No other Valley VC does as many investments or cast its net as wide as 500 Startups. So says partner Parker Thompson, who talked to Hot Topics…
There’s a story that insiders says everything about the unorthodox approach of 500 Startups and its founder Dave McClure. During a biz dev trip to India, a serious and slightly raw young local founder was presenting his idea to the room.
Half way through the uninspiring talk, McClure piped up from the back: “Stop being so fucking boring.”
It sounds pretty cruel. But it was probably done with a certain impudent charm.
After all, that’s how McClure – who describes himself on LinkedIn as a ‘part-time Sith Lord’ – rolls. This is the VC who wears t-shirts that say things like: ‘viral marketing doesn’t work – tell everyone you know’. By all accounts, he’s very well-liked by his portfolio companies.
Anyway, shouting expletives is not what regular VCs do. However, it’s not just the profanities that make the story exceptional. It’s the fact that this particular F-bomb was tossed in India. As a rule, the big Valley VCs don’t travel too far out of the Valley.
500 Startups, however, makes a point of looking for talent all over the world. And in a flourish typical of McClure, it even created a travelling roadshow called ‘Geeks On A Plane‘.
It’s an invite-only tour for startups, investors, and executives to learn about high-growth technology markets worldwide. The aim is to help these travellers forge useful bods while travelling on a combo of planes, trains, and automobiles.
For Parker Thompson, who joined 500 Startups in 2013 as a partner, the global perspective of the fund remains a major reason for being part of the team.
“We firmly believe that talent and intelligence are equally distributed across the world, regardless of nationality or gender or class,” he says.
“But obviously, we don’t see equal outcomes because access to money, talent and connections is just greater in places like the Valley. That’s what we’re trying to address by looking overseas.”
Thompson believes 500 Startups is exploiting a market gap too. “The big Valley VCs tend not to travel, while most local VCs are just too conservative,” he says.
So 500 Startups is currently indexing developing economies and running a set of regional micro-funds — like the 500 Luchadores fund for Mexico or the 500 Durians fund for investing in Southeast Asia.
In November 2014, it announced a fresh $10 million fund targeted at mobile startups called the ‘500 Mobile Collective’. The move was clearly inspired by the smartphone revolution sweeping across the world’s growth economies.
But 500 Startups doesn’t pretend to be able to find promising targets in these regions alone, which explains why Geeks On A Plane exists.
“It’s hard to be global. I wouldn’t pretend to be able to invest in India directly. I wouldn’t know how. That’s why we work so hard to find local partners.”
Ironically, one of the things 500 Startups often does to help its overseas companies is launch it in the US. 500 Startups doesn’t invest in ideas – it seeks out firms with revenue and customers.
And it recognises that companies like this can benefit greatly from getting a crack at a huge homogenous marketplace.
He says: “The US is great place to grow a business because it one big well-developed market. So we’ll take a startup from, say, Indonesia that’s doing well in its own country and and bring them to the States.”
By casting its net worldwide, 500 Startups ensures a pipeline of investments that helps it match the promise made by its name. In fact, it’s done around 900 to date, typically putting in between $50,000 to $250,000 . Self evidently, this is a firm that aims to fund hundreds of companies.
That’s not unusual for an early stage incubator, but Thompson insists 500 Startups is not in this game – and that makes it different from just about every other fund in the Valley.
Here’s how he explains it. “We tend to do more volume than most, maybe any, other fund. But we look at making more smaller bets and taking between three and seven per cent. A traditional venture fund would do maybe ten investments a year for 20 per cent.
“That may be fair for someone investing in an idea, but as I said, that’s not what we do. But we’re not like other accelerators either because of the stage our portfolio companies are at.”
OK, so what is that stage?
“The teams that are the best fit have a team in place and a product in the market with a certain number of customers. Maybe, for an e-commerce company for example, this might be annualised $1m in revenue. We prepare companies like this for scale.”
You might think that competition for this kind of established small scale tech start-up would be intense. Not so, says Thompson.
“There can be a lack of awareness: the companies we can really help often don’t even think about going into an accelerator. They think they’re beyond that point. Our job is to find them and have a conversation about how we can help them get to that A round at a higher valuation.”
To find these elusive companies, 500 Startups ensures anyone can apply. There’s no filtering process. The forms just go on the internet.
Because of this, up to 1,000 companies apply for the 30 places at each quarterly accelerator program – with 300 more coming from in-bound referrals via existing founders.
That’s a pretty decent return from the alumni.
Proves that not everyone minds being called ‘fucking boring’.