Seed Capital From Angel Investors: Dave McClure, Founder, 500 Startups (Part 4)

By guest authors Irina Patterson and Candice Arnold

Dave: We are a little bit different from many other programs where the advisors are primarily coming from the investor category. In our world, those are mostly coming from the operational field category. Most of our mentors are coming from engineering, marketing, or design backgrounds, maybe product or business backgrounds, not so much investors. We have a few angel investors and VCs who are mentors, but they’re more the exception than the rule.

In many cases, our mentors are founders of companies we’ve already invested in or successful entrepreneurs whom we’ve gotten to know. I think we are going to be looking at the different companies we invest in and what kind of backgrounds and industry verticals they’re looking at, what kind of skill sets are they interested in hiring for or acquiring , and try to match people up that way.

Irina: Will your mentors have any kind of financial relationship with the companies?

Dave: It’s possible. I think we would not be surprised if our mentors eventually take an investment role. But that’s not required, and our primary expectation is that they spend a couple of hours with the teams working in functional areas, maybe one or two meetings a month for a couple hours to review how the company’s doing in product development or in market development or help them with hires.

In a few cases they’ll be financially involved. We fully expect that the companies will make some advisors in a selection from among our mentors so that they might have a more formal involvement with the companies.

Irina: Will you charge entrepreneurs any fees?

Dave: Yes. We haven’t wrapped up that program yet, but we do plan to charge some kind of program fee for our accelerated program. At the same time, we’re limiting that opportunity to companies we’re already invested in. So, we are both putting money into a company as well as charging them a small program fee that’s probably around 10% or less of our investment size.

Irina: How big is the fund?

Dave: For SEC reasons I’m not at liberty to talk about the overall fund. The filing that we made is out there for public visibility, so you can check that out if you want.

Irina: Where do you get your deal flow for 500 startups?

Dave: It comes from a lot of different locations. I’m a pretty active blogger, not as much as maybe Fred Wilson or a few others, but I try to write every so often. I do a lot of events and meetings, so I run various conferences maybe once a quarter.

I run a monthly dinner series called Startup2Startup, which is a group of about 100 entrepreneurs and investors here in Silicon Valley. We’ve been doing that for about two years. I meet with a lot of entrepreneurs. Because I come from a developer background, it’s pretty easy for me to connect with a lot of technical founders, so I feel comfortable staying in the trenches with a lot of that stuff. And then because I’ve invested in a number of companies previously, a lot of former entrepreneurs whom I’ve invested in have referred other deals to me.

I’ve been doing a lot of talks about startup metrics and trying to find different ways for entrepreneurs and startups to think about how they manage product development and marketing. That’s become pretty popular over the past few years. I started giving those talks about three years ago; I don’t track it super closely, but several hundred thousand people have viewed those slides and talks and I’ve probably done the talks 50–100 times all over the country and in different parts of the world now.

Irina: What are the top conferences that you go to?

Dave: I think on the large conference side, probably South by Southwest interactive and Web 2.0Expo. Those are probably two of the largest conferences, either Web 2.0 Summit or Web 2 Expos. South by Southwest is a great conference.

I’ve definitely gone to a lot of O’Reilly events and conferences. Future of Web Apps is a great conference that Ryan Carson runs. His team does a great job with those.

And then I’ve also gone to more specialty conferences that are in the area of search engine optimization or marketing, metrics, and analytics conferences.

I’ve occasionally gone to domain business conferences and affiliate marketing conferences. There’s a great event called LeadsCon that a friend of mine named Jay Weintraub runs. It’s great way to learn more about that market.

This segment is part 4 in the series : Seed Capital From Angel Investors: Dave McClure, Founder, 500 Startups
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