Seed Capital From Angel Investors: Dave McClure, Founder, 500 Startups (Part 1)

By guest authors Irina Patterson and Candice Arnold

This is the thirtieth interview in our series on financing for entrepreneurs. I am talking to Dave McClure, an angel investor and the founder of 500 Startups, which is a seed fund and startup accelerator based in Mountain View, California.

Irina: Hi Dave, Let’s start briefly with your background.

Dave: I grew up in West Virginia and went to school in Maryland. After I graduated from Johns Hopkins in Baltimore, I came out to the West Coast.

The first two years I was a programmer and database developer. And after two years realized I couldn’t work for anybody else, so I started my own consulting company. I ran a small consulting group from 1994 to 1998. That was about 20 people.

I made pretty much made every mistake you can think of as a first-time entrepreneur. Still, I managed to get a small acquisition out of that deal. That was my first business; I was learning the ropes. It was a consulting business doing Internet, intranet, and e-commerce.

Irina: What did you focus on at that time?

Dave: It was an early attempt at building an integrated consulting business around the Web. So, we did business for a couple different companies, Intel, Intuit, I believe, and the Gap; we worked with Microsoft consulting on a few contracts and some other startups here in the Valley and at Stanford University for a bit.

We were mostly building websites, either Internet sites, intranet sites, or e-commerce sites, and we had a range of people who were network engineers, programmers, contract developers, or designers. This was fairly early on, in the mid-1990s, and not too many people were doing that.

And I learned a lot about being a small business owner and how to be an entrepreneur. We managed to get a small win out of that but probably came close to going bankrupt multiple times.

So, it was an experience in getting experience more than building a huge business. We had about 20 people and about $2 million in revenue at various points. I ran the business for the company that acquired us for about a year and a half after the acquisition.

It was acquired in 1998; Aslan Computing was the name of the company, and it was acquired by a company called Panurgy. As I said, I ran the business for about a year and a half after we’d been acquired, then decided to move on and take a vacation for the first time in about four or five years.

Irina: How did you come to be a seed investor?

Dave: After the acquisition, I was doing consulting for a few different startups, around 1999–2000. And that was really where I started doing startup consulting and advisory work. I wasn’t an investor at that point.

One of the companies I was an advisor for was acquired by Microsoft in, I guess, 2001. Then another company got acquired.  And I ended up joining PayPal in 2001 but started to think more about the whole startup scene. I spent three years at PayPal during the post-dot-com blowup years.

I started and ran the developer network program there, mostly technology evangelism, technology marketing, and education for e-commerce, developers, and merchants. I met a bunch of amazing people at PayPal. I got to understand more about how Internet startups are really run and scaled, and I learned more about venture-backed startups.

PayPal was a tremendous place to learn through a lot of great experiences. After the company went public and was acquired by eBay, I stayed a few more years and then in 2004, I left PayPal and started doing some angel investing in 2004.

Then I joined a company called SimplyHired early on and ran marketing there. I also became an investor in SimplyHired.

I’d say between 2004 and 2008, I first started doing angel investing and learning about that. I did about 13 investments over that four-year period, with about $25,000 average investment size. Some were smaller and some larger.

I put about $300,000 in 13 different startups. This was not a huge amount of money by Silicon Valley standards. Some people buy houses, and I put money into a bunch of startups.

At the time, almost all of my investments were in the Bay Area. I think one was in Seattle. A friend was running a company up there. But over the four-year period, I got a better understanding of what angel investing was all about. The first two years, I was really just trying to get an understanding and get my feet wet.

This segment is part 1 in the series : Seed Capital From Angel Investors: Dave McClure, Founder, 500 Startups
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