Seed Capital From Angel Investors: Dave McClure, Founder, 500 Startups (Part 2)

By guest authors Irina Patterson and Candice Arnold

Dave: I was fortunate to have folks like Reid Hoffman and other folks as mentors or guides. They gave me a few tips. I ended up doing some consulting for  and also becoming an investor in Mint. That was one of the more notable investments that I’ve done.

Mint was acquired by Intuit last year for about $170 million. That ended up being about a 10x return on investment. And I got more into doing angel investing and less doing the consulting side. I sort of switched from charging for my time as a consultant and became more of an investor and advisor for the company, writing them checks.

For Mint I basically was working part time, one or two days a week for the first five or six months when the company was getting started, and I was helping in marketing. So, I took my consulting fees and turned right back around and wrote them a check. I’ve been considering jumping back into an operating role in a company, but we had our second child.

We had our first child when I was launching SimplyHired and our second when Mint was getting rolling. I promised my wife I wouldn’t take an exec role while at a company while we were having our second kid.

Around 2008, I started doing some work for O’Reilly and helping run a few conferences, a Web 2.0 expo and some others. I was really thinking about putting together my own small fund, then in the summer and fall of 2008, the market sort of went to hell. So, I really had to step back from trying to do fundraising and look at other alternatives given the changes in the financial markets.

Some friends who were over at Founders Fund, selected PayPal buddies, asked me to come in and help them run an early-stage investment program.  So, for about a year and a half or so, from late 2008 until early 2010, ran a small, internal angel fund for Founders Fund.

I had a $2 million portfolio. I also ran the fbFund, which was the Facebook incubator program, last summer. Between those two programs I was doing both angel investments and incubator investments. That brought me to where I’ve been focused more recently in trying to put together ideas for the new fund, called 500 Startups that we just got rolling recently.

Irina: When you ran those two funds, did you run them alone?

Dave: Pretty much, yeah. I ran an FF angel program for Founders pretty much by myself and ran the fbFund with a few folks from Facebook involved and a Stanford grad student. But for the most part, I was directing both of those programs.

Irina: So, what were your responsibilities?

Dave: Everything. I was sourcing deals, marketing the efforts, coordinating and evaluating the companies, making the investment decisions, following up with the companies. There were a lot of different efforts.

Irina: Were they virtual or location-based incubators?

Dave: The FF angel fund was a $2 million carve-out of Founders Fund II. And I did 21 investments for Founders Fund. And then the fbFund was a joint venture between Facebook, Founders Fund, and Accel Partners. It was a $10 million vehicle, but I was managing about $1 million portfolio for the summer of 2009.

So, between the two programs, I was overseeing about $2.9 million in capital. We did a total of 43 investments, 22 out of the fbFund program and 21 out of FF angel fund. Maybe a total of 35 companies or 38 – I’m trying to remember exactly – but about 43 deals in 15- or 16-month period. Fairly aggressive, but relatively small size of investments.

Irina: When did you move on to your own initiative, 500 Startups?

Dave: I pretty much wrapped up with Founders Fund in the first quarter of this year. They were very supportive of me starting the new fund, which has been great.

I spent most of the last six months talking with various folks and getting fundraising together and moving with a lot of companies.

I really just got that off the ground at the end of July. I have brought on two other folks to the team. I’ll probably make a few other hires in the next six months or so, but right now it’s a three-person team.

We’ve really been in existence for only two months, although I’ve been working on deals pretty much since I left Founders Fund at the beginning of the year. So, starting in January 2010, we were working on fundraising as well as investments.

This segment is part 2 in the series : Seed Capital From Angel Investors: Dave McClure, Founder, 500 Startups
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