From The Vault Dave McClure (500 Startups)

Our Dave McClure interview is easily one of the most memorable Startup Grind interviews ever. Dave came to the stage and talked about everything from farting unicorns to expanding out to international cities with 500 Startups. Watch and learn how to get the right VC's attention, expand into new markets, build a great product, and get a meeting with the pirate VC himself.

[00:01:22.08] QUESTION: Welcome to the Startup Grind. We like to start these things out by just getting to know you a little bit, hear about your background. Tell us a little bit about where you grew up tell us about --

[00:01:30.26] DAVE: I know I'm really hard to find on the web, so it's all a big secret.

[00:01:37.25] QUESTION: We're going to dive deep, man, we got handkerchiefs, we got everything. We expect the tears to flow. So, tell us about West Virginia, tell us about your family and tell us all about it.

[00:01:47.17] DAVE: I guess, I'm a hillbilly from West Virginia. I grew up there and then in Maryland so I spent about eight or nine years in both West Virginia and Maryland until I went to college at Hopkins -- Johns Hopkins in Baltimore -- where I almost got kicked out at least once maybe twice.

[00:02:10.28] QUESTION: For what?

[00:02:12.22] DAVE: Let's see, was it legal at that time? I'm not really sure. Let's just say my first entrepreneurial business was not a legal one, shall we say. I'll leave it at that. I did manage to graduate barely, so that was good.

[00:02:33.25] QUESTION:And your dad was a mucisian?

[00:02:35.06] DAVE: Dad was a music teacher and musician -- a lot of music in the family.

[00:02:40.052 QUESTION: High school? Junior high? What kind

[00:02:41.28] DAVE: Elementary school music teacher, kind of honky tonk band in West Virginia I guess, plays organ -- still plays organ -- actually both grandmothers were music teachers slash students. One was an organist one was a vocalist. My mom played flute. My wife's a jazz pianist, or at least was at one time.

[00:03:06.10] QUESTION: Do you play any instruments?

[00:03:07.11] DAVE:I played piano for about ten years. I played cello for a little while. I sang for many years.

[00:03:15.07] href=””>QUESTION:So you go to John's Hopkins, you immediately get into engineering and computer science or what were you planning to be when you grew up going into college.

[00:03:24.04] DAVE: I don't know -- astrophysicist an astronaut, like all that shit went by the wayside. Well, I started playing with computers pretty early not sure I exactly remember, sorry, my parents did not get me a TRS-80 I probably stated doing at least some programming at least 12 or 13 maybe a little bit before that. Did some programming for my mom's company at one pint on some reports. I went to school a little bit early, but kind of took a long time getting out of school. I don't know I kind of bounced around. Originally I was a physics major then I was a electrical engineering computer science major they didn't have a separate CS department then I ended up as an applied mathematics major, most of my course work was computes and math.

[00:04:21.10] QUESTION: Okay and what was your first job out of college? What did you do? Where did you go?

[00:04:25.16] DAVE: My very first job out of college I was doing some programming and consulting for a company in Baltimore or in the area they were doing fleet transportation leasing and I helped write a program of package on paradox I guess. For a while there I had taken a summer off or at least a semester off college and had some done some computing on D base platforms if anybody's way that old. So, database programming I guess -- PC database programming for the most part.

[00:04:55.23] QUESTION: Baltimore's actually got a pretty decent -- I don't know if it did then, but it's actually got a pretty decent tech community, right PayPal's got offices.

[00:05:03.13]DAVE: There's a pretty good engineering school, they're better known for the med school and pre-med, but there's a pretty strong engineering department. I think their computer science program, which now exists is one of the top ten or something ranked, I know they have a lot of folks who do pretty well at some of the computer programming contests.

[00:05:22.24] QUESTION: Tell us how that led and what kind of

[00:05:26.24] DAVE:This is fucking boring dude, really? I really got thrown in jail three times in college and... after the third hooker, boy they really got after me. Hence the politically incorrect part.

[00:05:46.10] QUESTION: so you moved from there, you go –

[00:05:48.23]DAVE: I was a pretty smart kid in high school, but I really -- everything was pretty easy and I didn't really develop a very good work ethic. When I went to college I spent way too much time partying and playing Frisbee and pool and everything else and I kind of barely got through college and I don't know it was fun, but I probably did most of the learning after college.

[00:06:09.25] QUESTION: And tell us about, you start Aslan computing, is that right? Up in the North West? Tell us kind of how that happened.

[00:06:14.17] DAVE:Well, no I came out west so i guess when I first came out here I was actually looking to get into teaching, I wanted to do teaching for I don't know high school math and I thought hey that would be fun to do I hear there are problems finding good math teachers and I got out here and I sort of did a little research on that and I thought wow that's a pain in the ass I have to like do two years worth of I don't know part time or substitute teaching first I had to get an accreditation and all this other bullshit, I probably would have taken a huge pay cut and I was like well maybe I'll do that later. At the time I'd really been thinking about going to Japan, this is kind of late 80s and at the time Japan was really where everything seemed like tech was going and then Japan kind of blew up in the early 90s and along the way I kind of fell in love with the Bay Area it's really just you know it’s just an amazing place here. How many of you guys actually live here? Yeah, so you should count yourselves fucking lucky like it's -- I don't know, not lucky I'm sure a lot of you chose to come here, but like this is a special place and you know I hope that many things in Silicon Valley go to other parts of the world, but we should not kid ourselves, it's really an amazing community of people and a lot of creative thought and opportunity, you know probably too many white people, but you know -- a reasonable amount of diversity, a lot of brown and Asian people and some Hispanic people, not too many black people, but we have a good bit of diversity.

