When you come to a 500 Startups demo day event, you’d be hard-pressed to miss Dave McClure. Clad in his black 500 Startups t-shirt, jeans and flip-flops, he is a force on stage. McClure grabs the mic to introduce each startup before its pitch, jamming with the founders when their intro music comes on, and heckling a few of them in the process. That means that in the span of a few hours, it’s not uncommon to see McClure do the robot or dance as hard as the founders themselves.
This past June, McClure and his team had reason to celebrate — 500 Startups, the seed investment venture capital firm he founded in 2010, hit its namesake number of investments. But more broadly, McClure and his team are growing into their role as investors, figuring out how to scale the business. My colleague Katie Fehrenbacher profiled McClure’s investment thesis last summer, when the group traveled to Mexico for its Geeks on a Plane trip.
So what has the team learned, 500 startups later? I sat down with McClure at the demo day in San Francisco, held in Atlassian’s spacious office Thursday night, to ask him:
What’s your biggest lesson from investing so far?
“Generally I would say your first impressions are not always correct,” McClure said. “It often takes six to 18 months to figure it out. I mean, we often figure out what doesn’t work within six months. But genius emerges more slowly.”
He said it often takes a few years or several tries for companies to figure things out, and he rejects the idea that you necessarily know genius when you see it — which is why they have the founding principle of placing more bets in more places.
“A lot of VCs like to think they know exactly what’s going to work, like, ‘Oh, I remember when they were so awesome and I was so awesome picking them.’ But the more we do it, the more we realize that we’re wrong a lot. So that’s why we take more bets, and pretty consistently, we’re better able to identify wins,” he said.
What advice do you give to the guys who don’t make it?
“Everyone who’s an entrepreneur is irrationally optimistic that they’ll be in the top 10 percent. Many people quickly realize they won’t be in the top 10 percent, and a lot of folks take those positive learning experiences away,” he said. “And we do build strong relationships with entrepreneurs who don’t make it.”
“But we’re looking for people who take it as a learning opportunity. The big wins are relatively infrequent. Maybe 5-10 percent are really big wins.”
What’s the biggest challenge investing overseas?
“It is harder sometimes because we have to be aware of things going on outside the U.S., or [the companies] may have more challenges in raising capital. But we’re pretty committed to doing the international thing, at least for the foreseeable future.”
McClure said the team is building a presence in a variety of countries, including Mexico, Brazil, and China. He said that once 500 Startups does a few investments in a country, the referrals start coming in, and the network effect and growth within that country is huge.
“If you invest in one company in a country, the whole country feels like they won the lottery.”
How do you keep up with 500 different companies?
“It’s way beyond any one person at this point,” he said. “There are easily 150 to 200 companies that I haven’t had much involvement with,” he said. But that doesn’t mean the team can’t stay connected, and they can’t all get in touch when they need to.
“The sun never sets on 500 Startups these days. We have tough times during our own team meetings, because it’s always 3 A.M. somewhere.”
How do you pick talent overseas?
“Talent is everywhere — I firmly believe that. I really believe in encouraging people that they can be successful,” he said, noting that founders always want to come to Silicon Valley, because they’ve heard it’s a magical place. But that once they arrive, their perception sometimes changes.
“Silicon Valley is a magical place, but it’s comprised of people from somewhere else. It’s more about the attitude — it’s not so much where people are from.”
So what’s next?
“It’s been a lot of fun in the last year, and a lot of things are starting to settle down,” he said. “We’re not afraid we’re going to fall apart or anything. But we really share a lot of affinity with our founders because we are a startup ourselves.”
McClure thought about it: “Maybe we’re in the year three or four part, where things start to settle down.”