It's almost time for Startup Grind Live where Derek talks to Dave McClure. Get ready to start hitting reload around 7pm.
Oh, no... might not be enough chairs.
Derek apparently thinks Dave McClure needs an introduction. Silly Derek. You already have heard of 500 Startups, haven't you?
Derek: Tell us about yourself.
Dave: "I'm a hillbilly from West Virginia." He went to John Hopkins for college and almost got kicked out for a not-quite legal early business venture. His father was an elementary school music teacher. He plays organ. Both of his grandmothers taught music. Dave played piano and cello.
Derek: What did you want to be in college? Study computers?
Dave: His parents didn't get him a TRS-80. Probably he started programming around age 12. He bounced around physics, EECS and finally graduated in applied math. His first job was consulting on a fleet management software piece in Paradox. (Yes, that's a 90s language. Look it up.) "This is boring, dude."
Derek: How'd you start Aslan computing?
Dave: He initially thought he'd come out here and teach high school math. Then he realized certification was a pain and didn't pay much. He thought maybe he should go to Japan, but he fell in love with the Bay Area.
Derek: You were at a lot of companies...
Dave: "I've witnessed a lot of genius."
Derek: You had your 2-year anniversary at 500 Startups.
Dave: That's not very old for a VC firm.
Derek: Tell us about the unicorn quote from Quora about how 500 Startups began.
Dave: He's been in a number of roles around here for about 5 years each. And now he's approaching 5 years of paying attention to being an investor.
Derek: If you had to do one job, what would it be?
Dave: "Writing one-liners on Twitter." He started shifting out of programming because business needs started popping up and didn't necessarily realize he was getting out of coding. He likes programming, but he's OK doing other things. It took 5-7 years to sell his first company for not a ton of money. He considers it a paid MBA, though it might have been preferable to have in a shorter period, but it was a valuable experience.
Derek: It feels like that's really more of the normal experience than Zuck and Facebook.
Dave: It's normal, to the extent that people who want to become entrepreneurs are normal. There's no college for it. MBAs and working at big companies don't teach you entrepreneurship. *Maybe* incubators educate you on that, but they're all still young. He hopes he can shorten the learning process for other people.
"It's difficult to maintain ambition and honesty."
"Entrepreneurs should be like cornerbacks. They should have a short memory about getting beat."
It's hard to be honest with yourself about failure.
Derek: When a founder has a vision...
Dave: "Vision is bullshit." It's maybe 10%.
Derek: How do you move forward?
Dave: Look for small goals. He got a lot of compliments about his "About" page at SimplyHired -- no, seriously. It was a small win. He had an e-mail campaign at Paypal that got a 20% lift and was probably a million dollar bump. Look for small victories. Most businesses take at least 3-5 years to succeed. 3-5 years in operational experience and then 3-5 years in entrepreneurship. Then you have a shot. Starting a company is preferable to an MBA.
Derek: What do you need to have in an incubator?
Dave: He's still working on the formula. Engineering, marketing and design are three things that matter a lot. A little pitching and funding coaching, maybe... if you have traction it doesn't matter as much.
Compressed timeframe for getting a product out is good, but you might need to redo it a couple times. Design and UX review early on is important. He emphasizes physical space for the accelerator. Being around other people working on product is important.
For his Stanford class: You think 25 teams is too many to handle. 5 were miserable, 5 were amazing. 10 were pretty good. Outliers tend to raise the bar for each other and can elevate the pretty good ones. You want to have people model behavior on the successful outliers.
It feels like some of the magic has worked. Some of it is just their interacting with people, which might not scale as much.
Derek: What has your latest batch of classes gotten better at?
Dave: They're still playing with the formula. The speakers and mentor mix, at what point do they introduce elements. 3-4 months feels right. They're also doing a 6 month program.
Derek: What advantages do foreign entrepreneurs have?
Dave: "They speak other languages." The 4 global languages are English, Mandarin, Spanish and Arabic. German and Japanese are relatively isolated languages. Languages (# of speakers) * Internet penetration * average GDP and then growth rates. That the basic formula, though there can be other factors.
Derek: Do your foreign investments mirror US models or do their own thing?
Dave: It depends. In many cases, basic services still need to be build, so it's not a straight copycat.
Derek: If I'm a startup pitching you, do I need to have distribution figured out?