[00:07:46.25] QUESTION:You spent time in all these companies whether it was PayPal or Mint or the stuff you did with the Facebook fund, it seems like --

[00:07:57.27] DAVE:I've been a witness to genius I feel much like, I say I'm always Salieri to the valley's Mozarts. Hopefully I'm not poisoning any of them, but I've seen a lot of amazing shit, you know, it's kind of astonishing at times I have personal relationships at least at a minor level with the people who started PayPal, LinkedIn, Yelp, Xanga, Yamor, YouTube, don't really know Mark that well at Facebook, but know a lot of people at Facebook, several early Googlers, a bunch of folks at Twitter, it's like you know and I'm still fucking poor. Well, not completely, but I mean I don't know we're kind of getting into that post. I don't feel unlucky, you might sound like that feels unlucky, I feel like that's kind of special, but it's strange.

[00:08:54.26] QUESTION: So, let's talk about 500 Startups, which is a pretty good brand too. You had your two year anniversary this week. Congratulations, let's give it up for that, that's pretty awesome. You're doing it, you made it So, let me just quote you from a post where you talk about the founding of the company -- well one day a beautiful little unicorn farted and the next thing you know our star was born, I wonder if you could just go into a little more depth and then talk about the drug policy at 500 Startups.

[00:09:36.14] DAVE:We only mandate that you use one drug per day. I guess we skipped a part. I was a programmer, database person in the valley for about five or six years, I started a small consulting company that was mostly –

[00:10:02.29] QUESTION: You said it was boring, so I thought we were moving on -- are we going back?

[00:10:06.28] DAVE:I just want to give you some context, I was a programmer for about five or six years, I was an entrepreneur for about five or six years, I was a marketer for about five or six years, I've been an investor now, I guess where I've been paying attention for about four or five years -- a little bit longer than that where I wasn't paying attention. So I kind of have had a range or experiences at least that have given me at least some sense of the valley for tech companies particularly for being on the engineering side and the marketing side and I think that's why a lot of the way that I'm built is because of those two things.

[00:10:42.21] QUESTION: Are you the ultimate growthhacker?

[00:10:45.07] DAVE:No, I mean.

[00:10:49.14] QUESTION: No one got that joke, I guess that wasn't good -- sorry I won't try to be funny. Did you enjoy programming, did you not enjoy it -- if you could do something all day long, if you had to do oine particular skill, one particular job, what would it be? Would it be marketing?

[00:11:08.19] DAVE:Writing one liners on Twitter, that would be it. I didn't make an active choice to stop programming it was kind of like I started a consulting company and that sort of grew and gradually I had to take on more business sales project management responsibilities, one day I woke up and realized hey I haven't put any line of code down for probably two years and I started to be irrelevant so I kind of stopped doing programming because other things started taking more attention and I guess if I had to make that choice over again I'm not sure I would have done it. I really did enjoy programming, I thought I was a pretty decent programmer, I don't know if I was great. But, i liked doing other things and so that was okay. I really enjoy marketing it's fun. It's great. It's kind of a very creative process, programming was too, entrepreneurship is also, although it's harder than the other two things and investing we're still figuring out. I don't know there are some parts of it that I think are easy.

[00:12:11.03] QUESTION: What pieces do you think have the most impact on, let's say what you're doing today, was your experience at Mint, was it your experience of living through PayPal or the investing stuff at facebook?

[00:12:22.02] DAVE:My experience failing miserably at running my own company, or probably at least not having great success so I spent two yeas doing independent consulting and maybe three years growing a business from one to 20 people although it went one to twenty-five to ten to fifteen and then you know PayPal was definitely very amazing in a lot of respects I got to work with some really really smart people and you know got to part of an IPO and part of an acquisition and part of creeping bureaucracy, but and then saw several amazing companies that were launched by people who came out of PayPal, but I really emphasize that nobody give you credit for running a company that failed, in our case we were acquired, it was a small acquisition, but you know I spent arguably five to seven years doing a shit load of work for not very much money and then acquisition it at less than a million dollars so it was more like paid MBA I guess if anything else and I wish I'd had that five to seven year experience compressed to like a year or two, but there are a lot of lessons learned from that mostly just about me and understanding you know where I was failing miserably at being a leader or being a CEO or understanding how to run a company or finance or sales and all sorts of shit that maybe some of which I've learned, but that was really actually helpful, I think there were a lot of things that I learned from that experience that I would not have gotten from being employee number 250 or 300 at PayPal and you know still I think there's great experiences you get from being at a large successful company, it wasn't super large at that time, at that time it was 300 people, so you know a lot of entrepreneurs will ask me, should I go start my company right now? Or should I go join a big company and I don't think there's any set answer, I think there are great experiences that can happen from both. I just realized that when you're starting your own company probably by default you will fail in most cases.

[00:14:39.17] QUESTION: It feels like that experience you had is a pretty normal experience, right I mean we read about these guys and it's just like, man can I ever be like that and I think that to me, that experience is inspiring to me because of all the failures I've had. You get to where you're at today and had some rough experiences. I think it's nice to hear that that's normal. Or is it, is it not normal?

[00:15:08.29] DAVE:No, I think it is normal, well to the extent that people want to become entrepreneurs are normal that's probably not normal. But yeah I think it's very difficult to figure out the basic fundamentals, at least if you're trying to build an Internet type company that has some significant scale and growth potential, you know there's lots of different moving parts with that. There's product development, there's engineering design, other parts of that, there's marketing and sales, there's financing, there's managing a team, there's raising money, there's dealing with success and dealing with failure and just like most people there's no college for entrepreneurship I mean MBA programs in my opinion don't really teach you entrepreneurship and working at a big company doesn't really teach you entrepreneurship so the closest thing to teaching you entrepreneurship is doing it and to some extent I think you know maybe INAUDIBLE [00:16:08.00] and 500 and a few other places are schools for entrepreneurship at least for Internet businesses, but even tech stars and YC are seven years old, we're two years old so like I don't think anything's really figured out yet. That's maybe where we're trying to go. So, you know I would generally describe my 20 years of stumbling around the valley I'm trying to compress that time frame for other people to one or two years and hopefully not have it be as painful as my experience has -- it hasn't been painful that much, but it was a struggle for a lot of the times. It was mostly mental issues where you think you're awesome and then you find out hey you’re not so fucking awesome or you may be smart, but you're not rich and then you meet people Max [00:17:00.07] INAUDIBLE AND Erin Patzer and you know Dave Sacchs and all these other people who are like wo these guys are really fucking smart. Well I think Max has maybe had an interesting set of experiences because he won early and Slide was not quite so much a win, you know he probably made money on that, but

[00:17:25.13] QUESTION: He's made some good investments though right?

