Dave McClure is a Silicon Valley icon who is recognized as one of the region’s super-angel investors. Over the years, he has advised and managed a number of successful startups, including three “unicorns” (Twilio, Credit Karma and Grab). McClure is the co-founder of 500 Startups, which has invested in more than 1,500 companies around the world. Three companies have valuations over $1 billion, and more than 300 have a valuation in the $10 million to $999 million range.
McClure recently was a guest speaker at Startup Grind Sacramento and offered wisdom that was practical, to the point and with a hint of humor.
"As an entrepreneur, you realize that you're kind of clueless."
In his humble manner, Dave explained how his path to success was a confusing and gradual process. He laughed about his past mistakes and said he launched 500 Startups as a vehicle to guide entrepreneurs who are still wet behind the ears. It was a personal conviction to compensate for what he perceived was his failure trying to create a large-scale startup. “Looking back on the last 10 to 15 years and realizing that I could've figured out problems faster, part of it was trying to help people figure it out faster ... and make [entrepreneurship] a little more approachable ... for geeks,” McClure said.
While many successful entrepreneurs glorify the ambitious startup lifestyle, McClure understands that it's not all sunshine and ice cream. His ability to relate with entrepreneurs at any career stage allows him to connect with his audience and keep them grounded in reality. He recalled how difficult it was raising funds for his first startup: "We raised $30 million in two years and the first $5 million in the first year. ... It was a bit challenging. That's a complete understatement; it was a ****ing pain in the a**." His witty remarks kept the audience laughing — a reminder that behind all of the clout in the industry, successful entrepreneurs are regular people just like us.
Video: Sacramento Startup Grind director Rich Foreman interviews 500 Startups co-founder Dave McClure.
"When making a lot of investments, only a few will work out."
As the “perfected imperfect” creatures that humans are, we try to make the best decisions in business, relationships and life in general. However, the truth is that more often than not, investments will fail to deliver as anticipated. "[We] know we're gonna be wrong ... and might not find an outcome that frequently, but we hope that 20 to 30 percent of those get to a Series A or larger investment, and 5 to 10 percent in total get to [a] $100 million-plus sort of outcome. ... Maybe if we're smart, we can steer in of some of the capital into winners ... but it takes about 10 years." McClure's calculated approach to business signifies he has accepted that with investments, slow and steady wins the race.
"We do diversity because it's a good investment, not necessarily of social impact — that might happen, and we hope it does but [ultimately] we're trying to make money."
McClure recognizes the potential in people from all backgrounds, which has resulted in a diverse global network of entrepreneurs. He said more than 50 percent of his founders are non-white and 20 to 30 percent are female. So his business model is shifting the traditional standard of gender/race dynamics in the workplace. For example, one of his current endeavors has been developing a platform for black and Latino entrepreneurs. Despite that sounding like a social effort, it's commercially viable given that these demographics make up 30 percent of the American market.
Moreover, McClure believes that his outreach into other countries will become profitable as well. Places like Pakistan, Nigeria and Indonesia have huge populations with markets where Internet usage continues to increase. By strategically investing a couple million dollars here and there, he hopes to establish a solid foundation for when these markets begin to take off. “If we're willing to deploy capital in those markets for an extended period of time and learn, we are going to find some things that work. When those things start to work, we would want to have already done 100 investments, made friends, built our brand, have people on the ground and understood how those markets work."
"Have fun, get sh*t done. ... When we have fun, other people have fun."
500 Startups has a reputation for being a fun and festive accelerator. McClure may be a bit unorthodox in his approach to business, but he understands the value of hard work and creating a solid product. He feels that no amount of money is worth sacrificing fun and personal sanity. Still, there has to be a balance between fulfillment and progress that his organization instills into the minds of his employees. When asked why many startups fail, he said it could be for a number of reasons. However, he insisted that the main cause is usually because "they build stuff people don't want or build it for the wrong customer." He assured the audience in Sacramento that in order for any VC or investor to take an entrepreneur seriously, he or she must get the product out the door and have some type of customer base. McClure emphasized that although this truth may sound basic, it’s surprising how many people miss this point.