Dave: Most of his investments look at the Internet as customer acquisition. There are 5-10 platforms of significant interest. Most of the platforms are local to the Bay. The model is if you've got a platform and a working model, they try and work with the model and the distribution. It's a set of experiments to see who can figure it out. Dave says his secret is that he doesn't think that he's that smart, while most of the investors think they're geniuses and will hit it every time.
He thinks the strategy of taking board seats and whittling down to 1 out of the 30 investments to a $1B payout is a pretty hard one to do.
Derek: Are you going to make it to 500 investments?
Dave: We'll be there next year and will invest in much more than that.
Trying to find the 10 great companies of the decade is thinking too small. There are thousands of great small businesses that make money and solve problems. Dave will happily take the long tail of the investment world.
"We usually work with referrals." He rather deal with somebody who has references he knows than try and figure out who a stranger is when his mailbox is already full. A working relationship with one of his founders is great.
The VC thesis of being better at picking winners is messed up. He'd rather be helpful at scale and educate people, rather than spending a lot of time preening and backslapping. He thinks VC firms that don't reinvest in the firm and take all the money home in fees aren't the way to go.
He was looking at a Columbian company yesterday and was happy to be the only one investing in a growth area. He just made his first investment in Jordan. (The country, not Michael.)
International and Women are 98% of all people and it's turned out to be 500 Startups' differentiating features.
Derek: You have more females than males on staff? Is there a male discrimination problem?
Dave: The next 3 hires may be men. There aren't a lot of women in tech, but that's been changing in the last two years. There are few women angel investors? There are more women founders than women angels. He's not sure there's a clear trend toward more women angel and if there are, they aren't bragging about it. Sometimes male investors don't recognize some markets (like kids) are huge markets.
Visible role models cause things to tip.
Having women speaking on panels doesn't matter as much as people think. There aren't that many really successful women in tech, so it's a smaller pool. Many times he's invited women to speak and they're turned him down -- they have too many offers. The real problem is getting women the initial money to get the startup off the ground.
Derek: Is your startup a grind?
Dave: There are days...
He likes to invest where there's bias resulting in a better valuation. International, women and married founders have fallen into this category.
Derek: What about people going into investing straight out of college?
Dave: It's hard to break into VC when you're young. It took him 10 years. "It's a sexy thing where most people fail." Venture investors tend to be people who had a success with a large company. It's probably better to spend 5-10 years as an operator. "I'm trying to disrupt my industry."
Q: At a graduation show, all the apps that took off were all the inane things. Does that make you more tolerant of dumb flailing?
A: Yes! A lot of FB apps are landing page viral experiments. One team made a half million that semester. A TA dropped out and started a company. Some of the success were about the time, FB's policies have changed. Everyone in that class was immediately hireable. The iPhone class after that also did well.
Q: As a woman building a product, what's the best way to get to the international market?
A: English to Spanish is easier. Go to Latin America. The traditional path is Western Europe and Japan. It also depends on the platform. A strongly women-branded business has easier access... or that's his theory at least.
Q: Thoughts on education as a market?
A: Education hasn't been sexy because you're selling into schools with a long sales cycle and no money. It's more interesting to him because of the iPad/mobile market are disrupting the US sales cycle for education. Now it can be direct to student/parent/teacher. It hasn't been direct before. Existing standards for education is a possible barrier.
Q: Any behavior patterns in your more successful companies?
A: They're all crazy. Passionate and crazy people are more likely to stick with it. That means of the winners, more of them will be crazy because they stuck with it. The sane and focused one are rarer.
Q: What's the balance between experience and honesty and do you have to be an asshole?
A: You don't have to be an asshole. A lot of assholes are successful, though. Entrepreneurship shouldn't be put on a pedestal. It's like being an atheist and believing in the goodness of man. It's really hard. "It's more of a disease than anything else."
Q: What are your goals on foreign trips?
A: He wanted to travel and it was a good vehicle. AKA a hack because he was poor. First trip was to Asia. It was a powerful experience, so he's done 7 or 8 big trips. Then it became about investment. Then consciousness-raising. It's taken on a life of its own.
Q: Does scarcity of capital mean you need to more fully developed products before seeking captial?
A: Maybe. Scrappy is good, but access to capital and resources is good, too.
Aaaaaaaaaaaand, that's a wrap.