[00:17:26.13] DAVE:he probably made more money from Yelp than he did from Slide -- Erin's a tremendous entrepreneur also and had really great success by the time he was 26 or seven, I'm not sure when the acquisition occurred, so you know you're a forty year old guy hanging around with people who are 25 kicking ass and you're like what the fuck I’m an idiot. But I mean that, I think I'm a smart person, but you know the evidence doesn’t necessarily support that. It's difficult to maintain ambition at the same time as honesty. You have to be somewhat brutal with yourself to be able to learn. If you're too -- rationalization works for many things, it doesn't actually work well for learning. Entrepreneurs, I often describe entrepreneurs should be like quarter backs, you should have a short memory about getting beat, but you should try and learn from that experience. it's hard when you've been around the valley for ten or fifteen years and you haven't made your win and you're like fuck I suck, right? And you're like you know and usually it's natural we'll make excuses for why we didn't win-- oh it was that thing that happened, it's somebody else's fault. If only that VC had given me money if only that deal had gone through, you know when I hear that from entrepreneurs I sympathize, but it's also like interesting you got to try and be really honest with yourself and not move the goal post on where you -- there's the goal it's still there, the goal hasn't really changed you have and understanding taking failure and dealing with it and taking non-success shall we say and trying to learn from that when the results are very fuzzy, right? It's not easy to understand why did that business fail like was it because i wasn't a good enough leader was it because I didn't raise money at the right time did we do a deal that we shouldn't have did we build the wrong product, it's not clear evidence why you failed or why you didn't win and so it's difficult to learn from that and it's also like, you know, you start the rationalization process and it's also hard to do that, you need rationalization to sort of get you past things, but having ridiculous ambition and incredible honesty, those two things are difficult to have in your head at the same time.

[00:20:19.10] QUESTION: How do you know, when a founder has this explicit vision, this is what I'm going to do, I know this is the right thing to do, this is going to be a hundred million dollar company

[00:20:29.06] DAVE:This is bullshit sometimes, I mean i don't mean that completely. it's important to have a vision, but vision is ten percent.

[00:20:36.27] QUESTION: When it fails, when that idea -- when that hey this great thing fails -- how do you, as an entrepreneur, how do you get through that. How do you fight on to the next thing.

[00:20:49.15] DAVE:I mean you think you need to find small successes where you can and so even if the business failed, did you get a product launched that worked? You know did someone send you a note about your about page or someone -- I mean really, I'm serious, when I was at Simply Hired, I spent one night until like three or four in the morning writing this awesome about page like who the fuck cares about an about page, right? And, yet a couple of people noticed it and you know the CEO is like we've actually been getting a lot of comments about that -- sounds kind of stupid, but it's like okay that was it that was something. We had a problem with error messages where there were a lot of -- Simply Hired is a job search engine -- and when we were initially building it we had a lot of blank results for certain parts of the country for certain types of jobs we thought wow that's going to suck so we came up with funny error messages right it's like, it's sort of dumb, but you're like well we know we're not going to have results in those areas so let's be creative about the conversation and, you know it's interesting like small things like that that I do take pride in that, that was one of the things I feel like we created a voice for that particular product that felt different from other things. There were some things I did at PayPal that were sort of interesting and notable. there was this one email campaign that I actually changed that got like a 20% increase in lift or something, I'm pretty sure that made 50 or 100 million dollars for the company and I was like great, if I fuck up the rest of the time here at least I earned my stock. it's like okay I wasn't a complete asshole. So you know small victories where you can find them, but you kind of need to think about entrepreneurship is not overnight the stories told is as if success happens overnight, yeah Facebook's huge, but Facebook took seven to ten years to get where it's at. Most businesses of any scale do take at least three to five years, there are a few exceptions to that. I think whether you believe Malcolm Gladwell's 10,000 hours or if there's some other mastery component I think there's probably at least three to five years of intense entrepreneurial effort before you really get the framework and maybe in certain situations that can be compressed, but probably i would say operational experience in an area for three to five years and then entrepreneurial experience for there to five years and then maybe you have a real shot at it.

[00:23:19.26] QUESTION: Do you take that into account as you're looking at these companies?

[00:23:23.03] DAVE: We don't find a lot of folks out of college, we do it occasionally, but I generally think that most people should probably get five years work experience before they jump into being an entrepreneur, there's a couple of people who i think are exceptions to that. I mean I think it's good for them, but it's just not necessarily good for the investor.

[00:23:44.19] DEREK: It's like an expensive career fair that's what Anne INAUDIBLE [00:23:45.12] called it.

[00:23:47.17] DAVE: Well I mean given the chance to start a company or given an MBA I would say start a company you'll proabbly learn more. It would probably cost you less.

[00:23:57.25] QUESTION: What are some of the things on that subject, what are some of the things that make for a great incubator or accelerator. Are there blocks that you have to check or things that you have to have?

