Dave McClure doesn't like venture capitalists. "Most VCs don't work that hard," he says. "They think they're great stock-pickers. They're all full of shit." "Gamblers," he calls them. "Dinosaurs." There's only one he respects: himself.
McClure believes he has cracked the code of early-stage venture capital. Not because of his investments in billion-dollar companies such as Lyft and Twilio - for McClure, all this shows is that "I've gotten lucky". Rather than focusing on a few high-value companies, the traditional measure of VC success, he is pursuing a hitherto untried strategy: investment in bulk.
Since launching Silicon Valley seed fund and accelerator 500 Startups with Christine Tsai in 2010, McClure has invested in more than 1,600 companies, making "lots of little bets" at a rate that now exceeds 500 a year. "We're the most active investor in the world," he says. VCs have traditionally seen themselves as skilled craftspeople guiding carefully selected startups towards a successful exit. McClure describes 150-person 500 Startups as a factory, and himself as Henry Ford.
So what is his strategy? "It's stupidly simple," says McClure. "I bet on a lot of stuff that's low priced and most of it's going to go back down to zero. But some of it's going to go up." According to CB Insights, nearly one in 100 seed deals end up being worth more than $1 billion (£770m). So, McClure reasons, if he has 500 companies in his portfolio, he should get five unicorns.
"There's a mathematical way to get success," he says. All he needs to do is avoid making bad bets, and persuade enough startups to come on board.
McClure, 50, arrived at this thesis after two years as an investor at Sean Parker and Peter Thiel's Founders Fund. He had worked for Thiel before, as director of marketing at PayPal, before the company was sold to eBay in 2004. Joining him again in 2008, McClure went on a "pretty fucking amazing" streak, backing Twilio, Lyft, SendGrid, Credit Karma and TaskRabbit - all multimillion dollar companies with strong prospects for exits. (Twilio went public in June 2016, making McClure, who invested in its seed round in 2008, a likely return of "at least 200x": "Unfortunately it's Peter's money," he says.) But he left in 2010 feeling his success was largely down to luck.
"I turned down Uber at a $10 million valuation because I thought Travis [Kalanick] and Garrett [Camp] were lazy and rich already," he says. "I did pick Lyft, but Lyft didn't seem amazing."
Selecting unicorns was impossible, he decided: one could sense someone was clever and hard working, but even the perfect candidate failed most of the time. To announce the formation of 500 Startups, McClure published a blog post called "Moneyball for startups": like baseball's Billy Beane, he would win not with home runs, but doubles and triples.
McClure sees himself as a rebel against Silicon Valley consensus. On his LinkedIn page he describes himself as "Geek, Investor, Troublemaker, Sith Lord." He arrives to meet WIRED wearing a pink "Cat in the Hat" T-shirt - the Dr Seuss character is a personal emblem. "Everybody in the industry thinks I'm the crazy person," he complains, "shooting my guns off." But you get the sense that he couldn't stop, even if he wanted to.
Perhaps McClure doesn't need to stop, because his very political rage – witness his "Stand the fuck up" outburst at Lisbon Web Summit last week – is a tactical advantage in the battle for startup talent. At a time when rival accelerator Y Combinator struggles to explain its ongoing links with Trump-supporting Peter Thiel, McClure hopes to become the go-to destination for founders outside the Silicon Valley bro-ocracy. "If they're international they might choose us," he says. "Black or female, minority, might choose us." In June, 500 Startups announced a $25 million microfund to invest in black and Latino founders. It has funds in countries such as India, Turkey and Mexico.
McClure's brash manner also causes him difficulties. He admits that large limited partnerships - the funds which provide most of the capital for VC - have been put off by his sweary criticism of their approach, or even just by his appearance. So, as 500 Startups raises its fourth fund, McClure is trying to win respectability. In July, he took the step of releasing detailed data on 500 Startups' performance, to prove, as he puts it, that limited partnerships "should give us money". The returns showed the first fund in the second quartile, compared to all US venture capital funds. The second and third funds were in the first quartile.
For a man who says his biggest threat is "other people realising I'm right", McClure spends a lot of time and energy advertising his approach to investment. He tweets and blogs. He appears on podcasts and speaks at conferences. When WIRED meets him he has just returned from lecturing at Stanford. (Among his lessons: business school is "a waste of money".)
The interview, at a restaurant in Palo Alto, is attended by his PR. Has she ever had to stop her boss talking? "She probably thinks that what I'm doing is a little bit too complicated," McClure interjects. "I should be telling you, 'Hey, I'm great at stock picking, here's my proof'." So why doesn't he? McClure shrugs. "I would like the rest of the industry to recognise that I'm smart." (The PR, for her part, says it's "more fun that way".)
The bad news for McClure is that his message might be getting through. Y Combinator, 500 Startups' biggest competitor, has started investing in greater numbers. But McClure isn't worried. For him, the real competition isn't among accelerators, but between accelerators and traditional business. Where many people see a bubble, he sees a world in which startups are becoming the dominant form of business. "Cost of computing is cheap, the accessible audience online is very large… it's less intensive to build online businesses that can access the world."
But in the midst of all this innovation the venture system has remained largely unchanged. "It's an incredibly inefficient industry that's in the business of disrupting everybody else - but it hasn't been disrupted itself. Why is there no Amazon for VC, why is there no Google for VC? Well there is - it's Y Combinator and it's us. But we're just getting started."
This article was originally published by WIRED UK
