Dave McClure Q&A: How to Woo 500 Startups

By David Knight |

Renowned Silicon Valley entrepreneur and super angel investor Dave McClure was in Berlin last weekend with the Geeks on a Plane. He sat down with Silicon Allee to discuss missing out on SoundCloud, why you shouldn’t chase glamour and glory and how to get investment from his incubator 500 Startups.

SILICON ALLEE: What do you make of Berlin?

DAVE McCLURE: Berlin seems pretty cool. The developing startup scene seems to have been blossoming since I was last here three years ago.

SA: So far in this latest Geeks on a Plane trip, you’ve been to Moscow, Tallinn and Zagreb. What impressions did they leave on you?

DM: They are all different scenes. Moscow is still extremely raw, but there are already a couple of larger companies… and now maybe a bunch of new startups coming on the scene. It’s still finding its feet but it is a big country with a lot of market opportunity, a lot of engineering talent. Estonia is kind of different… It has a relatively small population but there is a lot of enthusiasm for tech and startups. Croatia is somewhat similar; still a new country with an emerging tech scene with a lot of enthusiasm.

SA: We in Berlin like to think of the city as THE place to be in Europe for technology right now…

DM: It seems a lot like the New York of Europe. If London is Silicon Valley out here then Berlin is probably New York.

SA: Some who know both Berlin and Silicon Valley say that the German capital lacks big-name startups. Are there any which are well known in the US?

DM: Certainly SoundCloud seems like an up-and-coming company founded by very smart people, with a great culture. I don’t know the Rocket Internet guys that much; they’ve obviously been very successful on an economic level. Beyond that, I think we’re still learning about what companies are over here. Wooga is one that we visited on Friday; I don’t know too much about other global stories.

SA: Is this lack of recognition something which needs to change?

DM: Is it a good thing? Probably not. Does it need to change? I’m not sure. There are a lot of Silicon Valley people, not just VCs, who are ignorant of what’s going on in Europe overall, not just Berlin.

SA: Are Silicon Valley VCs becoming more international-focused in general?

DM: It does take a lot of resources; it’s very hard for a small firm to do that. We are trying to establish a presence right now in Brazil, Mexico and India. We’ve got people on the ground in each of those three geographies. We are probably looking at doing some expansion into China, South East Asia, maybe Russia, Turkey or Eastern Europe in the future. But it’s not for the faint of heart… Relative to just being in one place, it’s a hell of a lot of effort, so you really have to believe that there is some payoff with that strategy in the long run.

SA: What trends do you see in tech startups at the moment?

DM: I think there is still a lot of legs on consumer commerce in a bunch of different areas, and I think that will continue to expand… One big trend I would say is the ‘consumerfication’ of marketing in the enterprise, so using both departmental solutions on a freemium or free trial basis or SaaS hosted, looking at developer channels and API-based businesses.

Another one is using sensor data and other automatic data creation… Being able to automatically generate and collect data in interesting ways is definitely something that a lot of people are looking at. Reduced cost in producing hardware, mass custom hardware at low cost, is now starting to be combined with software; that’s actually pretty exciting.

And education is just a huge disruptive opportunity – at least in the US, getting out of traditional federal and state sales-driven processes through regulatory environments and now getting through direct to the consumer, direct to the family.

SA: Are you seeing any negative trends?

DM: People still do stupid sh*t. But that’s not a trend! I think the hype factor of startups in general is probably over the top. In general, startups is a business for passionate and crazy people because most things fail, most things don’t make a lot of money. So for people looking for glamour and glory going into entrepreneurship, it’s usually destined to end in tears. There is obviously a number of very famous and awesome stories that happen every year. But for every one Instagram or Facebook, there are thousands of other dismal failures.

SA: What advice would you give to entrepreneurs wanting you to invest in their projects?

DM: Most of our investments happen through a network of people that we know. At this point that’s a very large network; probably over six or seven hundred founders, maybe another couple of hundred mentors, lots of other co-investors. So it’s probably easily 500 or 1,000 people that are in our network. Usually we tend to trust their opinions on a lot of things. So rather than trying to pitch us directly, we always suggest you find someone with industry expertise or relevance where you can get to know them. If they think positively about you or your business, they’ll mention that to us and usually we’ll try and pay attention.

SA: You joked recently that you should play poker with potential investments, and if you win you don’t invest…

DM: Ha, we like to invest in people smarter than us!