[00:24:12.09] DAVE: Well, I'm biased obviously. Yeah, I mean I think we're still trying to put together the recipe on that I think that you know at least for what we're doing which is probably consumer Internet businesses, maybe some enterprise, more family and parenting stuff these days also, engineering, design, and marketing disciplines are really important, those three in particular matter a lot. Probably some pitch coaching and fund raising, although if your business is doing well you probably don't need much coaching on the pitching and if your business isn't doing well then pitch coaching doesn't help so much. There's some kind of eye chart that Neval put together that was like traction, team, product, pitch or something like that they were levels of importance I probably agree with that. I don't know I'm kind of rambling here. No, no I want to talk about this a little bit. I like to hear myself talk. I think the little bit of funding and sort of the compressed time frame that part is good you may not get it right the first time with that you may need to do a couple of different iterations. i think getting design and UX components in early is important that's one of the thing that we were trying to emphasize, we usually do a design and UX review in the first two to four weeks when people come in. I'd like to think that was one of the innovations that we introduced, I don't know if any [00:25:58.24] INAUDBLE were doing that before we started doing it. We emphasize program that's physical space, the companies are there. I mean, well, I should explain that we run an accelerator program and then we invest at seed in other companies as well probably about a quarter to a third of our investing goes through our own accelerator program, another third to a half of it goes through companies who are raising seed and have been through other accelerator programs, but I think having that environment where you're around other people is important. Other people who are working on products so we intentionally wanted to get class sized to around 25 teams -- 25 to 30 teams twice a year and so there's an interesting thing when I was doing the Facebook class I taught at Stanford and then when we were running Facebook fund we saw this which is you know you think that twenty five teams is actually more than you can handle we had a hundred and ten people apply to the class we taught at Stanford and we tried our darndest to scare them out and I think 90 people sort of like were there by week two and there were 75 people there by the end of the semester. We had 25 teams, five were miserable, five were amazing and there were about five or ten that were pretty good and so the five that were amazing would have been amazing anyway the five or ten that were pretty good we think got better because they were around the five that were amazing so there's this interesting thing that you have when yo have three or more sort of outliers they tend to compete with each other and they raise the bar on each other and then the second group that might not have been successful models behavior after the first group and they level up and you have to be careful not to have too many losers otherwise everybody models around the losers and that's not good. Sorry not talking about any of you you're all awesome. The guy with the banana, definitely a fucking loser -- what up dude -- or something like that, awesome.

[00:28:16.22] QUESTION: Is that a banana subscription service, because he will invest. He just hijacked us dude, and it worked. Did you see him walk in? I was like is that a freakin' banana in the back of the room? What just happened right now?

[00:29:01.16] DAVE: The point being that there's some success rate for outliers you want enough people to have high level competition and then have other people model behavior after that high level competition and I don't think you can get that with just ten teams so there are a lot of accelerators out there who fund ten teams and I think it's actually not good, you're not going to ensure success. [00:29:32.04] INAUDIBLE is different because they don't have them there all the time they just come in for office hours, but I mean it's impressive and I thin, there's a lot of interesting stuff they're doing with scaling up to that size what’s really amazing, but we kind of chose, at least for our program, we wanted physical space and kind of thinking the 75 to 125 person tribe size was an interesting size.

[00:29:55.01] QUESTION: This was just founders? Is that what you're talking about?

[00:29:56.12] DAVE: Yeah the two or three founders occasionally a couple of non founders, but 25 teams about two and a half people maybe three people, we probably pushed the envelope on that a little bit because we have other teams there, but about a hundred people seems to work.

[00:30:12.22] QUESTION: Your first session, the first group that you did was 12 teams, the last one that you just launched was 27, is that right?

[00:30:20.06] DAVE: I think we did 12 or 14 I can't remember, we added a couple and then we did 24 and then we did 34 and we thought 34 is a little bit too big, we backed off this last group was 27, actually if felt like we could have done a little bit more, so we might push to 30 again this time and see.

[00:30:36.16] QUESTION:You think that’s the best sweet spot?

[00:30:41.00] DAVE: I mean, four iterations isn't enough to give us complete, you know, and this is in any particular instance you know so there might be different rules and different countries and geographies and other things so it feels like right now some of that magic has worked and we kind of -- some of it is just our ability to interact with people maybe if we designed that differently we could scale bigger, but yeah it feels like it's working.

[00:31:06.05] QUESTION: The startups that are graduating in this latest class and I attend your demo day last week and it was awesome. I was really impressed, and i'm not just saying that. What are these companies from this batch, what are they better at than say what have startups learned over the last couple of years that they didn't have before?

[00:31:30.06] DAVE: I think we were getting up to speed so we were you know if I can't the FB fund cycle, we've done five batches now since we are sixth that we're starting and I don't know I figure it would take three or four to just understand the dynamics we were kind of still getting our shit together ourselves so understanding how long the program is, the right set of mentors, talks, speakers, you know when do we introduce certain things, how do we get ready for the pitch session when we do design reviews so there's a lot of things that I still feel like we're iterating on our own process and trying to make better, but it felt like it was enough time I feel like the three or four month cycle is enough time, we might try to extend that a little bit we might try to do three sessions a year and that was really tight, we weren't really quite getting the cut over so now we're doing six month kind of program now, although I would say it's three months intensive and three months not so intensive, or they're focused on fund-raising and other things at that point. But, you know it's getting better and I don't know. I think we actually have our shit together at least as well as anybody else, I think YC is definitely out in front by far and you know they've had longer. I think they've optimized for evaluation at demo day and they've done a great job with that and they've obviously done a great job in filtering, selecting, and bringing companies in. I actually think we probably do more in involvement with the companies than our mentor program, that's again my bias. But, yeah I thin it's just really helpful and educational look at what's going on in the other programs we’re unusual in that we invest in other programs so we run our own, but we've most people probably don't know, but we've invested in about35 YC companies, probably about 20 tech start companies, a bunch of seed camp and angel pad and you know 10% of our portfolio is YC and we're very strong believers in kind of we run our own farm team, but there are lots of places that produce great athletes to use a metaphor, the other thing is that we're very internationally focused so about half of the teams in this batch were from other countries and we've done a lot of work I would actually say we're probably the most active fund in the valley possibly even in the US that invests outside the US with the exception maybe of funds that actually have on the ground offices in other countries, but we've probably done 50 or maybe 60 investments at this point outside the US.

