Dave McClure has been geeking out in Silicon Valley for almost twenty years as a software developer, entrepreneur, startup advisor, angel investor, blogger, and internet marketing nerd. He currently runs a seed-stage investment program for Founders Fund. He is an advisor or investor for several companies including Mint, RichRelevance, Simply Hired, SlideShare and Twilio, among others. He’s also founder of Startup2Startup and GeeksOnAPlane, a tech tour that connects global tech entrepreneurs. I spoke to him at the recent global geek meetup, Rethink Hawaii about his impressions of the European startup scene following his recent travels here.
Mike Butcher: David McClure, you’re known as the man with 500 hats. Explain what you do.
David McClure: Founders Fund is my primary hat at the moment and I’ve been helping them run an early stage investment program called FF Angel, which is basically a $2 million portfolio that we’re investing in companies at around $100,000 average, between $50,000 to $250,000. We’ve done 12 investments out of that fund to date; we’ll probably get to about 18 to 20 by the end of the year.
Separately, I helped run the Facebook Incubator program this summer, fbFund REV where we were doing sort of a Y Combinator TechStars-style program and we had 25 companies in that program, 22 that we put money into at around an average of about $35,000 to $40,000. So kind of like an incubator model and a seed stage model prior to doing more traditional series A&B investments.
Mike Butcher: Is that a new model? A new kind of approach in the US?
David McClure: I think it’s an approach that’s been pioneered maybe three, four years back. Certainly Y Combinator started doing the incubator model, at least the more modern form of it now. There is also TechStars and Seedcamp in Europe, and a few other vehicles like that. Then from the more seed stage investment program, Ron Conway’s been doing a lot of that stuff, either as an Angel or as a small fund for quite awhile. First Round Capital has been doing more of that. Union Square and maybe First Round Capital are at the larger size of the seed funds and then other smaller vehicles and individuals, Mike Maples, Jeff Clavier, Aydin Senkut, a few others that are managing between $10 to $50 million funds.
Mike Butcher: So you organize the GeeksOnaPlane event.
David McClure: Yep.
Mike Butcher: First of all, you did GeeksOnaPlane to Asia early this year —
David McClure: GOAP Asia in the late Spring/early Summer, in June. I went to Tokyo, Beijing and Shanghai.
Mike Butcher: And then you did Europe. So just explain what GeeksOnaPlane was.
David McClure: Well, originally it was way for me to go see my wife’s family in Japan on a regular basis and have someone pick up the tab! But actually along the way it’s turned into a really great way to network and meet with other startups and entrepreneurs and really, even more than just meeting people abroad, it’s been a great way to take people from Silicon Valley and other parts of the US and have a really interesting and educational trip. So it’s basically cultural exchange around entrepreneurship with a core group of startups, technologists, investors, and bloggers.
Mike Butcher: And where did you go in Europe?
David McClure: In Europe we had a very ambitious schedule. It started with a kick-off event in Washington D.C. where we met up with some folks from the White House and State Department and Commerce Department. Then we did Seedcamp in London which is their annual event for their new incoming class of startups. From London we went to Amsterdam for a conference called Picnic and then Berlin briefly. Prague for a little bit, in the Czech Republic. Then Paris where you also joined us and we saw a bunch of companies at Sofinnova’s offices in Paris and also held an Ignite Event and finally returned to London for the Future of Web Apps conference and then came back home.
So a very ambitious schedule in Europe; six or seven locations in just a few weeks.
Mike Butcher: So it’s probably hard to summarize, but what was some of your abiding impressions?
David McClure: Well I think there is a pretty active market still in Europe. Although, I think the popular perception is Silicon Valley is the centre of all startups and venture capital, there actually are interesting startups on the continent and in London as well. I think there is more to be discovered there. Definitely when we were in Prague and also in Berlin, I think we encountered pretty active startup communities there, but maybe not as much investment happening at the early stage startup level as traditionally in the US. So I think there are opportunities for people to do more early stage investing in Europe.
There is certainly plenty of people at the venture stage in Europe who are identifying those opportunities but I think more is probably to be done at the seed stage and maybe even incubator level in Europe.
Mike Butcher: And there’s been some talk about big VC houses like Intel Capital doing less early stage. So do you think that some people are going to fill that gap? I mean, we’ve seen the launch of PROfounders is in London looking at trying to invest across Europe, as well and one or two others. What do you feel about the situation?
David McClure: Well, when larger funds like Intel Capital say early stage they really mean series A and B, not so much Angel or even smaller seed stage. I think those statements are possibly being made more because other folks have already jumped into those areas and Intel and others being relatively large strategic funds they probably want to find places to put more capital to work in ways that move the needle for them. And I think, at the very least in Internet businesses, the trend is towards more and smaller exits. It’s pretty challenging for large funds to spend the time and energy necessary to get a meaningful return when most of the wins coming out are perhaps below $100 million exits and the ones above are very few and far between.
So I think it is sort of a natural evolution of the space for larger VC funds to pick and choose where they tend to place capital and at least particularly in the Internet space there is more innovation happening with smaller funds and at least the prospects for positive returns are much better I think for small funds than for large funds.
Mike Butcher: And specifically more towards the startups in Europe that you saw, being honest, what were some of the good things that you saw about startups in Europe and what were some of the bad things?
David McClure: Well I think the good things are that Silicon Valley has no lock on talent. So I met some very bright and promising young entrepreneurs, some of out of Eastern Europe, some from Eastern Europe who had moved to London as well. But I think there is a ton of talent coming out of Ukraine, Romania, a lot of the eastern Republics and actually even in France I was relatively surprised based on some of the tax policies, I would have thought that that wasn’t necessarily a favorable climate for startups but we met some very interesting and pretty smart folks over there — well smart in terms of developing their startups and smart in terms of optimizing for the road after tax benefit. But definitely some companies doing cool stuff and even making significant amounts of money.
