Dave McClure’s new seed fund, 500 Startups, has already invested in nearly 100 young companies since being founded last summer. Now the fund is looking to speed up growth in some of its investments with the launch of an incubator program that will provide additional support to select companies.
Modeled on other startup incubators such as YCombinator and TechStars, the 500 Startups Accelerator program offers young companies work space in downtown Mountain View, Calif., as well as distribution and design help and access to more than 120 mentors.
McClure expects to help incubate three groups of startups a year, with each group having about 10-20 companies included. The program will last about three months — with the option for some companies to stay up to six months — and will include a demo day in which startups can show off what they’ve been working on. Unlike some other incubators, the companies picked for the Accelerator program aren’t determined through open applications, but are based on referrals from mentors and other 500 Startups’ friends and family.
Typical funding in the program will range from $25,000 to $100,000 for approximately 5 percent of common stock, although 500 Startups will also fund based on pre-existing terms if other investors have already put money into a startup. But while other investors are willing to take long bets on startups with big ideas and little or no revenue, McClure is pretty straightforward about wanting his investments to have a business model in mind and at least some infrastructure built out before sinking money in. Think of it as the anti-Twitter model for startup investment.
In a phone interview, McClure said he likes to invest in startups that have at least one technical founder and a straightforward revenue model. It’s even better if those companies already have some customers and the ability to scale up quickly, he said. Finally, unlike some other investors, McClure says he’s not afraid to take smaller exit opportunities rather than holding out and waiting for his investments to really hit the big time.
500 Startups has already made a number of seed investments since being launched last summer, investing in about 75 startups by the end of last year and 90 companies to date. The first group to participate in the program includes 11 startups, which are primarily focused on search, social and mobile applications. Check out our video interview with McClure below, describing his investment philosophy.
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