[00:34:15.28] QUESTION: What advantages do those entrepreneurs have. What skillset do they have that's different than what we would see here everyday.

[00:34:21.28] DAVE: They speak other languages. The map that I usually think of is what are the global languages? No, French is not a global language, sorry. Mandarin, Spanish, English, Arabic. So, I would say the four global languages that we care about a lot are English, Mandarin, Spanish, and Arabic those are all -- Mandarin are a billion speaker languages, English is probably two billion second language speakers, Spanish and Arabic are probably about 500 maybe 600 million. Hindi is almost like a second language for most of the speakers, so it's a little more fragmented in India and then it drops off considerably I think you probably have Russian and Portuguese and German in there somewhere, but you know German and Japanese are really relatively isolated languages. Portuguese is isolated, but Brazil's a big country that's growing. Russia has you know a lot of second language Russian speakers, but that probably decays in the next 20 years. Russia has a population it's kind of interesting because it's shrinking and there's out migration so a lot of young adults in Russia leave Russia. It is a big country. You know if you kind of do the way I like to think about this is you do language block times internet penetration times average GDP times growth over time and that sort of gives you a sense of how you map out the world and if you do that then China's a little bit complicated. So it's number of speakers in that language block times current Internet penetration, which is different if you're talking about web or mobile, times average GDP per head in that territory and then you look at growth rates of all of those things -- is population increasing or decreasing, is internet penetration increasing or decreasing is GDP increasing or decreasing and that sort of gives you a playing field of you know GDP available to spend in a particular language there may be currency and country restrictions in addition to language so you know you may have a lot of Spanish speakers but they may be fragmented across a bunch of different countries and currencies and China there's probably political risk so there's other factors even though that's a big country. Japan is kind of weird because the macro picture from Japan looks really poor because the country is getting ols and GDP is flat or shrinking but the Internet market in Japan is going through the roof and there's not very many entrepreneurs in Japan competing in relation to size of market so if you're willing to learn Japanese and go be an Internet entrepreneur in Japan like the market is phenomenal and if you want to go to China and do that, you're competing with everyone, so it's like people are like China's amazing, but we actually think China is amazing, but Japan's probably equally amazing and interesting because of the relative market competition and also you have to think about as an investor how many people are trying to invest in those areas so is it over valued. We think Mexico's really interesting right now because no one is looking at Mexico and we're like wow a hundred million person country, rising GDP, you know Spanish is spoken by a lot of other people so we got a hub of Spanish kind of businesses starting in Mexico and we can expand those out and there's nobody investing in Mexico, I mean there are but not that many people and so we're kind of like wow, and people are like oh drug gangs and beheadings and all this other crap and we're like yeah whatever right it's a great place. Somebody else we ran into in Mexico is like yeah there's beheadings happening that's where all the action is and I was like that's kind of a fucked up statement, but probably correlated right?

[00:38:55.22] QUESTION: It's a lot easier to fire somebody you never have to deal with all the awkward moments. It's happened in our organization for sure. One of these companies in your latest batch billed themselves as ring central for Mexico. Are these the types of companies that generally that you're investing in? Are they taking business models that have worked from other places around the world or are they doing things from scratch.

[00:39:29.28] DAVE: It's not explicitly copy cat but I think it's you know there's a lot of businesses in other parts of the world that haven't been built yet and you know at least it's more the case that we're not investing in crazy fucking business models whereas I still think there's still a lot of crazy stupid shit that happens in silicon valley, which sometimes works, like Instagram, but like we get caught up in the wrong models a lot of the time, so most of the things we do are pretty straight forward, you know the three basic businesses that we probably invest in are you know transaction commerce businesses, subscription businesses, and lead gen businesses all of those three our models are relatively low risk on sort of revenue model, so like when you're an investor you don't want to have risk in multiple areas, it just compounds the chance against success, so probably we try and reduce product risk by looking for you know functional prototype before we invest or at least previous product success with a founder or a team. We try to limit revenue model risk by it being at least rational or focusing on a problem that someone would pay for and then most of the risk is usually team risk and distribution customer acquisition risk.

[00:40:55.12] QUESTION: And distribution is one of your temples -- talk about if I'm a startup and I'm coming in to pitch you guys, do I have distribution figured out to some degree, is that something that you guys bring a lot of expertise to the table?

[00:41:10.09] DAVE: I'm not going to say that we're going to be the magic sauce for distribution and solve all your problems, but we'd like to most of our investments look at internet platforms for customer acquisition so search, social, mobile, video, email, we're looking for something that's got easy sort of scale through some type of platform or channel so typically Google for search, at least in every place except China or Russia, Facebook and Twitter for social, YouTube for video, maybe for LinkedIn for some professional platforms, Apple and Android for mobile, these days starting to look at Pinterist a little bit more and then it kind of falls off after that, i'm not sure I mean email is a platform in some way and SMS is also but there's probably five to ten platforms of significant interest and so what we kind of thought, my partner Christine worked at Google and YouTube for about seven years, I was at PayPal and knew a lot of the you know Facebook and LinkedIn folks that moved on from PayPal, so we kind of quickly got to know most of the platforms, they're all here for the most part, there's a few I guess Amazon's not local and Microsoft isn't local these days as much, but you know with the exception of Kinect and Xbox I don't think Microsoft has figured out a great distribution strategy for it's platforms, which is kind of crazy it has a huge set of assets so you know we kind of got to know all these different platforms the people at those platforms because I ran the Facebook fund for a while and so our models is like okay we have a functional prototype you got a simple business model, you've got at least an engineer, design, marketer one of two of those three on the team, we give you a little bit of money, we try and get the product to some amount of functional use that's better and we try to help you figure out a distribution strategy that, if it isn't cash flow neutral, it at least has the possibility of being you know cash flow positive at some point in the future and then we just see who's successful, it's not always like it's us, a lot of times it's just them and it's a set of experiments we run to see who can figure it out. If they figure it out then we keep investing so I think that's the biggest thing about our model is we don't think we're that smart whereas I think most other investors actually think they're really amazing they just think they're awesome, I think that I'm going to invest in 30 companies and five of them are going to be billion dollar companies and like the evidence does not suggest that is a rational hypotheses at all and even for the people who do it once it's not a rational hypothesis to do consistently, but we think that somewhere north of 75 to 100 investments per fund you start to get to predictability. I mean, right now we’re doing 200 to 250, but we'll probably dial that down once we feel --

