I met Dave when I was interviewed as part of his "Shadow Dave McClure" contest last summer (http://www.internmatch.com/dave-mcclure-job-shadow). Getting to sit down and talk to him for 15 minutes and see how 500Startups operates was ...enlightening.
Dave definitely sees the world a little differently. I sincerely hope this business model works out well for him. On the one hand, it is a "diversify and capture the broad market" approach, but he has also done well in creating a brand for himself and 500Startups, making it an "exclusive" club to join (remember, you can't apply!), which means he ideally only gets incredibly qualified leads from his "mentors."
If markets are fairly efficient, in the long run he shouldn't make any extra money over just investing in a broad market index. But if they aren't efficient (and there is no reason to believe in the Angel space they are), creating a huge diversified portfolio of incredibly well qualified leads that he can incubate and nurture is a great portfolio strategy.
My worry is only the exit strategy and how he can prevent himself from getting diluted in the Series A; being only a minority share-holder, there is nothing that stops him from finding great companies, seeding them, and ultimately not being able to turn as great a profit as he would like because he can't liquidate and gets diluted.
Markets aren't efficient in any space ;)... (review the assumptions required for an efficient market, so see how reality violates all of them with consequences, or just look at the empirical, historical data; also see behavioral finance literature).
All existing investors/shareholders are diluted in new rounds, almost always. And all shareholders -- including investors -- in high-tech startups are minority shareholders (less than 50%), with the exception of single founders early on, typically. (Minority shareholders, investors especially, still have certain rights.)
Dave is attentive and useful as an investor, even with 250 investments to date. He's created a brand for himself and 500 that is awesome to be a part of. It's great to be a part of the 500 family/mafia and I encourage anyone who has the opportunity to do so to go for it.
As for 500s strategy, they have money for follow-on investments. They were in our convertible note but then doubled-down in our seed round. They invest 50k in each of their accelerator companies but also do follow-on in the ones that show the most promise. The strategy makes sense to me... too early to tell because none of the exits have been smashing home runs, but I certainly expect some of them to have huge returns.
One downside to their strategy is that the follow on investments can be seen as a vote of confidence. It may be very hard for a company to raise funds if passed over by the people who know them best.
Based on shear numbers, "spray" is probably accurate. But I don't think "pray" is the right word. Obviously Dave cannot give every company a substantial amount of attention but he is ridiculously attentive, has partners and has mentors.
[+] [-] choffstein|14 years ago|reply
Dave definitely sees the world a little differently. I sincerely hope this business model works out well for him. On the one hand, it is a "diversify and capture the broad market" approach, but he has also done well in creating a brand for himself and 500Startups, making it an "exclusive" club to join (remember, you can't apply!), which means he ideally only gets incredibly qualified leads from his "mentors."
If markets are fairly efficient, in the long run he shouldn't make any extra money over just investing in a broad market index. But if they aren't efficient (and there is no reason to believe in the Angel space they are), creating a huge diversified portfolio of incredibly well qualified leads that he can incubate and nurture is a great portfolio strategy.
My worry is only the exit strategy and how he can prevent himself from getting diluted in the Series A; being only a minority share-holder, there is nothing that stops him from finding great companies, seeding them, and ultimately not being able to turn as great a profit as he would like because he can't liquidate and gets diluted.
[+] [-] cloudwalking|14 years ago|reply
[+] [-] adrianscott|14 years ago|reply
Markets aren't efficient in any space ;)... (review the assumptions required for an efficient market, so see how reality violates all of them with consequences, or just look at the empirical, historical data; also see behavioral finance literature).
All existing investors/shareholders are diluted in new rounds, almost always. And all shareholders -- including investors -- in high-tech startups are minority shareholders (less than 50%), with the exception of single founders early on, typically. (Minority shareholders, investors especially, still have certain rights.)
I hope these notes help!
[+] [-] anandkulkarni|14 years ago|reply
[+] [-] davemc500hats|14 years ago|reply
500 Bazillion Startups, yo.
[+] [-] pitdesi|14 years ago|reply
As for 500s strategy, they have money for follow-on investments. They were in our convertible note but then doubled-down in our seed round. They invest 50k in each of their accelerator companies but also do follow-on in the ones that show the most promise. The strategy makes sense to me... too early to tell because none of the exits have been smashing home runs, but I certainly expect some of them to have huge returns.
[+] [-] travisglines|14 years ago|reply
[+] [-] beatle|14 years ago|reply
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[+] [-] unknown|14 years ago|reply
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[+] [-] mbtforshoes|14 years ago|reply
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[+] [-] suking|14 years ago|reply
[+] [-] pbreit|14 years ago|reply
[+] [-] il|14 years ago|reply