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It’s Thursday night in the heart of Miami’s financial district. At Novecento, a buzzing bistro, salsa and flamenco music blast while waitresses circulate Malbec and mojitos. Businessmen in fitted European suits survey the scene.
In walks angel investor Dave McClure, fresh off a flight from San Francisco. People rush to shake his hand as he makes his way into a private room packed with bankers, programmers, and executives. After a welcome from the mayor of Miami-Dade County, McClure, clad in jeans and a wrinkled blazer over a faded red T-shirt, takes the podium to talk about his impending tour of South America. Foreigners, he tells the audience, like to complain about their countries’ lack of Silicon Valley-like entrepreneurship. “Bull-s–t!” thunders McClure. “You’re the one that’s full of s–t! You’re the one not investing in your entrepreneurs.”
“Right on!” yells a guy in the back of the room.
So began the latest installment of the three-year-old traveling venture capital show McClure calls Geeks on a Plane. After dinner and a night of partying in South Beach, the 50-person delegation, which includes entrepreneurs, techies, attorneys, and investors, flew to Mexico City, São Paulo, and Buenos Aires for 10 days of mixers, lectures, and a competition to find Argentina’s best hacker. Along the way, McClure hoped to discover a startup or two to invest in.
Over the past three years, the Geeks have visited 30 cities, including New Delhi, Shanghai, Amsterdam, Prague, and Honolulu. McClure “is becoming an entrepreneurship rock star in countries like Brazil and India,” says Vivek Wadhwa, a former software developer who has lectured at Duke University. Over the next 18 months, they will descend on Tallinn, Berlin, Moscow, Dubai, Istanbul, Tel Aviv, and Amman, as well as cities in sub-Saharan Africa. “We’re one of the few VC firms to get outside a 30-mile radius of Sand Hill Road,” says McClure.
The tour is an offshoot of McClure’s Mountain View (Calif.)-based fund 500 Startups, whose letterhead lists the 45-year-old as its Sith Lord. The fund provides early-stage startups—those just trying to figure out how to convert an idea into an enterprise—with $10,000 to $250,000, along with hand-holding from its global network of 175 mentors, including tech executives, venture capitalists, and intellectual-property experts. McClure gets paid as a general partner and collects a cut of the fund’s profits. He would not disclose the fund’s returns. Punchd and TeachStreet, which were acquired by Google (GOOG) and Amazon.com (AMZN), respectively, are among 500 Startups’ winning investments.
The fund has invested in 300 companies, including Farmeron, a Croatian startup that makes software to help farmers organize data on their livestock, and Mexico’s Ovia, which lets companies set up video interviews of job candidates. Both got the chance to operate out of 500 Startups’ 10,000-square-foot Silicon Valley workspace, where they learned from other companies in residence.
“Working with Dave gets you both generosity and adventure,” says Demian Bellumio, chief operating officer of Senzari, an online radio service that in May received $1 million from a group of funds led by 500 Startups. “It’s like joining a global family of mentors, with relationships you keep building as you grow.” In Miami, Bellumio was chatting with Adriana Cisneros, scion to the Venezuelan conglomerate Cisneros Group, who said that traveling with the Geeks is helping her learn how to better nurture her company’s media acquisitions. “Instead of just giving them money, they give them space, mentors, and coaching, says Jeff Cornwall, a professor of entrepreneurship at Belmont University in Nashville. “It’s like a minor league that feeds players into the bigger VC system.”
In April, McClure filed with the Securities and Exchange Commission for a second fund, the $50 million 500 Startups Fund II, to follow the original $30 million fund launched in 2009. “Dave gets it,” says Steve Blank, a professor of engineering at Stanford University, explaining why he invests in 500 Startups. Blank says McClure has a knack for finding and nurturing companies that are too small to command attention from traditional VCs.
Seeding numerous small investments around the world makes sense, McClure says, because at least 75 percent of tech startups don’t survive longer than three years. “Some folks will call this ‘spray and pray,’ ” he says. “But we call it going global, and not wasting money at failing. Fail on a small budget and you save a lot of money and heartbreak.” He says the recent shift toward cloud computing, which eliminates the need to buy a lot of expensive computer hardware, has helped drop the cost of launching a tech startup by a factor of 100.
Wadhwa thinks that while McClure has the right approach, he may be spreading himself too thin. “In some of the places he is investing, the ecosystem for entrepreneurial support and success doesn’t exist,” says Wadhwa. “What is needed is more mentorship and hand-holding. Dave can’t possibly provide this to the large number of startups he is investing in.”
McClure says his own career has made him sympathetic to startups. In 1988, after graduating from Johns Hopkins University’s applied math program, he worked as a software developer and started his own e-commerce business. He later jumped to PayPal, where he managed a group of Web designers and developers. McClure used $300,000 of his profits from PayPal’s 2002 initial public offering and subsequent sale to EBay (EBAY) to make small investments in 13 tech startups, including Mint.com (acquired by Intuit (INTU) in 2009) and SlideShare, which LinkedIn (LNKD) bought in early May.
In 2007, McClure co-taught a course at Stanford on building Web applications for Facebook (FB). Then, while at San Francisco venture capital firm Founders Fund, he ran the Facebook fbFund, which invested in companies developing apps for the social network. FbFund helped launch Wildfire Interactive and TaskRabbit.
After two hours of pressing the flesh at his Miami launch party, McClure finally sits down to dinner. An attendee taps his shoulder and offers a business card. “Sir,” he asks, “do you speak Spanish?” “Um, no,” replies McClure. “But I can learn. I picked up Japanese.”
The bottom line: McClure has used his $30 million fund to invest in 300 startups around the world. Now he’s raising $50 million for a new fund.