[00:44:20.18] QUESTION:Where are you at today?

[00:44:22.05] DAVE: 361 I think actually was the count, I'm not sure how many we wired today, but I think 361 companies total, 256 in the first fund, we're probably in a little over a hundred in the second fund probably doing about 150 maybe more than that per year probably between us and YC and maybe SB Angel, I'm not sure if you count the startup fund investments, then that's a little different and it's not a race, I don't know, it kind of is, but that's not going to help investment performance I think. There's a certain number of investments it just takes to sort of ensure reasonable amount of success, so the typical VC model is usually invest in 30 companies over four years take board seats, follow on maybe a third to a half of them and expect massive outcomes, usually billion dollar outcomes. I just think that's a really really difficult strategy. As much as I respect Peter Teale talks about power laws and all that other shit and he's right, but you're ability to figure out what's going to win is very questionable so just because there's an emerging power law for one of the 30 that you pick, you don't know when you pick usually what that is, I think that emerges after about a year or two which one's the big winners. I didn't know Wildfire was going to be a huge win when we made the investment. Yay for them, because they actually did all the work, I just wrote them a check. So, I don't know I think I'm pretty confident that our model makes sense, other people may think we're crazy, but the model itself is actually very simple.

[00:46:16.17] QUESTION: When you started, was the goal from the beginning we're going to invest, we're eventually going to invest in 500 companies, was that –

[00:46:25.01] DAVE: No, we're going to invest in a lot more than five hundred companies. We'll be five hundred next year.

[00:46:29.18] QUESTION: I know, but to say that at the very beginning. I mean, that's pretty kind of a crazy thing to say, but you're almost there.

[00:46:49.23] DAVE: Getting back to that other point, I think most VCs in the valley like ascribe to this statement, I think in [00:46:54.28]INAUBLE talks about this a lot and other people do like there's ten great companies every decade or there's like two great companies every year and most of them like 90% of venture returns are about finding those two companies and getting in there and we have to be awesome and we have to like great brand and they're thinking too small. It's a strange statement to say, but what I mean to say is I'll be damned if I'm going to be satisfied with just finding ten great companies every decade, I mean fuck you know? There's thousands of small businesses, ten to 25 million dollar a year revenue businesses that are great, they solve problems, they're really awesome and great okay, so Founder's Fund and Sequoia they'll go after the big fat front head, give me the rest of the long tail, give me your tired, your poor, your huddled masses, yearning for a viral loop and. Some of those guys are my LPs -- don't bum rush the fuckin' stage, you will not get a check. The worst way to try and get money from me is to rush up to me after this meeting. Guarantee, everybody wants to come pitch me after this meeting, I will not write you a check, that's negative influence. Do you understand that? I'm just saying that right now, so that when you come up to me and pitch me, I'll just do you remember what I said before? You're fucking stupid.

[00:48:36.01] QUESTION: What about banana split back there, does he have a chance?

[00:48:40.10] DAVE: Unfiltered pitch sin 30 seconds with people clamoring is just the worst environment.

[00:48:48.21] QUESTION: What does it take to get an investment. You don't start with Dave, you start with the team of 170 advisers, right? Is that the place to start, or is it somewhere else?

[00:48:58.03]DAVE: Or the five or six hundred founders. We mostly work through referral and it's not because we're lazy it's not because you’re awesome, we want people who you have worked with or know because it's a fucking pain in the ass to evaluate deals in you know, I've never met you before here's my deck here's my product like oh okay, yeah i can do that evaluation or I can go to the 30 other deals that I've got in my inbox that I haven't answered from people I work with who they know who think they're awesome and I haven’t' returned their emails so why the fuck am I going to listen to you? Sorry I'm being straight forward, but I just want you to understand why I'm being an asshole when you hand me your business card and say ah hi can I get your email like yes sure and I'm not going to read that,k you know? So, I hate to say it, it's not fair.

[00:49:50.21] QUESTION: That's not anything that isn't normal, that's how everybody operates right? I mean Anne was here a few weeks ago and they have the same policy on their website -- you need to get a referral, someone needs to vet you that we trust.

