conferences. most events run break-even or make a modest profit, altho typically we optimize for audience reach over profit (especially where the audience is founders, geeks or designers who don’t have much money yet). Sponsorships come from groups like Amazon, Rackspace, Mailchimp & others (thanks!), and also from some of our investors.
4) ~$1M came from customer acquisition / growth marketing consulting revenue generated by our “DISTRO” team, which works with our portfolio companies to increase customers and revenue. in 2016 we expect revenue in this area to grow substantially due to increases in our team size.
in 2015 our team of ~100 people operated on an overall budget of ~$17M, about 2/3 of which went to people & salaries, and 1/3 to office space and other non-people stuff. As a result of spending $17M and brinng in $14M, we operated at a loss of ~$3M in 2015, which we financed via debt. We expect we may continue to operate at a slight loss in 2016, altho we also expect revenue to grow to $20-25M. We will likely add at least another 30-50 people to the team as well, perhaps more.
Note in the future, we hope to generate revenue on profit (aka “carry”) from investment returns, altho that is likely still a few years away since our 1st fund is only ~6 years old and our 2nd fund is ~4 years old. if we are fortunate in returning >1x our fund capital, we make ~20-30% of any profit we generate from funds returned on investment, after covering our fund expenses. typically most funds don’t see any carry until 7-8 years into operation (& indeed some funds never get to carry, ever).
(ex: for a 10-year fund of size $50M, if we return $100M, profit would be ~$50M, and carry would be 20% of that or ~$10M. amortized over the 10-year life of the fund we would make ~$1M/year, or perhaps slightly more if we return capital to our investors sooner than 10 years. if we are not profitable on fund investments, then we get nothing from carry — zip, zilch, nada, bupkus).
lastly: aside from a few early advisors in our first fund who got a small amount of carry, we don’t compensate any of our mentors — they operate on a volunteer basis. however, occasionally they may receive advisory shares or consulting fees from working with some of our portfolio companies.

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turgutderman

https://www.linkedin.com/in/turgutderman/

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