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Unicorns, Banana Suits, and 500 Startups: Just Another Night With Dave McClure


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500 Startups is doing about 150 investments per year, funding about three companies each week. Why so many investments? As Dave explains it, the typical VC model theory is to invest in 30 companies over 4-years, take board seats, follow on investments with the winners, and ride a few to billion dollar exits and great returns. But usually that’s not what happens. “Most investors think they’re awesome. We don’t think we’re that smart,” Dave says. “But we think somewhere north of 75-100 investments per fund you start to get to predictability. We see who is successful, who figures it out, and invest more with them. Most VCs are thinking too small. There are thousands of ‘small’ businesses, $10MM-$25MM revenue businesses that solve real problems. Give me the rest of the long tail. Give me your tired, your poor, your huddled masses yearning for a viral loop.”

Want an invitation to join? Like most Silicon Valley firms they are referral based. But 500 Startups has a network of 180 mentors and 600 founders that have gone through the program. Get a few of these people to vet and vouch for you, and you will likely get an interview with the team. Ways not to get funded? Wear a banana suit to a Startup Grind tech event and wave a banner with your URL, as we experienced firsthand at Dave’s event.

Where do the unicorn farts fit in?

Oh, right, on Quora: http://www.quora.com/How-did-500-Startups-come-into-existence

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"The details of 500 Startups founding in 2010 are still not totally clear. On Quora Dave explains, “One day a beautiful little unicorn farted, and next thing you know our star was born.” He neither confirmed nor denied this in person (watch the clip above). But what is clear is that it has exploded doing +360 startup investments across the globe. While 500 Startups is often compared to Y Combinator or TechStars, Dave points out those incubators were founded in 2005 and 2006 and have a 4-5 year head start. How quickly McClure’s fund, or as he calls it “startup,” has come into its own is evidenced no better than Dave’s absence in the infamous “Paypal Mafia” story of 2007 when he was relatively unknown, and thus overlooked."

I wonder if unicorn farts smell like candy corn.

That would explain why 500 Startups smells like Halloween every time I visit.

David, thanks for posting.

I was at the Startup Grind event Aug-2 and I'm glad to see Derek Anderson write it up and post it. The video is wonderful and classically Dave. He seemed not only grown up (just had his 46th birthday) but also introspective for the occasion. I came away with the strong message that he sees his role as hacking the venture business.

He's specifically looking opportunities where the traditional VC world has missed it. He commented on how his two recent areas of focus: women & international comes from picking up on ventures others have over looked. (He's got my attention.) His point is that the attention on women-led businesses isn't about political correctness -- it's about making money. Whoa, that's big stuff.

//Of their 15 employees, seven of them are female and while Dave says there’s not been a conscious effort to hire women, it reinforces their focus. They have funded +50 female CEOs and +100 female founders. //

Several times he referenced Activity Hero (activityhero.com) as a business overlooked by the traditional venture community -- even after he invested. They seemed to think of managing kids activities as a small niche market. Apparently they either don't have kids or aren't the ones to worry about what will enrich their little lives.

Unfortunately, Dave's salty language sometimes confuses the very segments he's trying to support, but in my mind, that's okay. When it's no longer about being "politically correct" and the world notices Dave making money -- then things will start to change. It's a beautiful thing.

The point about investing in women because he likes to make money is an interesting one.

There are microfinancing platforms that prefer to lend to women.

I wonder if there have been any studies that women-led businesses do better.

To me, as a 24-year-old and recent college attendee, I think my generation truly sees no difference in male or female leadership. I think it comes down purely to SV's preference for engineer founders. Since the number of women programming or doing computer science seems significantly disproportionate, the total size of the pool seems smaller.

Which acfually, arguably, makes it better for women in some ways -- less competition for the same number of spots (assuming DMC and 500 intend to invest in an equal number of men and women founders and CEOs).

Silicon Valley hasn't always preferred engineer founders.

That preference happened after the bubble of 1995-2000 when too many hustlers ran their dot-coms into the ground.

I've known a lot of founders of both genders and frankly the female founders tend to be more pragmatic.

So maybe 500 really is onto something with that belief.

500's two biggest exits so far were selling Wildfire to Google for $350 million and selling Slideshare to LinkedIn for $120 million. Both have female founder/CEOs.

Interesting. The "pragmatic" sense I would say agrees with what I've seen from female leaders.

Well, the key is that a huge percentage of household income is controlled by women. Dave McClure gets it, as do the two of you. Thank you.

May you all benefit from the economics -- and the karma. :-)

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