[00:50:02.24] DAVE: Well not everybody has as much email as I do so for like a while they'll still say that. I mean, it's like work through referral, we want to fund people who are smart we want to fund people who are founders or mentors think are smart or if you've had a working relationship with them or they're willing to put money in then we'll pay attention it's kind of basic and straight forward. Typically if you're running a business that's in a particular domain and we would say talk to other people in our portfolio who have similar functional expertise or similar customer domain we have you know 360 companies at this point and we probably got something in the portfolio that's you know somewhat similar hopefully not directly competitive. But the point I was trying to make was like the investment capital thesis as it's been constructed overt the last 30 or 40 years is fucked up you know it's like we're going to be better at picking winners than the other guy or we're going to be more awesome at attracting you because we look cool and like I don't know I don't want to beat somebody else at being you know a better back slapper or faster to the punch or you know whatever I'd rather be more helpful and operate at scale so the things we're trying to do is get better at providing education and mentorship resources that other people don't do like you know even other incubators I think we're considerably better on the amount of education, we may not be always as good at getting monetary increases in evaluation, but I think you'll learn alot more and we invest every cent we have into adding more resources to figure out those things like I challenge you to find a program that's got more people connected at Facebook, Twitter, LinkedIN, Google, YouTube, whatever has more international connections has more design resources, engineering you know there are other, a few others but there's not very many so I think it actually takes a lot of effort to put that shit together and from an investing perspective like you don't get a return on that right away so these fund that have 200 million or 500 million under management and they're taking it all home in fees like you guys are fuckheads, you're not reinvesting in your own company, like VC firms that take home big ass fees and have like ten people on staff. Shit, we have barely 40 million under management, we got ten people on staff right now we're going to have 12 we're paying ourselves shit. We better make carry because there's no other way we're going to make money, but I think we believe strongly in our own vision, you know and largely because of all the shit I went through the last 20 years, I kind of know what I wish I needed, I wish I had all this stuff and so so we're going to figure it out. Whatever that school of entrepreneurship looks like we'll be there in the next three to five years if we're not there already and I do think we'll make a difference.

[00:53:02.26] QUESTION: What seems like to the time and energy you guys have put into doing the whole, just the international thing alone, with geeks on a plane and geeks on a pontoon boat.

[00:53:14.25] DAVE: That's the best part, it's fun, it's actually easy because no one else is trying it -- I shouldn’t say that, it's not easy, but like you know there's company in Columbia that we saw today or last night I was looking at the profile and I was like growth's amazing no one's looking at this company, no one wants to invest in it because it's way outside the fucking US and I'm like great.

[00:53:35.14] QUESTION:You've been to Colombia a few times?

[00:53:38.03] DAVE: Once two years ago. I went down with the state department a couple of years back. I mean, Latin American market is huge and growing south Asian is huge and growing, southeastern Asian market is growing, east Asian market is growing complicated in some areas, there's interesting stuff going on probably int he Arabic market over the next five years I mean that's where we just made our first investment in Jordan and it probably takes three to five yeras to get the connections there but the world is not 300 million people in the US. That's where a lot of pepole are and a lot of interesting stuff, but there are six and a half billion people who are not in the US. So, right now, it's weir because we just sat down and we're like oh okay what's our differentiating aspect, we can't look like the other guys how, what's our emphasis and we're like international and women. Wow, okay -- wait a second, International and women is like 98% of everyone and I was like okay great we have two niche strategies that are 98% of the universe awesome and frankly we're crushing it on both fronts like nobody close to us on either of those. I'll give everyone else the white male American market and I'll take the rest of it.

[00:55:03.19] QUESTION: So, you've got 50 female CEOs, you've got –

[00:55:09.14] DAVE: We've got more than 50. We had 50 maybe six months ago I think we're probably way past that now.

[00:55:11.28] QUESTION: 100 cofounders you must have more, these are the numbers from your tech crunch article a few weeks ago. Who read Dave's women and tech thesis. We've actually got copies here we're handing out to everyone.

[00:55:27.20] DAVE: You mean the angel investor challenge thing?

[00:55:28.02] QUESTION: Yeah, the angel investor challenge exactly. So, first of all you have more females working at 500 Startups than males, right? In your staff. Is there a male discrimination problem? This is the hard-hitting journalism you're going to get on this stage.

[00:55:47.05] DAVE: I think our next three hires are all males.

[00:56:00.07] QUESTION: People seem to have misidentified the real problem with women investing, talk to us about what is the real problem with the investment side.

[00:56:11.28] DAVE: I don't know if there is a problem per se, it's a little bit dangerous as managing other people's money and with sharing responsibility to enact any type of affirmative action program, I think most of my LPs would have a problem with that. I might suggest there's branding advantages that gain us potential down the road, but let's not focus on that. There's not a lot of women in tech, there numbers are getting better I would say substantially in the last two years we've noticed a lot more women founders, like that has definitely changed. I don't know women in VCs some people say it's getting smaller, some people say it's growing. But the real thing that stuck out to us is there were very few women angel investors, sorry not VCs, so managing their own professional money.

[00:56:59.14] QUESTION: Is there a percentage? What percentage would you say it is any idea?

[00:57:03.08] DAVE: Relatively speaking, I see may more women founders than women angel investors and where there's a clear trend towards more women being founders I don't know if there's a clear trend towards women being more angel investors, maybe just recently and they're also not very vocal or visible about it so even though there may be angel investors out there who are women, they don't necessarily brag about it as much as guys do whether that's a positive or negative thing. The challenge is like I don't think women see themselves in that role very much because there' snot Ron Conway, I mean there is Esther Dyson and you know maybe Katarina and Marissa Mayor and a few others are notable, but there's not so many visible female investors and I think it just changes the dynamic and a lot of women that we've invested in who are doing businesses that may not be as familiar to guys whether they're kids or fashion or whatever, the typical response is they'll go pitch the guys and the guys are like oh well I'm not sure that's a big market, right fashion commerce, they know that's a big market now. But, one of our companies is doing like kid's activities and met with some male investor who i will not name who said well it's kind of a small market and I'm like you fuckhead you are such an idiot. I'm not sending anymore people to you. The student activity market, depending on how yo define it is at least 30 billion dollars just for summer camps and the amount of money people spend on kids going to karate classes, ballet lessons, music, it's like this fucking huge ass market and like where to you go on guidance on student activities there is no yelp for kids activities so like activity heros is this company I thought wow this is great it's a really big opportunity and we couldn't find VCs ready to jump into it. We found angels and then when I started calling some people like the women angels got it or at least people who were parents. So, I think it makes a difference, I think we can sort of change the sort of process. I think it's jsut a simple case of having visible role models and then things tip.

