biggest returns in later investment rounds. Instead, he said, returns have generally been higher for 500 Startups’ seed-stage investments than for later follow-on rounds.
If 1 percent of humanity is entrepreneurial, McClure says that means there should be about 70 million entrepreneurs around the world who are capable of building $10-million-a-year companies. This is the reason why McClure has been doing so much globe-trotting over the past couple of years, and why he has worked to establish outposts for 500 Startups programs in Mexico City, Brazil, China, Indonesia, and elsewhere. He’s also been working to build additional investor syndicates like Angel List—trying to figure out how to create other sustainable ecosystems for startups.
This struck some of the San Diego investors in the room as ironic. San Diego’s innovation ecosystem has struggled for decades to overcome a regional deficiency of startup capital—especially in the tech sector. So why hasn’t a venture accelerator like 500 Startups taken root here?
McClure’s approach seems like a great venture strategy for early stage Internet startups in the consumer segment of the market, said Joe Markee of San Diego’s Express Ventures. But he added, “It seems to me that Dave’s general approach is biased to the Bay Area. And if you can’t easily transfer this to San Diego, how are you going to create it in an even more problematic area like Rio de Janeiro?”
David Titus of the San Diego Venture Group agreed, saying capital and liquidity are real issues in developing markets. “If you think you have trouble selling a $15-million-a-year business in the U.S., wait until you try some of these other countries,” Titus said.
Titus also takes a long view of venture investing. He’d like to see how well 500 Startups will do over a longer investment period.
McClure founded 500 Startups in 2010, just a couple of years after joining San Francisco’s Founders Fund. As McClure tells the story, Founders Fund partner Sean Parker gave him “a really long leash” in late 2008—amid the worst days of the financial crisis—by allowing him to make investments from a small seed-stage fund.
McClure says he invested in roughly 40 deals over the next 15 months, including some decent picks in Twilio, SendGrid, Credit Karma, TaskRabbit, and others. By 2010, he had gathered enough financial support from Founders Fund, Mitch Kapor, Michael Birch, Fred Wilson, Brad Feld, Marc Andreessen, and others to raise the small seed-stage fund that became 500 Startups.
“I think it’s fascinating that he’s trying something different,” Titus said. “The VC world did not innovate at a time when financial services companies were developing exchange traded funds and buyout guys were reinventing themselves as private equity. Venture capital needs innovation.”