Mike Butcher: What were some of the things that you thought that could be improved about the entrepreneurs or startups in Europe?
David McClure: I think just getting familiar with the process. So there is definitely room to do more in refining the pitch process and getting that down better.
Mike Butcher: You mean getting better at pitching?
David McClure: Yeah, and some of that is relatively basic so I don’t think that’s a huge difference. A lot of times people come to Silicon Valley and have those same issues, so it’s not something that can’t be addressed quite quickly. The other one, more structurally though, I think is finding the infrastructure necessary to support startups via Angel investors – not just capital but also coaching.
Mike Butcher: So mentors?
David McClure: Right. So I think you mentioned Brent Hoberman’s initiative which I think is probably right on target. Folks like him and others can add a ton of value but that’s probably more concentrated in London than other parts of Europe. And I know then we went to Prague there is definitely not as many folks supporting a relatively large community of technologists and developers there than I would have expected. I don’t know whether that was based on just culturally being less focus on entrepreneurship based on the history of that region than others.
Mike Butcher: So less of a deep history. So less layers of experience.
David McClure: Right. Yeah. And I think there is a little bit more of that maybe happening in Germany and a few other places, although still I think it’s a smaller group of folks that provide that and without their involvement I think you’d see much less activity there than otherwise.
Mike Butcher: How do you think that one could create a kind of ‘great leap forward’ in terms of the numbers of mentors, the numbers of experienced people helping and advising startups?
David McClure: I think there is probably a couple steps to that: one would be to create regional incubator programs in each of those countries where there is some small amount of capital available for people who are doing Internet startups. But in addition to the capital, getting more mentors, either folks who are based in those areas, or mentors returning from Silicon Valley or London and then spending time in those geographies.
So for example ex-Googlers or Yahoo or Microsoft or other folks who have connections to the Czech Republic, to take one country, might decide that they want to spend some time there. Or entrepreneurs who have been successful in London deciding to maintain those connections and build them up in home countries.
I think if you create that as the initial phase then more seed investment programs would happen. f you look at incubator programs as being less than $100,000 less or the equivalent in local dollars and then seed being maybe $100,000 up to a million or slightly more than that, those are spaces that I think in the last five years have been filled in by new entrants in Silicon Valley – and they’re just starting to play out in other geographies but haven’t fully flushed themselves out as much as in the States.
There’s, again, two parts to that. One is the investment capital and the other one is the expertise. I think in Silicon Valley there is a ton of companies that are doing Internet businesses at scale now and people who have been second, third, and fourth level sort of at those companies have gone out and done other things.
Myself, I was in a relatively low level person at PayPal, but there were so many people that were jumping out and doing cool things that there is a just a great model of behavior to follow and there is some hands-on experience that people from those companies can take with them. Not to say that they aren’t people from other countries in the world who are also in those environments but they’re not physical proximate to where they came from.
So a lot of the world’s talent ends up being at these large platform companies in the States or in a small geographic area or in London, perhaps, in Europe, maybe Beijing and other places in Asia.
Mike Butcher: So where are you going next with GeeksOnaPlane and, lastly, what do you see as the most exciting trends like Realtime or social games?
David McClure: Okay. So we’ve done a trip to Asia and a trip to Europe and we’ll probably do those at least once a year. This was sort of a quick trip to Hawaii and we’ll probably do other quick trips to Paris for LeWeb in early December and then I’m also going to likely take some folks back to Japan again in later in December.
Next year, I think we’re looking at doing trips either to India or southeast Asia; probably Singapore and a few other places from there and maybe central and south America as well. So I think doing the core trips to Europe and Asia maybe with some variation. I’d like to do a little bit more maybe in eastern Europe or the northern countries or perhaps Spain and Europe.
Mike Butcher: And what are you excited in terms of trends?
David McClure: So I’m a little contrarian on this in that I think a lot of the venture capital communities swing for the fences and looks for entirely new sort of platforms in technologies and trends. I actually find it’s more interesting to play in the niches and find ways to apply technology to relatively straightforward problems. So the things that I’ve been investing in over the last three, four years have been around financial services and eCommerce. So Mint.com was a company I was an investor in. I actually did some work them for a short period of time.
Other ones that we’ve done with Founders Fund have been Credit Karma, Credit Cave Karma, which helps do credit score monitoring and education and a few others that we’re looking at as well. I think other services that are infrastructure related, so a company called Twilio that helps provide a way to add phone number and phone call services, interactive voice response to websites and applications like SlideShare that helps provide business productivity tools.
Then I think an emerging trend going forward will be family and education services. I don’t think there’s nearly enough interesting ways to do education online, particularly for younger children. I have a two year old and a four year old, so I’m doing that research anyway, I might as well be investing in it.
So there’s a lot more game and entertainment and sort of music services and not as much around things like business productivity and education.
I think the risks of building those models are the same but the monetization is much more straightforward. The monetization models are very clear in those cases. So most of the risk is really more in product and distribution and not on monetization. I think that’s a way to sort of reduce some potential business risk when you’re an investor.
So a lot of it I think is adapting the investment strategies to the way that Internet companies are now being built and exited and really being a lot more nimble and I think expecting, like I said, more and smaller exits. So I like to say playing small ball, money ball for startups, more hitting more like it’s Ichiro Suzuki and less like Albert Pujols. Hitting singles and doubles all day long and not swinging for the fences on home runs as much.