[00:59:24.05] QUESTION: Talk to us about what is the win challenge.

[00:59:26.29] DAVE: So we're trying to get women to step up and agree to do three investments of 5,000 dollars, sorry not women, anyone, to do three investments of five thousand dollars a year or more in 12 months in the next 12 months you don't have to be a woman investor, you don't have to invest ion women, although we expect some of that will occur.

[00:59:49.10] QUESTION: It's not just targeted at women?

[00:59:54.00] DAVE: I would say there are benefits to having more women investors whether they invest in men or women and there's more benefits to having investors whether they be men or women invest in women and generally we just think hey we would just like to seem ore people out there but again more selfish interest for us perhaps and helping syndicate deals with some of our companies although we don’t' care if they're with our companies or not either so yeah I think that you know I don't want to give people the wrong impression if you invest in tech companies as an angel investor you're probably going to lose your money most of us don't do it because of that, after you've done ten or 15 of them you start to get the hang of it so here's a great pitch you’re going to lose all your money, you need to spend five years figuring this shit out after about ten or 15 painful investments you might be able to not lose your money in angel investing, let's get started. You ready? Come with me. So, it's a little bit of a weird pitch, but you know most people in the valley are already crazy anyway that was really the target I was just talking women and tech it was frustrating to me that you know this is going to get me in trouble, as many women who bitch about fucking not having enough women speakers on panels or like all other crap, fucking that shit really matters not that much like first of all we ask a lot of women and they turn us down so it's really you could say it's easier -- because the same most famous women guest all the time and they really don't want to be the speaking circuit like 365 days a year and there's just not as many successful women in tech just yet so the pool is smaller and the demand is higher but like that's not the issue I don't think I think there's plenty visible examples of women founders these days anyway, but getting them funded is the problem, particularly it's not the VC problem, they need the first 25 to 250 k that's really where like if they get off the ground and they're successful then VCs will fund them if they get past that level male or female VCs will see that there is opportunity there and get it, but getting that first believer when they don't have much, that's what's really hard and even in Silicon Valley where we have so much activity it's still sort of challenging for those folks to get off the ground.

[01:02:21.27] QUESTION: So the win challenge has a total of a hundred and twenty-one people who have signed up so far and I thought I thought it was specifically for women because there was a hundred and eighteen females and randomly there's three dudes in there.

[01:02:33.17] DAVE: For some reason I think like the guys were filtering out the guys because we wanted it to be sort of steer the visibility a little bit, but maybe we'll let the guys back in.

[01:02:44.13] QUESTION: I didn't know if those guys were moving into female or whatever was going on there, but if it's for everybody –

[01:02:50.26] DAVE: For some desperate mother fuckers in the valley it's probably the only way you get a date. I'll put 5,000 dollars into your company if you'll go out with me. Sorry, don't. Already off the rails.

[01:03:05.27] QUESTION: Is your startup a grind?

[01:03:10.07] DAVE: There's days, yes. This week was good. I just want to finish that one thought. So, the thing about women and international and like we invest in a lot of places where the strategy is contrarian and the field is biased I'm not trying to fix any problem with like not being enough women founders or whatever I just think that women are probably overlooked by other investors slightly or evaluations are slightly lower so we think if we actually corner the market we'll get all the smart women to come to us and then we'll rock and like Wildfire was run by women, Slideshare was run by a woman, like Exit Moonfruit was run by a woman we've had great performance so far out of women founders in our portfolio, same thing for international probably the same thing for married co-founders, we found we had a lot of married founders in our portfolio, so wherever there's slight bias against something we actually think there's opportunity so we kind of lean into that. So, any handicapped crackhead entrepreneurs we want to invest in you.

[01:04:48.25] QUESTION: I want to just ask you about two things -- one is investing as a first career you know guys that come out of college and go straight to VC you kind of found, this is an outside observer's I know we're best friends, but this is my outside best friend observer's perspective -- we're not really best friends, we just kind of met -- is it a good idea, I mean you kind of went through this path of you were an operator, you were an entrepreneur and then you worked through all these companies, do you have an opinion on that, a take on that? Should you be an operator to be a VC? If you start out as a VC are you going to have an advantage 20 years down the road? What is your thought.

[01:05:46.05] DAVE: I think it's hard to break into VC when you're young, unless you happen to be one of those folks who gets into an MBA program at Harvard or Stanford or Warton you know and even then you probably have a long track to get to venture I've been trying to break in for ten to 12 years and finally I just finally had to start my own fund. Well, I shouldn't say that. Founder's Fund gave me a job, but Sean wouldn't hire me for marketing, I had to actually work out a deal so I could get to invest. It's sexy thing. Both being an entrepreneur and being an investor these days are like super sexy and actually most entrepreneurs and most investors fail it's like weird, right? Hey it's this sexy thing where most people fail that's not really very smart. Most investors, most venture investors, tend to people who have had success building a large company or taking a while to get there and i didn't go through either of those paths, so I'm sort of the odd ball you know I haven't had any substantial outcome as an operator. I wasn't born rich I didn't go to any of those. I have no traditional training in business or finance. that was probably why I had to start my own fund. i think there's some interesting things that you learn by being an amateur investor and then by going into it more as a career, but it's probably better to spend your time as an operator at least for the first five or ten years, you kind of want to establish domain expertise in an area first. In our case it's weird because we just happened to be a startup that's in venture. We're a startup too, I'm an entrepreneur too, I just happen to be in finance. I'm trying to disrupt my industry. We're kind of kicking ass I think, we'll see.

[01:08:08.26] DEREK: Let's give Dave a big round of applause.